Dewey
+ 14
FEB
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
HAZARDOUS WASTE IS EVERY MANAGER'S PROBLEM
Gordon
F.
WP1740-86
Bloom
January, 1986
MASSACHUSETTS
50
MEMORIAL
DRIVI
CAMBRIDGE, MASSACHUSETTS 02139
5
1987
HAZARDOUS WASTE IS EVERY MANAGER'S PROBLEM
Gordon
F.
Bloom
WP1740-86
January,
1986
HAZARDOUS WASTE
EVERY MANAGER'S PROBLEM
IS
Gordon F. Bloom
Superfund law but few
Most executives have read about the Federal
worry about it. There
waste
hazardous
that
industries
is
but has
a
is
general perception in the business community
problem
major
a
for
and
decisions for the balance of this decade and beyond. Whether
is
"high
tech"
or
financial,
conglomerate
or
the
oil
hazardous wastes
costs
onerous
with
economy
American
the
face
of
and
Nothing could
little relevance to most businesses.
be further from the truth. The problem of disposal
will
chemical
the
local
difficult
company
a
cleaning
dry
store, the impact of the federal Superfund law and its progeny of state
imitations cannot be ignored without peril.
highlight the far-reaching applicability of
A few examples will
laws controlling the disposition and removal
A major
build
a
center
cash
day
the
been
has
polluting
waste
grants
bank
a
built
pursuant to the
land
on
nearby water
flow from the
receives
owner
source.
provisions
center
is
from
buried
which
a
In
General
1984,
the Ajax
Company.
General
developer
is
the
state
leaky
oil
law.
provide funds
is
a
all
of
that
the
tanks
are
the
capital
profitable company with
Since
to
the
comply
on the mortgage,
A good loan has suddenly become a bad
Company buys
to
ordered to clean up the
with the state order and to pay interest and principal
the developer defaults.
a
state Superfund
insufficient to
is
to
built and operates successfully
The owner
of
hazardous wastes:
loan
notice
a
on
of
mortgage
a
shopping center. The center
one
until
savings
a
loan.
stock
of
the
clean balance
-2-
sheet
and
could
pose
consumnated
engaged
not
is
any
in
few
business
years
in
after
hazardous
which
acquisition
wastes
a
problem.
—
during which Ajax continues to carry on the business of
General
--
a
damages
in
the
suit
A
brought
is
millions
the
by
dollars
of
the
state
for
dumped by a former subsidiary of General
against
cleanup
acquired by Ajax,
state
finds
somewhat similar to the above example,
been
has
it
been
claiming
General
allegedly
wastes
of
many years earlier.
facts
that General
has
the
When
Ajax. On
sues
the Supreme Court of New
Jersey recently held that it was proper to hold
successor corporation
a
liable.
In
Kansas City,
the
government
federal
is
seeking to
clean
up
a
five acre dump that was improperly operated and allowed toxic wastes to
leach
the
into
areas
groundwater
's
and
then
into
Missouri
the
River.
The Government originally sued the company that operated the site but
when
it
became
apparent that
the
operator
could
pay
not
cleanup
the
sued four companies that had allegedly deposited waste
costs
it
dump:
Armco,
Western Electric Co. and
FMC Corp.,
Inc.,
IBM.
the
at
Under the
terms of the federal Superfund law, any one of these companies could be
required to
companies
and
pay
used
several".
the
the
full
dump.
costs
of
the
cleanup,
though
even
Liability under the Superfund
with
Companies
"deep
continuing target of both federal
and
pockets"
are
law
likely
about 300
is
to
"joint
be
a
state government cleanup suits,
even though their output of hazardous waste is minimal.
The greatest
companies
fall
on
even
these
impact of hazardous waste legislation will
which
companies
are
have
generators
not
fully
of
hazardous wastes.
recognized
how
such
obviously
However,
laws
will
-3-
affect such diverse elements
compensation
new
plans,
accounting,
company policy as internal
of
development,
product
This
acquisitions.
and
article explores some of the widespread ramifications which the problem
of
disposal
waste
hazardous
have,
will
the
in
on
waste
hazardous
waste
under
year
the
years
ahead,
generators and so-called "clean" companies.
