Indiana
The Bloomington Free Press
June 5th-20th, 2003


Paper Trail

by Jason Vest

The giant sucking sound you heard just over a month ago wasn't jobs
going south, but Herald-Times business editor Brian Werth's
journalisticly providing longtime Dow Chemical chieftain Frank Popoff
the most intimate of lip service. Not that this was necessarily
surprising: lord knows the local rag has done much to earn it's popular
"Horrible-Terrible" nickname. But "Former Dow Chairman Reflects on
Economic and Societal Links," Werth's April 28th offering, is such a
brazen piece of journalism-as-deferential-stenography that it simply
demands a post-mortem.

What made a potentially good story so bad: willful reportorial ignorance
and laziness, or an editorial philosophy that holds US newspapers should
report on corporate America the way Pravda of a bygone era reported on
the Soviet Politburo? It's almost impossible to believe that a reporter,
given the opportunity to interview a semi-retired corporate executive
about his "observations on connections between the economy, politics and
the environment," wouldn't put any questions to said executive about:
(a) his connection to a scandalized telecommunications company (b)
recent shareholder challenges to Dow from its socially-responsible
investors regarding dioxin liabilities (c) Dow's recent role in gutting
state and federal environmental standards and, likely of most interest
to local readers, d) the current raft of state, local and citizen
lawsuits filed against one of Dow's subsidiaries just up the road in
Indianapolis.

But, then, this is the H-T, and on the occasion of "friend of IU "
Popoff's departure from the Polling Chair at the IU Business School,
there stood Werth, kneepads secured and burnisher in hand. According to
Werth, "the crimes and misdeeds of executives of such fallen
corporations as Enron, Worldcom, Aldelphia and others" are "upsetting"
to Popoff. Given that Popoff sits on the board of one of those
"others"--- and given that some journalists have made the case that
Popoff bears some responsibility for that "other" corporation's
problems---it's not surprising Popoff would be upset.
(As you read on, remember the following quote from Popoff, as
transcribed by Werth: "Reform should be on everybody's agenda and it
shouldn't take a cataclysm to make it happen. The fundamental issue is
performance, both ethical and economic.")

The "other" company is Qwest, the Denver-based telecommunications
company. As financial news junkies may recall, Qwest's public woes begin
in early 2002, when SEC investigators digging into the GlobalCrossing
morass were tipped to some dubious dealings involving Qwest. In short
order it was revealed that Qwest, under the leadership of CEO Joseph
Nacchio, had used improper accounting methods to inflate the company's
bottom line by $1.6 billion.

As the indispensable Financial Times noted last week on May 30, the SEC
is expanding its ongoing investigation of Qwest. Not only is this making
things a tad investor-unfriendly for the company in terms of expenditure
(according to a March 20 Wall Street Journal report, the Qwest is
spending a whopping $7 million a month on legal fees), it's also not the
type of publicity that inspires investor confidence: On February 25,
the Associated Press moved a fine dispatch about eight current and
former Qwest executives getting indicted by the SEC for fraud, and on
May 1, WSJ reported that the SEC is considering indicting another 20
ex-Qwest employees.

So where does Popoff fit into this? In a December 16, 2002,
investigation of Qwest's financial house of cards, the Denver Post
chronicled Morgan Stanley telecommunications analyst Simon Flannery's
very public efforts in 2001 to sound the alarm about CEO Nacchio's
financial practices. As the company's stock tumbled and 5,000 workers
were laid off, Qwest's board, the Post marveled, "gave Nacchio a
performance review that praised him as 'perhaps the best creative mind
in the industry'". A month later, Nacchio asked for a raise---a request
endorsed by the Qwest board's compensation committee.
Who was sitting on the Qwest board of directors, and chairing it's
compensation committee? Friend of IU Frank Popoff. On the day the
company's stock dropped 19 points, the board extended Nacchio's contract
to the tune of a 25% raise to $1.5 million, a $3.75 million bonus and
over $7 million in stock options.

This did not endear Popoff to veteran financial writer and consultant
Graef Crystal. In his June 4, 2002, column for Bloomberg News, Crystal
slammed the Qwest board's "comatose compensation committee" for
rewarding Nacchio as he presided over a "terrible earnings performance
and a total return of negative 65 percent". After re-examining the
upward trend of Naccio's salary, bonuses and stock options and its
relationship to Qwest's accelerating downward spiral, Crystal concluded
that "given the ineptitude of the committee's members, a strong case
could be made for throwing them off the Qwest board and then appointing
a new panel by selecting the first six people named in the Denver
telephone book," as "they couldn't do any worse for the company's
shareholders than the current crowd."

Even as the scandal broke and shareholders grew increasingly restive,
Popoff continued to champion Nacchio. In April he told the Denver Post
that "Joe's our man," and then followed up with "I perceive a confidence
in Joe Nacchio and the rest of the management in their meeting stated
goals of gaining approval, becoming cash-flow positive and improving our
financial situation."

