JUNE 1993 - VOLUME 14 - NUMBER 6
C O R P O R A T E P R O F I L E
Heart of Stone
Profiting on Destructionby Darrell Geist
From Frenchtown, Montana to Puerta Castille, Honduras, environmental health, worker safety, community stability, indigenous cultures and the integrity of forest ecosystems have been cast aside in Stone Container Corporation's pursuit of growth and profits. Stone epitomized corporate greed during the 1980s, taking on a precarious debt load to undertake a number of junk bond-financed acquisitions, and liquidating assets to pay off its corporate financiers and deal-makers. Faced with billions of dollars of debt and high interest payments, Stone sought to "externalize" these costs by busting unions, cutting wages, neglecting worker safety and health and exploiting corporate tax loopholes, Third World governments, indigenous peoples and native primary forests.
Mark Lindsay, Stone's public relations manager, refused to respond to repeated requests from Multinational Monitor for comment on Stone's corporate record, stating, "We are not going to be participating in your story." Despite the company's attempt to hide its tracks, Dara O'Rourke of the Seattle-based Task Force on Multinational Resource Corporations, says Stone's overall record is notorious. "Stone sticks out: [its] use of junk bonds during the 1980s was cavalier," O'Rourke says. "They've been willing to sacrifice the security of communities, bust unions, pollute the environment and roll back workers' pay. By and large, a corporate growth mentality has taken the company in all the wrong directions."
Once a small, family-owned and closely held pulp company, Stone climbed the Fortune 500 ladder through corporate raiding. From 1982 to 1987, Stone made 11 acquisitions: Continental Group's forest products division in 1983 for $509 million; Champion's brown paper business in 1986 for $426 million; Southwest Forest Industries for $787 million in 1987; and in 1989, Stone paid $2.7 billion for Consolidated Bathust, a Canadian newsprint giant. Later that year, Stone acquired a 49 percent interest in Empaques de Carton Titan, one of Mexico's largest manufacturers of corrugated container and molded cellulose products.
Financial giant Drexel Burnham Lambert and corporate raiders like Michael Milken aided Stone in its takeovers before running afoul of Securities & Exchange Commission (SEC) laws for their high-finance shenanigans. Stone's growth during the last decade reflected a 13-fold increase in net sales, from $411 million in 1981 to nearly $5.4 billion in 1991. But participation in the 1980's Wall Street corporate takeover frenzy carried a heavy price tag: by the end of 1992, Stone had racked up a debt of $4,105,100,000.
Roger Stone, who, according to Forbes magazine is an "ardent admirer" of Michael Milken, is family heir to and chief executive officer of the company, and the architect of Stone's acquisitions. From 1990-1991, he received $3,591,220 in salary, benefits and compensation. He held 1,021,467 shares of the company's stock as of January 1992. Roger Stone sits on the boards of the American Paper Institute, American Appraisal Associates Inc., McDonald's Corporation (Europa Carton, a Stone subsidiary, sells clamshell boxes to McDonald's in Europe), Morton International and First National Bank of Chicago. First National is Stone's stock transfer agent and part of a bank consortium with Manufacturers Hanovers Trust, Citibank N.A. and Bankers Trust which extended a five-year $400 million credit line to Stone in March 1989. Bankers Trust is also one of the top 10 corporate holders of Stone stock.
In his 1992 report to shareholders, Roger Stone declared that he plans to build Stone Container into "a world-class global paper and packaging company." His plans call for bolstering the company's core businesses of paper, packaging and pulp "through internal expansion, acquisition" and "increased productivity" - meaning operating mills 24 hours a day - where and whenever possible.
Such far-reaching rhetoric was checked on April 8, 1993 by market investors who, skittish of Stone's massive debt, dumped their shares, driving Stone's stock to an historic low of $6 a share. In 1987 and 1988, Stone's stock high was $39; it is currently trading at around $8 a share. Stone was also forced to "postpone" a $500 million stock sale and a related $ 300 million debt offering because of "perceived liquidity" problems from banks and market investors.