The Extent of the Problem
About
Federal
much
million
regulation
States
has
relied
on
percent
had
an
of
abundance
disposal
land
to
hazardous
vacant
of
Today,
is
national
as
hazardous
Europe,
In
each
waste
and
going
to
have
to
waste.
extent
available disposal
decide
how
of
waste
generated
will
50
the
unknown
but
substantial
United
business
has
companies
in
percent of waste
is
than
land
become
sites
disposal
increasingly
two-fold crisis. First, the country
a
to
safely dispose
necessitate
of
newly generated
Efforts to reduce the
new
capital
equipment,
changes in product formulations and methods of production. All
entails
United
the United States.
in
waste so as not to endanger future generations.
amount
Because
American
land,
about
in
has been used for as
policy seeks to restrict use of
American business faces
scarce,
of
greater
much
a
burned compared to only 15 percent
for
tons
generated
are
regulated
industrialized nations.
other
metric
about one ton per capita. Land disposal
80
as
275
to
State
and
—
States
255
costs
for
large
segments
of
of
this
American
industry. The second aspect of the problem, with which this article is
primarily concerned, relates to the cost of cleaning up the waste which
-4-
we have accumulated in the past and which now threatens to contaminate
our
underground
EPA
The
supply.
water
improper
30,000-50,000
probably
estimated
has
dumps
waste
in
the
there
that
are
many
nation,
of
which may be leaking into wells and aquifers.
how serious the problem
The problem is that no one knows
to
rectify
how much
or
it,
Estimates
cost.
will
it
the
of
how
is,
aggregate
cleanup cost change from day today. The Office of Technology Assessment
has estimated that
sites which OTA believes require cleanup on a priority basis
disposal
to
might cost $100 billion to clean up about 10,000
it
protect public health. Some dumps are as much as 100 years old. No
one knows where
the
all
dumps are, what
them, or what reactions
in
is
may have occurred over time among otherwise harmless substances.
The primary generators of hazardous waste are producers of primary
tanning
leather
High-tech
industry
recognized
section,
as
finishing,
and
—
major
a
generators
of
once
batteries,
welcomed
polluter.
hazardous
As
as
a
will
waste
and
clean
be
may
explosives,
finishing,
inorganic
chemicals.
—
business
pointed
face
and
and
dyeing
textile
electro-plating,
refining,
petroleum
pesticides
including
chemicals
organic
metals,
out
enormous
liabilities for cleanup costs under state and federal
in
now
is
the
next
contingent
legislation, even
though they disposed of their waste in accordance with all governmental
regulations
endemic
the
in
in
our
business
effect at the time of disposal.
economy that
and
waste generation.
decisions
its
of
presence
companies
and
that
But buried waste
possible dangers
is
so
impact
have no relationship to
-5-
The Legislative Background
A
number
the
Comprehensive
restrictions
impose
statutes
federal
of
disposal
the
on
the Resource Conservation and Recovery Act
of hazardous waste:
Compensation
Response,
Environmental
(RCRA);
Liability
and
and the Toxic Substance Control Act.
Act(CERCLA); the Clean Water Act;
The first two statutes are of immediate concern to the subject of this
article.
Resource Conservation and Recovery Act of 1976
This Act
regulation
store,
solid
dispose
or
defined
provides
of
hazardous
comprehensive program for the management and
a
waste.
of
No
person
covered
by
waste
without
a
hazardous
waste
waste
solid
any
as
permit.
that
may .treat,
Act
the
The
EPA
any
of
has
corrosivity, reactivity,
has
the
following characteristics:
ignitability,
toxicity,
or
list
1985, the
coverage of the Act was extended to small
the
dry cleaning establishment must now keep records and obtain
local
is
on
EPA's
of
hazardous
wastes.
of
As
E.P.
August
businesses.
5,
Even
necessary permits as long as it falls within the threshold coverage of
the Act -- generation of
month,
the equivalent of
a
minimum of 220 pounds of hazardous waste per
about
half of
55
a
gallon drum. RCRA imposes
hefty civil and criminal penalties for violations of the Act.
The 1984 amendments
Perhaps
most
enunciating
RCRA made
to
significant was
a
fundamental
a
in
number of changes in the Act.
statement contained
change
disposal .When RCRA was passed
a
in
1976,
national
it
was
be safe to dispose of hazardous waste on land.
the
in
policy
thought
in
amendments
toward
waste
principle to
The amendments indicate
-6-
that
now
Congress
considers
certain
that
classes
disposal
land
of
involve an unaccaptable risk to human health and environment and should
be sharply restricted.
