BAT: Buying Insurance

BRITISH AMERICAN TOBACCO'S efforts to acquire Farmers Group Insurance, Inc. could mean the insurance company's much-vaunted nonsmoker incentives will go up in smoke, according to legislators, attorneys and community activists.

BATUS, the American subsidiary of British American Tobacco (BAT), made its move for Farmers Group in January, presenting a $60 per share tender offer. In March, the offer was raised to $63 per share, making the deal worth $45 billion to Farmers Group shareholders.

But the California-based Farmers Group is fighting the takeover, which must be approved by insurance commissioners in nine states.

Attorneys for Farmers Group, the country's seventh largest property and casualty carrier, argue that BAT's potential liability as the world's largest tobacco company could jeopardize the financial condition of Farmers. They note that BAT's Brown and Williamson subsidiary, manufacturer of Kool, Raleigh and Viceroy cigarettes, is currently named in 37 separate product liability suits. An award for a plaintiff in even one of these suits, they say, could put the tobacco industry in the same position as the asbestos industry, with potentially hundreds of millions of dollars in damage payments and swiftly depleting the insurance company's $3.4 billion in assets.

Moreover, Farmers Group officials are concerned that BAT would put an end to the company's 23-year tradition of promoting the health advantages of non-smoking through its policies. During hearings on the proposed takeover in Oregon, Brian Garraway, BAT deputy chairman and senior finance director, stated that BAT might replace the Farmers Group board of directors if that board insisted on continuing distribution of a "Facts About Smoking" brochure to potential policy-holders because the brochure repeats the ubiquitous and commonly accepted warnings about cigarette smoking. "We do not agree with the Surgeon General's statement" that cigarettes are hazardous to one's health, Garraway testified.

Farmers Group is also concerned about its non-smoker discounts. The company currently has over three million such policies, saving nonsmokers approximately $122 million per year. The discounts are heavily promoted (more than $1 million was spent advertising these policies between 1984 and 1986) and have helped make Farmers one of the largest financial companies in America. Farmers Group radio ads begin "Warning: The Surgeon General has determined that cigarette smoking is dangerous to your health." The Farmers Group brochure distributed to potential policy-holders notes that "Statistics prove: Smoking can cause illness and death." Farmers Group fears this emphasis on the ill effects of smoking would be undermined by a takeover, although BAT asserts it would allow Farmers Group to continue offering non-smoker discounts. "BAT could not sell [Farmers Group] policies on the basis that 'smoking causes death' since the primary defense of the tobacco industry ... is that smoking does not cause death or disease," a brief filed by attorneys for Farmers Group states.

But Farmers Group is not banking on arguments about money and health alone. It has also raised the moral integrity of BAT as an issue. Farmers has used the hearings in Oregon to present arguments about BAT's moral fitness, taking advantage of a "public interest" consideration mandated by Oregon state law.

Farmers Group is focusing on BATs Third World operations. The company has operations in almost 40 Third World countries, and holds near monopolies on cigarette sales in several Central American and South American nations. According to a brief filed by attorneys for Farmers Group, BAT has "actively pursued a policy of promoting smoking in Third World countries," and has marketed cigarettes with higher tar and nicotine levels than are allowed in Britain or the United States. "When the world's largest tobacco company seeks to acquire the insurance industry's leading promoter of nonsmoker policies, the nature of BAT's tobacco activities ... is certainly of great importance," the brief states.

Oregon legislators, meanwhile, are pointing to BAT's activities in South Africa as evidence of its moral vacuity. "We feel BAT, with its strong ties to South Africa, is unsuitable to acquire and operate Farmers Insurance," Rep. Margaret Carter told a news conference in April. She added that the acquisition would be contrary to the spirit of the state's 1987 divestiture law. Carter, Rep. Ron Cease and State Senator Jim Hill submitted documents to the Oregon insurance commissioner claiming that BAT has failed to abide by a code of conduct adopted by the European Economic Community for companies doing business in South Africa. They say some black BAT employees receive less than the minimum wage, and that a BAT insurance subsidiary in South Africa has "failed to recognize" a black union.