Reports of Stone's financial condition and possible bankruptcy have begun to circulate in the financial news world. The April 27 Wall Street Journal reports, "Some analysts feel a reorganization, in or out of bankruptcy court, is likely," and that "shareholders could end up using their stock certificates as scrap paper." In May 1993, Roger Stone announced that Stone's Canadian assets would be sold to pay off creditors and fend off bankruptcy. The arrogant, aggressive corporate growth posture Stone assumed in the fast-paced 1980s may prove to be its undoing.
Headquartered in Chicago, Stone has 68 subsidiaries and ownership in 26 non-consolidated companies operating worldwide, with 218 manufacturing facilities and sales offices throughout Europe, the Far East, the Caribbean and the Americas. Worldwide, Stone employs 31,200 people (13,900 of Stone's 21,900 U.S. employees belong to unions).
Stone makes paper bags for grocery outlets and fast food stores such as Burger King, Hardee's and McDonald's- paperboard for McKee Foods, maker of "Little Debbie" snacks; paper for Wal-Mart and Target store advertisements and inserts; pulp for Kodak photographic papers; newsprint for the Wall Street Journal, Chicago Tribune and LA. Times, corrugated containers for Ralston Purina; folding cartons for Panasonic; and molded cellulose products.
Stone is a vertically integrated company. One division supplies another with raw materials to make products; another gets the products to market; yet another sells the products to consumers. The company engages in what it euphemistically calls "related party transactions" in which Stone's subsidiaries supply materials to non-consolidated affiliates at market prices. For example, Stone, the parent company, sells roll-stock to two affiliates, MacMillan Bathurst (50 percent) and Titan (49 percent). Stone in turn buys pulp from Power Consolidated (China) Pulp Inc. (PCCPI), in which it has a 50 percent interest. PCCPI owns a 50 percent interest in the Celgar Pulp Company, a British Colombia pulp mill.
As of 1992, Stone led the U.S. pulp and paper industry in the production of container board, corrugated containers and kraft paper bags and sacks, accounting for 75 percent of total sales. Stone is also the world's largest exporter of liner board, and holds a major market position in newsprint, white paper and pulp. Stone's Seminole Kraft plant in Jacksonville, Florida is the largest U.S. liner board and kraft paper recycling facility. By 1993, when planned expansion at Stone's Celgar Pulp Company in British Colombia is complete, the facility will become one of the world's leading suppliers of pulp.
A recent merger of Financiere Carton Papier, a French company, and Europa Carton, a Stone subsidiary, will result in one of Europe's largest folding carton businesses. The Consolidated Bathurst acquisition in 1989 gave Stone a foothold in the European market through Bridgewater Ltd., the largest newsprint mill in Great Britain, and Europa Carton AG, the largest packaging company in Germany. Stone's European strategy, according to Business Month, is to "buy or enter into joint ventures with container companies in Belgium, France, the Netherlands, Spain and the United Kingdom." According to the company's 1992 annual report, Stone's strategy is to establish itself within the heart of the European market in order to fuel increased demand for its North American-based products.
In addition to its primary business, Stone owns substantial interests in the transportation industry, including Abbeville-Grimes Railway Corporation, Apache Railway Corporation, Atlanta & Saint Andrews Bay Railroad Company, Central Louisiana & Gulf Railroad Corporation, Northern Louisiana & Gulf Railroad Corporation, Stone Aviation, "Trans-Seal Corporation and Orangeburg Trucking Incorporated. Stone also owns the Canadian-based Gamache Exploration & Mining Company Ltd., a communications subsidiary in Delaware, Stone Communications, the Bermuda-based Southwest Forest Insurance Company Ltd., Nepisiquit Real Estate and Fishing Company Ltd., leasing Subsidiaries in New York - Cousins Leasing-and Germany-Leasing-Kontor Fur Investitionsguter- and a joint venture trading company in Tokyo, Stone Container Japan Co. Ltd.
