The case of James Hardie Industries (JHI) Limited caught an international attention. JHI immigrated into Australia during the close of the 19th century (Welsh, 2009). During this time, the company was involved in the importation business mainly focusing on oil and animal hides.
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Since the 1930s, most of the company’s operations were conducted by its subsidiary companies. This included the manufacture, processing and distribution of asbestos. Despite the fact that this was among the most profitable ventures of the company, James Hardie and Coy and Herdie-Federo, subsidiary companies to the James Hardie group conducted the asbestos mining activities (Haigh, 2006).
However, the condition under which this practice was carried out was questionable. This is because the mining and processing of asbestos was conducted in poorly ventilated factories. This increased the risk at which workers could contract chronic pleural abnormalities such as cancer and asbestosis (Gunz and Van der Laan, 2010).
Despite these claims, JHI claimed that it offered its workers with conducive working conditions. However, during the late 1970s and early 1980s, JHI acknowledged the fact that asbestos was dangerous and by 1987, the company stopped mining and processing asbestos.
However, it is during this time that former employees started to lodge complains against the company. These individuals filed legal suits against the company for endangering their health due to poor working conditions resulting into chronic diseases. At this very time, JHI had ventured into the American market.
However, the operations of JHI in the United States were hindered by the legal suits that the company had back in Australia. To eliminate its asbestos liabilities, JHI came up with a strategy of creating an independent company that would carter for the needs of its asbestos victims.
This led to the incorporation of Medical Research and Compensation Foundation (MRCF) in 2001 (Gunz and Van der Laan, 2010). MRCF was valued at A$ 293 million. The purpose of this fund was to meet the future needs of asbestos victims that the company had valued at A$ 286 million.
Since MRCF and JHI were separate entities, JHI stated that it would not be involved in the funding of MRCF whatsoever. After MRCF was commissioned, JHI moved its residence to the Netherlands from Australia.
Before changing its nationality, JHI needed to assure the Australian Judicial System that MRCF was capable of meeting its obligations. Given the fact that David Minty, an actuary at Trowbridge consulting had valued the claims at A$ 286 million and JHI had funded MRCF with A$ 293 million, the courts were satisfied and granted JHI its move.
With time, it became clear that MRCF was underfunded. This came about because of the ever-increasing claims that were laid against the company. A few months after JHI moved to the Netherlands, the claims that were laid against MRCF were valued at A$571 million. Shortly afterwards, this figure was revalued at A$ 751 million.
By the close of 2002, MRCF legal liabilities against its asbestos victims were valued at A$ 1.6 billion, a figure that rose to A$ 2.2 billion. Being unable to meet its legal liabilities, MRCF sought financial assistance from JHI. In 2001, JHI offered to fund MRCF with A$ 18 million. This fund was to be in the form of assets.
Given the fact that this was minimal to meet its legal needs, MRCF refused the offer. With MRCF facing more and more legal liabilities, the management of JHI came to a conclusion that the company shall no longer be involved in any issues that affected the running and management of MRCF.
This included its legal obligations. The management of JHI argued that JHI and MRCF were two separate entities with separate rights and obligations. On legal grounds, JHI and MRCF were legal entities.
However, looking at the situation from an ethical point of view, the liabilities that MRCF was facing had originated from the operations of JHI. Thus, it was an ethical obligation for JHI to ensure that all the asbestos victims are compensated.
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It is with regards to this that the government of New South Wales commissioned a judicial inquiry. The results of this inquiry revealed that the asbestos victims valuation report had not been properly calculated (Jackson, 2004). The model that was used to value victims liabilities did not consider a number of conditions.
For instance, the actuary did not put into consideration the outcome of JHI separating with its subsidiary companies (Jackson, 2004). This highly undervalued the financial obligations that JHI had against its asbestos victims. However, the inquiry could not tie these obligations to JHI since all these liabilities had been transferred to MRCF, a separate legal entity.
Despite the fact that JHI could not be held accountable for these actions, the company started to face a lot of criticism and pressure from its trading partners, trade unions, and international governments. This left JHI no option but to come up with a compensation scheme in 2004 (Welsh, 2009).
This scheme became operational from 2006 when the federal government lifted the tax against the fund. In addition to this, senior management officials of JHI were charged with breaching the Corporation Act 2001 (Welsh, 2009). It was argued that the management acted without diligence and care.
Gunz, S and Van der Laan, S 2011, ‘Conflicts of Interest and Professional Independence: The Case of James Hardie Industries Limited’, Journal of Business Ethics, vol. 98, pp. 583-596
Haigh, G 2006, Asbestos House: The Secret History of James Hardie Industries, Scribe Publications, Melbourne
Jackson, D 2004, ‘Report of the Special Commission of Inquiry into the Medical Research and Compensation Foundation’, Commonwealth of Australia, New South Wales
Welsh, A 2009, Killer Company, The Walkley Foundation, New York