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (CERCLA) -- The Superfund Act
This Act does not establish standards or permits to regulate.
Instead,
gives EPA broad authority for
it
established
industry
and
remedial
action
charge
and
action
parties.
EPA also
cost
necessary
the
recovery
cost
a
The
to
authority to
has
undertake
to
the
bring
and
("Superfund")
fund
government.
federal
the
requisite
parties
billion
$1.6
a
achieving cleanup by persons
The Act, as originally passed,
deemed responsible under the Act.
EPA
jointly
by
removal
take
can
Superfund
or
can
it
or
take
against
responsible
requiring
responsible
suit
issue orders
removal
financed
measures.
Congress is debating the extension of the Act and it
At
writing
this
likely that the
is
clean-up fund will be substantially augmented.
Four categories of persons may be held liable for costs for removal
and response costs under the Act:
from
which
release
a
a
person
arranged
substances
or
for
the
arranged with
a
treatment of hazardous waste:
to the site
There
release
of
emanates;
b)
facility
a
owners
facility when hazardous wastes were disposed of;
operators of
who
threat
or
owners and operators of
a)
disposal
or
treatment
of
and
any
c)
hazardous
transporter for transport or disposal
d)
a
or
transporter of hazardous substances
at which the release occurred.
is
considerable
respect to the manner
in
ambiguity
in
the
language
of
the
act
which it imposes liability, and it will be
with
-7-
some time before
clarify Congressional
courts
the
intent.
However,
as
administered by the EPA the following three principles apply:
There
1)
there
is
substances
liability.
strict
is
release
a
liable
is
owner
An
threat
or
though
even
release
of
hazardous
of
nothing
had
he
which
from
land
of
do
to
with
disposal of waste on the site. A company which delivered waste
to a reputable contractor for transport to a licensed landfill
may be liable under CERCLA if the landfill
2)
Liability
is
leaks.
This means that
joint and several.
a
company
which was responsible for only a small portion of the quantity
of waste placed in a landfill may be held liable for the cost
of removing all
3)
The
act
is
the waste.
of
without
apparently
retroactive,
limit.
If
company can be proved to have disposed of hazardous waste
the past which creates
for
its
within
now
removal
three
provision,
years
more
a
problem today,
long
as
discovery
of
than
suit
as
any
which
other,
in
can be held liable
it
brought
is
the
of
a
loss.
casts
against
It
a
is
it
this
contingent
liability on the balance sheets of much of American industry.
Like RCRA,
The
government
remedial
this Act
can
seek
also
provides civil
reimbursement
for
and
all
criminal
costs
of
penalties.
removal
or
action and damages for injury to or loss of natural resources.
Willful violation of an administrative order to clean up may result in
penalties
response
of
costs
$5000
per
may be
day.
Punitive
levied where
cause to provide removal or remedial
a
damages
person
of
three
fails without
action when ordered.
times
the
sufficient
-8-
State Legislation
The
slow
pace
cleanup
of
EPA
by
under
CERCLA
sites and recover damages from parties responsible.
similar to CERCLA,
are
has
their own Taws permitting them to clean
states to pass
but
some
are
led
up
some
Most of these Acts
more stringent.
Like
a
result of
leakage from
federal
the
laws, most state laws do not provide compensation for personal
suffered by individuals as
33
unsafe dump
injuries
hazardous waste
a
site.
Proposed Federal Legislation with Respect to Toxic Torts
Under present federal
and state
laws
who has allegedly sustained personal
substances
hazardous
of
damages.
It
is
from
it
difficult for
injuries as a result of
landfill
a
is
difficult to determine who
to
is
win
court
a
the defendant;
person
a
a
release
case
for
proof of
causation is complicated by the fact that cancer and other diseases can
be
caused by factors
long
other
than
exposure
to
hazardous waste;
and
the
latency period of disease resulting from such exposure may result
in claims being filed after the expiration of the applicable statute of
limitations.
introduced in
A number of bills relating to this problem have been
the
House
and
Senate,
but
enactment
is
most Congressmen recognize that there is
for
innocent persons who have been
waste sites,
unlikely
a
at
this
time.
While
need to provide some remedy
injured by releases
from hazardous
they are constrained by the knowledge that an effective
remedy might open the gates to
a
flood of claims which could dwarf the
current asbestos litigation and lead to the possible bankruptcy of many
major industrial corporations.