Stone has an appalling record of workplace health and safety standards violations at its 145 U.S. facilities. Three workers have been crushed to death at Stone's Jonesboro, Lousisiana mill since 1991 as a result of the company's failure to lock out two paper-winder machines (in violation of OSHA regulations) so that it could not be turned on during maintenance. From 1986 through 1991, the Occupational Safety and Administration (OSHA) cited Stone 706 times for worker safety and health violations. Twelve of these citations involved "willful violations" of OSHA standards - in which the company showed "intentional disregard" for the health and safety of its workers - at the company's Frenchtown, Montana mill.
On May 14, 1991, a 170-foot recovery boiler at the Frenchtown mill exploded, injuring three workers and killing Larry LaCasse, who was hit by a high temperature mixture of steam and chemicals. OSHA cited Stone for allowing the Frenchtown workers to enter the boiler area without protective gear. Denver, Colorado administrative law judge Benjamin R Loye, agreeing with Stone's expert witness that it would not be "practical" to require consistent use of protective gear near boilers, dismissed the citations and $5,000 fine. Robert Culp, a 22-year employee of the mill and member of United Paper Workers International Union Hellgate Local #885, was angered by the ruling, saying, "Larry LaCasse would be with us today if he had the proper protective gear with him and on him." The LaCasse family received $60,000 from a union insurance policy and will be paid $150,000 more over a 10-year period from workers' compensation. "Not a hell of a lot of money for a man's life," says Culp. The local union and OSHA will not appeal the ruling.
SEC documents show that Stone declared a "pre-tax gain" of $17.5 million in 1991 as a result of the Frenchtown boiler's "involuntary conversion." The "gain" was attributed to the second quarter of 1991 and nearly wiped out a loss that Stone might otherwise have reported.
Stone's egregious worker relations practices extend beyond its workplace safety record. In February 1992, Stone Consolidated announced it would close its Bathurst-New Brunswick mill if workers there refused to accept concessions including cancelling a 5.5 percent wage increase that was scheduled to go into effect May 1, 1992, and agreeing to a 20 percent pay cut. After the union refused, Stone shut down the mill placing the jobs of 1,150 mill workers, loggers and truckers in limbo. The mill went back on-line only after the provincial government of New Brunswick stepped in with a $3.5 million (Canadian) bailout to pay the company for the amount of concessions it failed to extract from the union.
Singing Green, Spewing Toxins
Stone offers its recycling program as proof of its green environmental record - in 1992 the company recycled 2.4 million pounds of container board and other packaging materials. Stone also appears to be appropriating environmental rhetoric to sell its own products. It has six design and research centers in Illinois, Georgia, Quebec and Germany, for example, to create and market "consumer friendly" products. Stone's "Good News" retail and fast-food bags made from 20 to 65 percent newspaper stock are appearing in stores nationwide. People dressed in foam costumes will be publicly representing "singing grocery bags" to extol the virtues of (Stone's) paper bags. According to Stone's public relations department, "The walk-around bag character helps educate consumers that paper bags are the right environmental choice."
However, the company's record makes clear that its commitment to the environment is little more than superficial public relations. Stone has attempted to ravage forests in the United States and worldwide, and its mill production processes release millions of pounds of toxic chemicals into the environment each year.
The Environmental Protection Agency (EPA) reported that Stone's U.S. facilities discharged 23,781,239 pounds of toxins into the environment in 1989: 13.7 million pounds into the water, 7.6 million pounds into the air, 2.4 million pounds deep-well injected or left on-site and 8,820 pounds of toxins transferred off site. Stone's toxic releases for that year were nearly three times the industry average, according to data compiled by the New York-based Council on Economic Priorities. The effects of the chemicals spewed out by Stone range from teratogenic (causing severe birth defects) to acutely toxic to carcinogenic. The EPA has brought a class action lawsuit against 33 companies, including Stone, for the harmful discharge of dioxins, a carcinogenic by-product of the wood pulp bleaching process. Stone has refused to participate in the EPA's Industrial Toxics Project to halve the discharge of 17 targeted chemicals by 1995.