It will take months for the take over to be approved or rejected by the state insurance commissioners, and either outcome will likely prompt litigation by the losing side. In the interim, corporation watchers are paying close attention to the Farmers Group defense strategy, hoping a precedent can be established that will be useful in fending off hostile takeovers by multinational corporations.

-Louis Nemeth

Pesticide Progress

JAKARTA, INDONESIA--When Indonesia banned the use of 57 pesticides in its rice fields two years ago, the agrochemical companies retaliated by laying off workers and farmers resisted, fearing they would be overrun by pests.

Today, however, the ban is working. Farmers got the same yields in 1987 using only half as much insecticide as in prior years. And the brown hopper population, which has wiped out thousands of hectares of rice in the past, seems to be declining.

"It is too early to come to any definite conclusions. But the information we have collected so far shows a decrease in the number of hoppers," said Dr. Soejitro, an entomologist with the Bogor Research Institute for Food Crops (BORIF).

The brown hopper, which sucks the sap from rice shoots, destroying the plant, is the major pest in Java's wet rice fields.

The pesticide ban came into force in November,1986, as part of an integrated pest management program for rice. It is a revolutionary new strategy in the on-going war with the brown hopper, based on the discovery that pesticides were simply breeding bigger and better superpests. (See MM, Sept. 1986, "A Better Way to Kill in a Bug Eat Bug World.")

The minister of national development, in an explanation of the new strategy in January, 1987, said, "The broad use of pesticides, a part of agriculture in Indonesia ... for some 20 years, does more harm than good because it does more to eliminate the natural enemies of pests than the pests themselves."

The program is described by Dr. Peter Kenmore, United Nations specialist attached to the International Rice Research Institute in Manila, as "the most modern, flexible and scientifically sound field pest management system in the developing world." Its implementation is possible because pesticides for rice farmers are subsidized by the government and therefore their distribution is controlled through government agencies."

The ban's objective is to maintain self-sufficiency in rice, Indonesia's most political crop. But its impact on the health of rice farmers and their environment is also likely to be considerable.

In 1977, shortly after the high-yielding varieties spread through Java, the hopper wiped out more than 700,000 hectares of rice. The farmers, in response, applied more and more insecticides, all subsidized by the government. By 1984, Indonesia was using 40,000 tons of pesticides a year on its crops, more than four times the amount used in 1979.

At the same time, Indonesia's scientists raced to develop rice strains resistant to the hopper. But research at BORIF showed that the hoppers which survived the insecticides actually laid more eggs than before, while the chemicals killed the pests' natural enemies, leading to an upsurge of super-hoppers in the next season.

As quickly as the scientists could develop a rice strain resistant to hopper attacks, the hoppers would produce a new bio-type which could munch through that strain as well.

Hopper attacks increased in 1983 and again in 1986, the year that the pesticides were banned.

Integrated pest management includes controlling planting patterns so that all fields in one area are cleared (and foodless for hoppers) at one time. Resistant varieties are planted and insecticides are used only when the hopper population rises above an "economic threshold" where the damage becomes unacceptable.

The 10 insecticides farmers are still allowed to use "were selected because they kill the hopper at the right doses but they do not kill its natural enemies," Soejitro explained.

They are also less harmful to farmers. Most of the 10 are carbamate insecticides, which, although toxic, do not have a cumulative effect on the body and are seldom life-threatening. Among those banned are the organophosphate insecticides, which are rapidly absorbed through the skin and cause a large number of pesticide deaths world-wide. (See MM, September 1985, "Pesticides Don't Know When to Stop Killing.")

BORIF has now turned its research energies toward cultivating the hopper's natural enemies. A team of entomologists are breeding three varieties of insect and one fungus which can counter the hopper.

This two-year-old research project has reached the stage where the predators are being released into experimental fields to track their effect on the hopper population. It will be another year before they are ready for general release to farmers, Soejitro estimates.

If this method of natural control is successful, it could point the way toward reducing the use of pesticides even further.

It cannot come too soon for the health of Indonesia's farmers. For years Indonesia has been a prime target for the export of pesticides which are banned or restricted in the West. Seventy percent of its total pesticide production comes from formulation plants owned by four multinationals--Bayer, ICCI, Dow Chemical and Chevron.