9-
Strategic Implications of Hazardous Waste Regulations
Corporate
long
plans
strategic
range
possibility that the hazardous waste problem will
with
Times
like
towns
There
passing year.
each
important
Beach,
water
Missouri,
supplies,
process
the
goods,
industries,
particular
of
generate
hazardous
the
of
will
waste
have
will
price
of
structure
of
the
the
available
in
regulatory acts.
costs
waste.
Landfill
disposal;
eight
will
proper
times
become
more
disposal
remains
by contrast
to
absorb
incineration
expensive
increasingly
reduction
or
expensive
least
the
on
three
classes
the
expensive
is
hazardous
of
method
of
estimated to be about
average. However, landfill
because
of
the
need
to
transport waste to distant sites.
2)
remedial costs of removal
huge.
The
Tyngsborough,
billion.
cleanup
cost
Massachusetts,
and cleanup. Cleanup costs can be
the
of
is
the
Companies
costs:
1)
of
regulatory
laws may ultimately prove to be
environmental
all
affect
products
of
ghost
contamination
of
stringent
companies,
major
kinds
the
and
inflationary of
the most
landfills
of
profits
more
Canals,
imposed by the regulatory
The costs
Hazardous waste disposal
marketplace.
which
restriction
the
and
consumer
increasingly
the
become more serious
love
evidence
new
and
measures as public concern grows.
more
be
will
consider
should
notorious
estimated
at
landfill
about
in
$1.6
of
-103)
transaction costs, including taxes to Superfund and various
state
funds,
costs.
Legal
have
that
administrative
costs
escalated
have
clerical,
under
CERCLA
responsible
primarily
held
been
controls,
other
and
companies
as
contribution
seek
litigation costs are
from others who have used the site. Total
estimated to amount to one-third of direct clean-up costs.
aggregate
The
requirements
with
only
are
one
costs
unknown,
but
EPA
the
statute— the
with
complying
of
estimated
has
amendments
1984
federal
compliance
that
RCRA—
to
state
and
will
cost
regulated companies at least $10-20 billion per year. The inflation
costs
resulting
costs
not
from this
and
hazardous
other
waste
will
laws
in
raise
only for waste generators but also for companies which rely
on these companies for constituents for their own products.
The burden of regulation will
Most
disadvantaged
will
not
industries.
evenly on all
fall
companies
older
be
"smoke-stack"
the
in
Many of these mature industries are already facing severe
industries.
competition from abroad.
If
U.S.
regulations
stringent than
more
are
those abroad, the flow of imports will be further accelerated. But even
if
this
does
not
occur,
the large amounts of capital
hanging
over
cleanup
arising
company
is,
liabilities.
part
of
the
industrial
all
the
industries may have difficulty obtaining
such
required to change production methods; for
generators
out
of
Chemical
$13 million
threat of unknown
the
incidents
likely
more
Monsanto
is
it
Co.
to
cleanup cost
be
of
a
ago!
past.
subject
recently
has
acids more than fifty years
distant
the
in
is
site
liabilities
to
agreed
in
which
The
such
to
for
older
a
cleanup
contribute
it
Smaller companies
deposited
in
basic
-11-
may
industries
burden
of
find
difficult
it
cleanup costs,
the
need
because
surviv.e
to
purchase
to
financial
the
of
new equipment,
and
the
'inability to obtain insurance or to efTectively self-insure.
Companies
which
relied
have
companies
other
on
for
essential
components of their products may find that hazardous waste regulations
will
dry up supplies.
relied
the
in
by-products
that
past
of
risks
the
marketing
the
One company reported to the writer that
on
company that
a
output
basic
its
with
associated
sale
its
no
waste
warranted
the
and
its
threat
litigation may deter the development of certain new products
the same way that new product development has been
as
now determined
had
longer
laws
had
it
chemicals
certain
supplier
the
and
Hazardous
by-product.
produced
in
of
much
impacted by product
liability suits.
Accounting Problems
The problem of
properly
allocating
resulting
current costs
from
past disposal of hazardous waste promises to become of major concern in
corporate internal accounting procedures. Almost every major industrial
--
company
whether
high
be
it
smoke
tech,
chemical
company -- has at some time in
incurred
a
hazardous
spill
or an
substance.
inadequate disposal
These
years— are now surfacing
in the
its
incidents
to create
a
stack,
past
oil
(by today's
— dating
company
or
history unavoidably
back
standards) of
as
much
as
a
50
current charge to earnings. Where
corporate hierarchy should such costs be charged?