Stone controls 11.8 million acres of forests in Canada and 1.7 million acres in the United States through a "land assistance program" with private timber landowners. Stone provides landowners with forestry management services, and the landowners in turn provide timber for Stone's mills. In 1992, 18 Stone mills processed over 541 million board feet of lumber and 551 million square feet of plywood and veneer, mainly for the construction and furniture industries. As of December 31, 1992, Stone owned approximately 14,000 and 343,000 acres of "private fee timberland in the U.S. and Canada, respectively, feeding production at 18 mills in North America," according to SEC documents. A company brochure spells out the Stone theory of forest management: "[Y]oung, healthy and growing trees generally do a better job for the environment than older ones, because the growing process causes the absorption of carbon dioxide." Such a simplistic and disingenuous corporate attitude toward old growth forest ecosystems has led environmentalists to lock horns with Stone over forests from Honduras to Colorado.
Sandy Shea, of Ancient Forest Rescue, a Boulder, Colorado-based grassroots group which has clashed with Stone over the logging of Colorado's old growth forests, says, "They continue to take timber way out of proportion to what's left. Stone is the last in a long list of multinationals to cut the remaining 5 percent of Colorado's old-growth forests." Shea says Stone has outbid small, local mills that use less timber and employ more workers on timber sales in the San Juan National Forest to feed Stone's South Fork mill, which consumes 25 million board feet of timber each year. Shea sums up Stone's timber strategy: "Unfortunately, it's the classic liquidation mentality: maximize the take from the forest, get it while you can, then lay people off."
Stone has been eyeing forests outside of the United States as well. In late 1991, Stone came under international scrutiny from several non-governmental organizations for an agreement between the company and the Honduran government which they said smacked of colonialism.
The deal - rejected by the Honduran government in February 1992 - would have effectively privatized 2.5 million acres of native pine forest, covering a 150-mile radius - more than half of Honduras - around a planned mill in Puerto Castille near the Mosquito Coast. Indigenous people, including the Tawaka, Miskito, Pech and Sumo, were shut out of negotiations. Stone was able to extract a cornucopia of concessions from the Honduran government including: infrastructure (roads, water and electricity), a 40-year "lease" to cut the forest and the granting of most of the government's forestry management rights to Stone. "Stone got everything; Honduras got nothing," says O'Rourke [see "Stone Axes Honduras," Multinational Monitor, March 1992].
Pam Wellner, who led the San Francisco-based Rainforest Action Network's campaign against the Stone/ Honduran deal, denounces Stone as "colonialistic and paternalistic. [Stone's executives think] they can go into a country, buy people off, align themselves with dubious business[people] and contrive a way to make quick profits," at the expense of Hondurans, the rainforest and indigenous people. Wellner cautions that such a deal may still be viable. "Honduras is in the midst of re-organizing the whole land system. They're going into the privatization mode where any corporation can buy up land." Honduras's new Finance Minister, Carlos Chahin, has publicly stated that multinationals like Stone will be allowed to operate in Honduras under the new privatization law.
Stone has also stood to profit from S30 million the Canadian International Development Agency provided to Cohdefor, Honduras' forestry agency, to maintain the health of Honduras's forests. In the Toronto Globe and Mail, Sarah Cox, a member of Canada-Caribbean-Central American Policy Alternatives, exposed this hidden subsidy, pointing out that "the benefits accrued from two decades of forest management [would] end up in the bank account" of Stone.
Stone's Throw Away
A corporate policy of greed and arrogance has brought Stone Container within a stone's throw of bankruptcy. The company is now scrambling to cover its huge debts, with impacts falling hardest on workers and the environment. Its rise and fall may become a case study in how not to do business, comments O'Rourke, who notes that "$3.5 billion in junk bond debt has caused Stone to shut down facilities, close small businesses and sell off assets to shore up its U.S. businesses." Fast money, a corporate takeover mentality and greed lured Stone into a high-finance crisis from which it may not be able to escape. As Shea points out, "Stone comes from a wasteful era. They will go by the wayside."
Darrell Geist is a journalist for Cold Mountain, Cold Rivers, a grassroots media group based in Missoula, Montana.