Corning Is Feeling the Heat in Breast Implant Debacle
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Company Had a Hand in Dow Corning,
But Is It Liable for Alleged Misdeeds?
By Joan E. Rigdon01/29/1992
The Wall Street Journal
PAGE B4
(Copyright (c) 1992, Dow Jones & Co., Inc.)
Just two months ago, Dow Corning Corp. was the apple of Corning
Inc.'s eye.And why not? The 50-50 specialty chemicals venture with Dow
Chemical Co. contributed 27% of Corning's record 1991 earnings. In
one review, Corning Chairman James R. Houghton called Dow Corning a
"classic example" of how to "speed Corning technology into the
marketplace."But these days, Corning's darling is a prodigal son. "We don't comment"
on separate companies, a spokesman says.Dow Corning's breast implant debacle is shaping up to be the biggest
potential litigation and public relations nightmare of Corning's 141-year
history. The Corning name, once known for the squeaky-clean and
well-managed company that made casserole dishes, Pyrex beakers and
medical equipment, now is associated with faulty breast implants that
allegedly cause immune disorders and skin disease.As angry women and product liability lawyers swarm to sue the Midland,
Mich., venture for allegedly rushing the implants to market without
adequate testing, Corning's stock has plunged from a 52-week high of
$86.25 just a month ago to yesterday's close of $60.625 on the New
York Stock Exchange.Corning officials insist the collapse isn't justified. However, the incident
shows how vulnerable a successful company is to a questionable product
that's associated with its name.To be sure, the jury is still out on whether silicone breast implants are
unsafe. Just this week, Britain's chief medical officer issued a statement
saying they are safe; but the U.S. Food and Drug Administration has
temporarily banned the implants. It meets next month to decide whether
to make the ban permanent.The question now hovering over Corning is whether it is liable for Dow
Corning's alleged misdeeds. That hinges on one key issue: Does it or can
it control Dow Corning? "Or are they funding it hoping for the best?" asks
Minneapolis attorney Bruce A. Finzen, whose firm litigated Union
Carbide Corp.'s Bhopal, India, chemical disaster on behalf of the Indian
government.Corning clearly has a hand in Dow Corning's business. Besides owning
half of the company, it has five representatives among the 14 members of
Dow Corning's board, including Corning Chairman Houghton. (Dow
Chemical also has five representatives on the board, while Dow Corning
itself has four.)Company literature also points to a research overlap. In Corning's 1990
annual report, Chairman Houghton said Dow Corning was formed in
1943 to "market the silicones created in a Corning laboratory." A
Corning spokesman says the 1940s marked the first and last time the two
companies shared research. Currently, "we do not share our research
with them," he notes.Thomas Talcott, a materials engineer who worked for Dow Corning for
24 years before resigning over the breast implant issue, agrees that
Corning wasn't involved in the development of the implants. "I don't think
they had any involvement," Mr. Talcott says, adding that his doubts about
the implants never reached the board. "I think what the board of directors
heard was, things are going great."If courts agree, that could protect Corning. Mr. Finzen says Union
Carbide was deemed culpable in its Indian subsidiary's disaster at Bhopal
partly because Union Carbide designed the plant from which poisonous
gas leaked in 1984, killing or injuring thousands of people in the area, and
it trained Bhopal workers at Union Carbide facilities in West Virginia.But even if Corning isn't liable for its joint venture's potential damages, the
Corning, N.Y., company stands to lose a big chunk of earnings if Dow
Corning suffers. Last year, Dow Corning contributed 27% of corporate
earnings, down from 28.3% the year before and 30.3% in 1989.That thinking caused investors to stampede out of Corning stock a month
ago when it was trading in the mid-$80 range. But now that the stock is
trading around $60, analysts are recommending the stock. Corning "is
attractive even under a worst-case scenario" of a Dow Corning
bankruptcy, says Prudential Securities analyst B. Alex Henderson, who
on Monday changed his recommendation on the stock to "buy" from
"hold."Wall Street's faith is based on Corning's mix of profitable businesses,
including medical testing and optical fiber, which is being used to replace
copper wire in telephone lines. These businesses have been growing while
Dow Corning's contributions are shrinking, says PaineWebber Inc.
analyst Kim Ritrievi.Meanwhile, Corning's image has been tarnished. One company manager,
who asks not to be identified, says that he is often mistaken for a Dow
Corning employee when he travels. "A lot of people have that problem,"
he says.The confusion partly arises from Corning's ringing silence on how it has
been affected by Dow Corning's problems. Mr. Houghton, who is usually
accessible, has declined to comment. His only public statement was in a
Jan. 14 press release, in which he complained that Corning stock's
10-point drop the previous day was a "gross overreaction."Crisis management experts are dubious of Corning's public relations
strategy. "They're saying, `Gee, we don't have a problem. Let's stick our
head in the sand. Maybe it will go away,'" says Norman L. Harris, editor
of Crisis magazine, Columbus, Ohio. Corning may want to avoid liability
by not commenting on Dow Corning's business, but it should comment on
whether its investment in Dow Corning is safe, Mr. Harris says.-30-