Since this is
a
new and emerging problem, most companies have not
given much thought to the proper handling of such costs and those that
have exhibit no uniformity
in
procedure.
Some companies have concluded
-12that it would be unfair to charge current managers with costs resulting
from
past
account
corporate
which
to
divisioTis
of
They
acts.
costs
such
corporation would
a
therefore
share
arising from past
incidents
set
This
up
burden
overhead
an
means
that
though
all
some may
The rationalization for this
division head to assume current
a
his
in
the
in
have nothing to do with hazardous waste.
mode of allocation is that requiring
costs
have
allocated.
are
division's operations would
constitute a blow to morale and erode the effectiveness
incentive
of
pay plans.
There
also
is
opposing
an
Some
view.
executives maintain
chief
that the charge must be made in toto to the division that produces the
product
question.
in
might
economist
An
well
agree
with
this
conclusion. Charging the cleanup costs to the division in question will
assure that prices for the product will
be adjusted to be more in line
with the true social costs of production.
The latter policy may be feasible where the cleanup costs are not
too substantial
However,
it
relative to the revenues and profits of the division.
would
allocation would
impact
on
pose
be
morale
a
difficult
turn
to
the
profitable division
a
incentive
and
problem where
may
a
of
loser.
the
The
a
price
to
hazardous
waste
legislation
too
be
into
effect
high
pay
for
concurrence with economic theory!
second
A
relates
to
the
problem
cost
of
created
closing
plant that has been producing
years
by
a
and has contaminated both
strict
down
a
plant.
What
do
you
do
with
a
toxic substance over a long period of
the plant and the
land around
it? Some
plants which have produced various kinds of pesticides, chemicals, and
-13the like may have to be decontaminated when they are shut down.
of
salvage value, there may be huge costs
This
are
the
is
executive
is
in
the manufacturers
situation facing
effectively
being
out
put
of
business
this industry stated that
in
tetraethyl
of
by
shutdown.
a
EPA
lead who
regulations.
An
some cases the contamination
so extensive that even the steel girders in the building can not be
near future set up
a
for
company
one
any
Boston
industry.
merit
is
such a suggestion, it
inflate
thus
to
in
costs
its
in
However, there is an interesting precedent
competitive industry.
regulated
problem in the
reserve for shutdown and fund it through a charge
to current operations? Although there
difficult
kind of
companies which may face this
Should
reused.
is
associated with
Instead
Massachusetts Department of
Edison
has
received
Public Utilities
to
permission
in
from
a
a
the
current
make a small
charge to customers in order to fund the eventual cost of shutting down
its
Pilgrim Nuclear Facility.
and
creditors to
A
third
the earnings
federal
involving
accounting
and solvency of
legislation
alleged
relates
issue
to
the
need
to
makes
public companies.
it
easier
injuries
personal
to
from
bring
Suppose that state or
to
hazardous
jury
the
landfill.
liability
alleging
injuries
from
a
contamination
chemical
around
a
What are the company's obligations of disclosure of possible
in
its financial
that
there
is
obtained
there
is
is
personal
cases
disposal.
waste
Suppose further that hundreds of cases are now filed against
company
investors
alert
contingent liabilities that may significantly affect
no
no
statements?
such
proof
obligation
that
any
The technical accounting answer
because
until
liability will
a
judgment
result.
Yet
is
our
-14-
experience
device,
DES,
and
many other
Shield
contraceptive
evident that such
it
liability
admit
to
for
condition of
the billions,
may
have
Accounting Standards Board as well
the Financial
to
reconsider
existing
accounting
standards
a
a
unproved
yet
as
nevertheless in an era of mushrooming litigation and claims
claims;
SEC
Dalkon
should make
cases
wants
company
No
the
from investors the true financial
standard may conceal
company.
claims,
asbestos
with
for
in
the
as
public
companies.
The Insurance Crisis
When a manager is faced by the prospect of large and unpredictable
first
his
losses,
Unfortunately he
is
reaction
likely to get
decidedly
a
insurance
his
call
to
is
negative response when
he seeks to protect his company from pollution liability.
exist,
coverage
their
although
Comprehensive General
Liability
only to sudden and accidental
:
availability
agent.
sharply
is
These contracts
Two types of
restricted.
normally apply
(GCL)
losses and therefore were not intended to
apply to gradual and long duration contamination resulting from seepage
from
landfills
contracts
courts
limiting
have
pollution.
and
held
A
in
the
like.