As the Post noted, others associated with the company not getting
executive board compensation---like JoLynne Whiting, who lost $80,000 in
401(k) savings thanks to Qwest executive decision-making---viewed the
board's extension of Nacchio's contract as a death sentence for the
company. At the June 2002 annual Qwest shareholders' meeting, Whiting
trenchantly delineated what the board and Nacchio had done for Qwest:
"27,000 layoffs in two years; a depleted pension fund; secret accounting
maneuvers; $26 billion in debt; the SEC probe; shareholder lawsuits;
continued financial losses."

By the second week of June 2002, Popoff, according to a June 18, 2002
WSJ piece, "finally decided that Mr Nacchio no longer had enough
credibility will Wall Street, the SEC or employees to remain in his
job," and cast his lot with the board members chomping at the bit for
Nacchio's ouster.

Nacchio is facing a civil action from New York attorney general Eliot
Spitzer, who alleges Nacchio improperly concealed proceeds of a stock
deal from shareholders. Popoff is still on Qwest's board. Though they
probably don't see much of each other these days, they almost have
something in common: If Popoff was still CEO or chair of Dow, they'd
both be being sued by Spitzer.

On April 2, under the headline "New York targets Indiana-based
pesticides company," the Associated Press sent out a piece (unpublished
by either the Herald-Times or Indianapolis Star) reporting that Spitzer
would be filing suit against Indianapolis-based Dow AgroSciences,
alleging that the company has been falsely advertising the pesticide
Dursban as "safe".

The active ingredient in Dursban is chlorpyrifos, descendant of a group
of poisons originally developed in the 1930's by IG Farben as a
potential chemical weapon for the Nazis. As a 1999 US News & World
report investigation revealed, Dow began to play with chlopyrifos as a
DDT substitute in the sixties, and discovered after testing it on human
subjects (prisoners, of course) in 1971 that it had at least a temporary
adverse affect on humans. Over the years, Dow produced thousands of
studies allegedly proving that chlopyrifos doesn't do lasting harm; a
Dow official told US News that it would take a "sledgehammer" dose to
inflict harm. However, US News's investigation revealed "a more
complicated picture". Since June 1992, the mag wrote, Dow AgroSciences
and other pesticide manufacturers have sent the Environmental Protection
Agency some 7,000 reports of adverse reactions to chlorpyrifos. An EPA
analysis found that the chemical was suspected in 17, 771 incidents
reported to U.S. poison-control centers between 1993 and 1996. More than
half the cases involved children under 6. In a draft reportâ€|the EPA
said that those who come in contact with the product in its granular and
powdered forms--whose dust is easily inhaled and absorbed through the
skin--could receive up to 100 times the safe amount.

Dow AgroSciences characterized the report as "riddled with errors and
omit[ing] important data". But by 2000, the company chose to enter into
a compromise with the Environmental Protection Agency, which declared
chlorpyrifos too dangerous to small children: Production of household
chlorpyrifos would cease, but the chemical could still be used
agriculturally.

Numerous suits against Dow AgroSciences alleging chlorpyrifos poisoning
are still in litigation. And, as the Spokane Spokesman-Review reported
last September, Dow AgroSciences appears to be effectively manipulating
the federal regulatory system to ensure another dubious chemical, the
weed killer clopyralid, stays on the market. Banned in Washington state
after it was determined to be the agent responsible for widespread
compost contamination, last year, California enacted an emergency
temporary clopyralid ban. Dow AgroSciences countered by first asking the
EPA to ban the chemical for individual---but not commercial---use, and
then asking the EPA to shorten the public comment period on the ban.

Might this be the kind of "link between ecological and economic
benefits" Werth tells us Popoff wrote about with 3M chairman Livio D.
DeSimone in their book "Eco-Efficiency"? Is it, say, a sound
"eco-efficient" practice to not tell shareholders the potential
liabilities related to dioxin and other toxic chemical litigations? The
socially-responsible investment group Trillium Asset Management thinks
it would be good business for investors to know, yet Dow disagrees, and
is trying to kill a shareholder resolution requiring that disclosure.

Then, of course, there's the Bhopal matter. There are still over 100
ongoing civil actions seeking compensation for survivors of the horrific
1984 Union Carbide toxic gas release. Since Dow bought Union Carbide in
1999, it hasn't been too keen on addressing those liability issues. When
the issue was raised at the May 11, 2000 Dow shareholders' meeting, The
Detroit News quoted then-chairman Popoff as saying, "It's not in my
power to take responsibility for an event 15 years ago with a product
we've never developed at a location where we never operated."

These and so many other questions (Agent Orange issues, the fishy ground
water contamination matter involving Dow in Plaquemine, Louisiana, most
recently written about in the New York Times) related to Popoff's
"lengthy, successful career" might have posed, vis a vis what Werth
characterized as Popoff's "interest in the interface between
Jeffersonian democracy and free market economics". But no time for
that: For Popoff, It's back to Dow HQ in Midland, Michigan, "for some
rest and continued observation on the connections between the economy,
politics and the environment."

That shouldn't be too hard: All he'll have to do is read the Midland
Daily News' and Bay City Times' ongoing coverage of the local
class-action suit filed by property owners alleging dioxin
contamination, courtesy of Dow.
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