A recent survey by the International Organization of Consumers Unions (IOCU) discovered glaring violations of the pesticides code in Indonesia. They found toxic insecticides routinely repackaged and marketed to farmers in unmarked bags or bottles with no warnings or directions for use. They also noted unethical promotions of pesticides through lotteries and advertisements which gave no warning of the dangers of pesticide spraying. One calendar, by Du Pont, showed a model, wearing no more protection than a tight sarung, spraying a tobacco crop.

-Halinah Todd Third World Network Features -

Jesse Jackson's Corporate Justice

JESSE JACKSON IS staking out territory much ignored in this year's presidential campaign with his Corporate Code of Conduct. Despite insider trading scandals on Wall Street, never-ending exposes on military procurement fraud and reckless toxic dumping, Oval Office contenders have been remarkably silent about corporate abuse.

Jackson, however, is calling for a "new partnership" between workers and corporations, and a new ethic to govern the behavior and goals of U.S. corporations.

A prominent theme in Jackson's Corporate Code of Conduct is accountability. Jackson believes that corporations have obligations not only to stockholders, but also to what he calls "stakeholders," workers, communities and the nation itself. Jackson argues, "Corporations cannot just pursue their own profits to the exclusion of the nation's needs. We must require our corporations to rise above the bottom line." Jackson says he would require corporations to disclose information on their financial condition and their plans for future investment to appropriate government, community and labor representatives. And he would re quire corporations to consult extensively with all parties prior to any decision that would significantly affect workers or the larger community.

Jackson would also redirect the energies and capital of corporate America away from mergers and acquisitions toward more productive and beneficial projects--in the Jackson vernacular, "change this desire to buy rather than build." He would eliminate tax incentives that encourage mergers, make "greenmail" illegal and create a Merger Control Board which would "grant merger approval conditioned on a firm's committing to new investment, modernizing facilities, or providing assistance to adversely affected communities." Jackson also supports an excise tax on securities transactions to discourage speculative investment.

A major focus of the Code is the need for corporations to make a "A long-term commitment to economic growth" in this country. Jackson calls for a tripartite effort among government, business and labor to develop goals and priorities in employment, wages, prices and investment. He would also offer "protection," on a temporary basis, to industries confronted with foreign competition, provided the industry agreed on a plan to make itself competitive again. Preference in government contracting would be provided to firms meeting "certain standards" in modernization and reinvestment and worker retraining.

Central to any effort to increase U.S. competitiveness, Jackson believes, is maintaining international labor standards. The Code notes that "while the U.S. share of global exports has declined from 15 percent to 10 percent ... the U.S. multinational corporate share has remained constant at 17 percent. This shift of production to other countries pits workers in the U.S. and abroad against each other and erodes worker rights and wages everywhere." Multinationals, Jackson says, must "respect the rights of workers in the Third World ... to pursue decent wages and living conditions." Jackson would add the denial of workers' rights to the list of unfair trade practices that, under the General Agreement on Tariffs and Trade (GATT), deny preferential trade treatment and allow corrective remedies to cost advantages produced by such practices. He would also tie debt refinancing and development assistance to progress on workers' rights, wages and working conditions in Third World countries, and would deny federally-sponsored insurance coverage to multinational corporations in countries which "systematically deny" labor rights.

Jackson supports advance notice to workers of plant closings and layoffs. He would give employees "right of first refusal" in cases where a company is seeking new ownership. Corporations should "pay their fair share" of the costs of plant closings, including "adequate severance pay, extended health benefits, retraining and job placement assistance and the return of tax dollars used as incentives for the firm to locate there in the first place." In addition, Jackson would eliminate tax provisions that encourage corporations to move operations overseas, including the foreign tax credit and deferred tax payments on income from foreign subsidiaries.

Finally, Jackson would implement pay equity plans, increase protections on employee pension funds, raise the minimum wage, expand worker and community health and safety laws and strengthen employee collective bargaining processes.

Jackson's Corporate Code of Conduct has tapped a vein of popular opinion that deserves attention in the general election.

-Louis Nemeth