Despite
contract
to
liable
insurers
recent
number of pollution
percent
the
study
claims
by
for
sudden
language
incidents
nonsudden
and
of
gradual
industry
insurance
the
filed
explicit
against GCL contracts
such
in
pollution,
cases
of
shows
that
the
has
grown
600
the past three years. As a result, premiums for GCL coverage
are skyrocketing in cost.
Environmental
Impairment
Liability
are specifically designed to deal
Insurance
:
These
contracts
(EIL)
with nonsudden, continuous or gradual
-15-
of
the
insurmountable problems because of the nature
has met with
such risks
point of view, the underwriting of
From the conceptual
contami nation.
--
Superfund Law
federal
retroactivity and joint
unrestricted
not surprising therefore that from 1983.
and several
liability.
to 1985 the
number of companies writing EIL insurance has dropped from
12
to
one
a
is
the remaining
and
amounts to
It
variation of
company in effect offers
insurance which
self-insurance plan.
a
The fact that the insurance industry is in fact shutting down on
the
pollution
issue
is
indication
ominous
an
the
of
magnitude of the
problem facing American business. The advantage of insurance
is
that it
provides an orderly method of dealing with unpredictable risks. Without
there
it,
business
will
and
be
sudden
communities
often
and
without
huge
adequate
liabilities
assets
to
imposed
upon
with
such
deal
One such hazard exists in e^ery community. The EPA has estimated
loss.
that 75,000-100,000 gasoline tanks are leaking about 11 million gallons
of
gasoline
annually,
some
of
it
into
underground
water
sources.
Despite this danger of contamination most independent gasoline stations
in
the
United States
cannot
get
pollution
liability insurance.
What
happens if an over-age underground gasoline tank leaks and contaminates
the water
supply of
a
community? Will
the
town
or
city have to
raise
taxes to obtain the necessary funds to deal with such a catastrophe?
Acquisitions and Mergers
Because state and federal
all
companies which have at any time
wastes
not
in
landfills
have
a
impose retroactive
statutes
potential
appear on their balance sheets.
in
liability,
the past disposed of hazardous
contingent
liability which does
the past,
lawyers have usually
In
-16-
inserted
language
acquisition
any
in
agreement
effect
the
to
that
management of the selling company certifies that there are no pending
suits
management
and
However,
language provides
such
can be brought
5
little
business
which
disposed
it will
way as
avoid
to
than
a
of
protection
hazardous
will
assume all
may
be
against
future
of
the
plus
assurance
liability,
selling
precedent
a
brought.
be
against suits which
part
as
'
of
itself
an
it
arise
is
an
in
of
if
such
in
future.
purchase,
'
One
rather
agreement that the selling company
protection
the
a
ongoing
its
the
in
asset
liabilities, past, present, and future.
no
business
to
firm which has been in
a
waste
liability should
such
acquisition,
stock
likely
be likely to attempt to structure the deal
possible approach which suggests
already
suits
or 10 years after the acquisition.
operations,
tactic
any
of
company is interested in acquiring
If a
a
unaware
is
acquiring
company and the
company
latter
However, this
acquiring
the
to
company
continues
liquidates.
There
product liability law which holds that
the
is
company
a
which acquires a manufacturing business and continues the output of its
line of products assumes strict tort liability for defects
the
same product
selling
company.
A
previously manufactured and
similar
waste. Acquiring
hazardous
some
line
required
cases
period, or
a
doctrine
companies
indemnity
may
faced
bonds,
escrow
distributed
evolve
with
with
this
of
units of
in
respect
problem
funds
by
for
have
a
the
to
in
stated
reduction in selling price, but no one of these devices
is
wholly adequate.
The
problem
acquired in
a
becomes
stock
even
more
complex
transaction is not
when
the
company
to
be
itself engaged in any business
-i/-
would
which
likely
seem
contamination.
create
to
management
Can
answer
transaction? The
the
company,
or
former
a
is
hazardous
of
company
waste
therefore
no hidden contingent liability in
problem
The
no.
is:
subsidiary
risk
acquiring
the
of
proceed with confidence that there
any
is
that
selling
the
liquidated
since
long
likely
(and
forgotten), may have disposed of hazardous waste 20 years or more ago.
pointed
was
As
corporation in
with
saddled
out
beginning
the
at
stock
a
this
of
article,
successor
a
purchase or merger transaction may find itself
liabilities
arising
out
activities
of
selling
the
of
company many years earlier.
risk
The
laws
means
series
it
by
purchasing
no
is
sheets
of
real
hazardous
estate
specialty of corporate
hidden
retroactive
liability under hazardous waste
sufficient
longer
operating
and
examine
to
statements
What is needed is a genealogy of its past!
world
a
that
balance
of
company.
in
imposed
problems
which
legislation may
waste
with
lawyers
histories
may
and
with
harbor
rigorous
the
of
target
complex
as
companies
attention
potential
the
Buying companies
become
"search"
five-year
a
for
as
making
a
possible
to
liability
under
hazardous waste legislation or toxic tort suits.
The Cloud Over Real Estate
Soil
estate,
just
and water contamination
but
the
beginning
implications
to
be
of
recognized
have an obvious relationship to real
stringent
by
governmental
developers,
owners,
controls
and
are
lending
institutions. The EPA has repeatedly stated that in its cleanup efforts
it
will
proceed first
against
landowners
and
facility operators.
number of states, banks and other mortgage institutions will
In
a
not grant
-18a
mortgage
on
examination
commercial
property
without
site
determine
whether
the
of
to
careful
there
professional
evidence
is
of
contamination.
from
stems
concern
This
the
federal
both
of
scope
statutes which impose an obligation to clean up
state
and
contaminated site on
a
owners of land, whether or not they contributed to the problem.
it might
must consider the eventuality that
property and then would be faced by all
with
owner
purchasing
respect
demanded
always
requiring
a
"good
a
time
from
formerly
had
persons
had
been
surrounding
Incidents
such
land
as
and had to
this
bring
been
also
are
soil
of
underground
or
occupied
by
a
discount
a
examination revealed that over some
their used motor oil
dumping
cleaned
be
the
home
up
at
down
substantial
a
recognition
a
had flowed into
Some of this oil
sewer drain in the rear of the store.
the
have
Buyers
they
Now
title".
threat
the
An environmental
department store.
period of
individual
or
problem.
Recently the writer signed an agreement to sell
which
land
of
business
similar
a
record
clear
and
immune
is
water contamination.
parcel
faced with
land-
the
of
"clean" title as well.
landowner
No
is
Any
cleanup.
site
to
today
land
obligations
the
A bank
foreclose on the
have to
some
that
cost.
the
of
worst polluters are not chemical companies but respectable citizens who
think
nothing of dumping old paint cans, pesticides,
empty lots.
Environmental
A survey
Quality
undertaken
Engineering
for
the
Massachusetts
estimates
that
used
and
it
comes
back
to
reclamation
residents
centers
in
Department of
state dispose of about 8.7 million quarts of used motor oil
Only 43 percent of
oil
of
that
each year.
and
gasoline
-19-
stations while 57 percent ends up
In
they cannot
sell
product without providing
this
or empty lots.
sewers,
selling motor oil
stores
too distant future,
not
the
landfills,
in
may find that
facilities
return
for
and reclamation of this product at considerable extra cost.
The Threat of Personal Liability to Officers and Directors
There
is
growing body of
a
holding that under CERCLA both a
law
corporation and its officers can be held liable for violations of the
Act.
one recent case
In
a
developer set up
a
corporation of which he
was the sole stockholder for the purpose of acquiring
for
development.
condominium
waste.
As
liable
for
costs
cleanup
and
the
was
land
The
was pointed out above,
a
parcel
a
with
polluted
person owning such
court
in
this
land
hazardous
facility is
a
held
case
of
personally
liable the president and sole stockholder on the grounds that the term
"person",
as
corporation
.
used
the
in
Act,
another case,
In
a
includes
federal
an
were
owners
and
operators
of
a
as
well
as
a
district court held personally
liable the president and vice president of
they
individual
a
corporation on the grounds
facility
from
which
hazardous
wastes were being released.
In
this
and
in
the
former case,
the corporate officers were
substantial stockholders. The cases suggest that where
a
also
corporation is
found to be in violation of the Act and its officers and/or directors
are substantial
is a substantial
stockholders and actively involved in management, there
risk of personal
particular problem to small
in which hazardous waste
is
liability under CERCLA.
founder managed corporations
generated.
Recommendations for Managers
This poses a
in
industries
-20-
The problems associated with disposal of hazardous wastes may well
single
the
be
problem
important
most
thing
One
decade.
certain:
is
facing
managers
problem will
the
next
the
in
increasingly
become
serious because production of hazardous waste will probably continue at
a
rate
greater
than
ability
our
passing year, contamination of
possibility.
a
to
safely
contain
With
it.
major water supply becomes
a
every
realistic
view of these facts, managers need to sensitize their
In
organizations to the potential liabilities posed by hazardous waste and
to
make
their
that
sure
are
acting
responsibly
dealing
in
The following checklist should be monitored by every
with the problem.
manager whether
companies
the
not
or
company presently produces
or
disposes
of
hazardous waste:
1)
Know your company's history.
era
an
In
which
in
acquisitions
divestitures
and
have
proliferated, few managers are familiar with what their company or its
subsidiaries produced 20 years ago. Since the Federal Superfund Act and
various
state
companies
should
liability
impose
laws
make
effort
an
to
without
retroactively
review
their
past
limit,
history
to
determine whether or not they face the risk of contingent liability for
disposal
in
Most management information systems have been market-oriented.
In
cleanup
or
personal
injuries
from
hazardous
waste
activities discontinued many years ago.
2) Give
your information system environmental eyes.
view of the magnitude of the hazardous waste problem,
that
such
information
systems
system
also
should
environmentally
be
be
so
constituted
it
oriented.
that
the
is
The
important
company
manager
can
-21-
signals
danger
recognize
may
which
liability
pose
zealous shipping department employee found
has
over-
an
What the manager doesn't know can hurt him. Hazardous
hazardous waste?
waste
--
cheaper way to dispose of
a
statutes
criminal
impose
liability
upon
corporation
the
and
employees if there is evidence that they knew or should have known that
applicable
the
were
laws
with
unfamiliar
the
being
potential
violated.
hazards
affairs officer may play
environmental
in
Since
many
CEO's
are
their
operations,
the
increasingly important role
an
in
corporate planning and decision-making.
3)
Incorporate environmental concerns in strategic planning
Hazardous waste
of many companies
legislation will
whether
or
not
affect the policies
they are waste
and
profits
generators.
Banks,
pension funds, insurance companies and real estate developers will have
to
exercise
acquisition
great
and
caution
in
utilization.
fact that
new investment decisions
Consumer
goods
growing
companies
shortage of
involving
will
land
have
landfill
to
sites
take
account of
will
have a maijor effect on packaging materials and the manner of sale
the
the
and distribution of many consumer products.
The rising cost of certain
constituents may require significant changes in product formulations.
Managers
in
production,
all
types
distribution,
of
and
companies
need
to
review
investment decisions to take
marketing,
account of
this new environmental concern.
4)
Develop contingency plans to deal with environmental disasters.
The Bhopal
tragedy has taught industry the need to think about the
unthinkable. Managers need to prepare for situations which may threaten
the profitability and even the continued existence of the business. How
-22do you handle cleanup costs if they exceed the assets of a division? Do
you have
public relations plan to deal with
a
employees or executives
are
a
situation in which key
indicted for violation of
hazardous waste
laws? How adequate are your existing insurance programs with respect to
various
aspects
directors
of
covered
the
by
hazardous
policies
waste
problem?
provide
which
officers
Are
reimbursement
of
and
costs
incurred in suits brought against them personally by state or federal
authorities
alleged
for
violation
statutes
of
dealing
with
hazardous
waste disposal?
Adopt a long run view with respect to waste disposal methods.
5)
Strict
government
sites
landfill
foreclose
and
landfill
move rapidly
to
regulation,
potential
the
as
a
develop
threat
recycling,
in
law
which plants are
a
scarcity
suits will
incineration,
of zero dumping.
program will require development of
with communities
of
pressures,
viable means of disposal.
disposal with the ultimate goal
a
community
ultimately
Companies
and
other
of
need to
means
of
Implementation of such
strong public relations program
located because most communities
do not want incineration even though it may be better than dumping from
an environmental
point of view.
Innovative managers will also recognize
that the end of the era of cheap landfills creates a unique opportunity
for
the
development and
profitable sale
and products which meet this challenge.
3U30 U0 5
of
new techniques,
processes
BASEMENI
Datet
6'6<l
§&2S
87
3
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