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Dow Chemical Shareholders Call on Securities & Exchange Commission To Investigate Misleading Statements

BOSTON, Aug. 10, 2004 – Shareholders of Dow Chemical have formally asked the Securities and Exchange Commission to investigate misleading statements by management concerning the company’s potential environmental and personal injury liabilities. In a letter sent August 10, 2004 to the SEC, Attorney Sanford Lewis, representing the shareholders, requests scrutiny of “a number of inadequacies and irregularities in disclosures and public statements” that are “highly relevant to the financial interests of investors.”

Transgressions cited in the letter filed to the SEC include misleading statements made to shareholders by Dow’s CEO regarding the 1984 Bhopal explosion, dioxin contamination in Midland, Michigan, and key omissions in company SEC filings regarding potential liabilities related to the company’s manufacture of the chemical defoliant Agent Orange

“These statements and omissions raise an array of concerns regarding the company’s compliance with SEC rules and guidelines as well as with the Sarbanes Oxley Act,” Lewis stated.

Lewis represents Boston Common Asset Management (www.bostoncommonasset.com),
which filed a 2004 shareholder resolution asking Dow to issue a report on any new initiatives addressing the needs of the survivors of the Bhopal chemical disaster and to assess the impacts the Bhopal matter may pose to the company, its reputation, its finances, and its expansion in Asia. The resolution was filed on behalf of the Brethren Benefit Trust. Lewis also represents Trillium Asset Management (www.trilliuminvest.com), which filed a shareholder resolution with Dow for the 2003 and 2004 shareholder meetings (2004 resolution not included on proxy) on behalf of a client. The Trillium resolutions requested disclosure regarding the company’s activities relative to dioxin and persistent bioaccumulative toxic substances.

This shareholder letter comes at a time of particular scrutiny for Dow. According to an August 8, 2004 New York Times report, the company is currently facing lawsuits by American veterans who claim they learned of health problems related to their exposure to Agent Orange only after funds associated with a 1984 class action settlement had dried up. As one plaintiff, battling cancer for over a decade, told the New York Times of his exposure to Agent Orange, “we didn't know that it was more dangerous than the enemy.” Another suit, filed on behalf of four million Vietnamese, states that supplying Agent Orange was so utterly destructive to their land and people that it amounts to a war crime.

“We believe that Dow Chemical faces potential liabilities in the billions of dollars stemming from the toxicity of its products, both in the U.S. and abroad,” said Shelley Alpern of Trillium Asset Management.

Misleading Statements About Bhopal

Indian courts have ruled that Dow subsidiary Union Carbide is an absconder (fugitive) from justice due to its refusal to face pending criminal charges in connection with the 1984 chemical explosion in Bhopal that killed 8,000 and injured at least 150,000.

Dow CEO William Stavropoulos gave misleading responses to shareholders at the 2004 annual stockholder meeting, according to the letter filed today. Stavropoulos responded to shareholders’ questions by misleadingly stating that criminal charges had been reduced to “misdemeanor status”, and then denied that the U.S. Circuit Court of Appeals had invited the Indian government to comment on allowing a suit to proceed in U.S. courts for remediation of contamination at the Bhopal site.

Lauren Compere, Chief Administrative Officer at Boston Common Asset Management, said “we find it very disturbing that when questions were raised by shareholders at the annual stockholder’s meeting regarding the status of the criminal case in India against Union Carbide Corp., Mr. Stavropoulos continued to provide misleading statements. His statement that the employees, who operated the Union Carbide’s Indian subsidiary had faced charges against them and had their charges reduced to misdemeanor status implied that by extension the company as a whole was no longer an absconder from justice. In fact there remains an unanswered case pending against Union Carbide Corp., the parent company, and the charges against it have never been reduced.”

During the stockholder meeting, Compere asked Mr. Stravopoulos for clarification of "legal risks" associated with addressing survivors’ concerns. The company has stated that there are significant legal risks associated with any effort to address the concerns of survivors, and yet simultaneously says Dow has "no" liability for Bhopal. This contradiction demands clarification.

The shareholders’ letter also highlights a misleading statement on Dow Chemical’s website, which continues to assert that Dow has absolutely no outstanding liability or responsibility in relation to the Bhopal tragedy or the Bhopal site (see http://www.dow.com/environment/debate/d15.html)

Misleading Statements Regarding Potential U.S. Liabilities

The company is facing major litigation associated with dioxin contamination in Michigan, including a class-action suit for medical monitoring and property damages and likely responsibility for extensive remediation. Plaintiffs state that Midland’s floodplain is contaminated with dioxins for at least 22 miles downriver from a Dow facility. In response to shareholders’ questions at the 2004 stockholder meeting, Stavropoulos made claims that may prove to be materially misleading, asserting “there’s no health effects” from low exposures to dioxin, and that “the facts have shown that chloracne, so far…is the most severe illness that is shown.”

“Dow is in a state of deep denial. Scientists consider dioxin to be one of the most toxic man-made compounds ever tested. It is a ‘class one’ carcinogen, and is highly implicated in a variety of other health effects such as endometriosis, diabetes, cardiovascular disease, decreased testosterone, immunotoxicity, and altered sex ratios,” said Shelley Alpern, Director of Social Research and Advocacy at Trillium Asset Management. Trillium Asset Management filed a shareholder proposal in 2003 concerning dioxin and other persistent pollutants that accumulate in human tissue. “Dow is being sued by hundreds of Michigan residents. Investors need honest projections of potential liability, not comments filtered through rose-colored lenses.”

Financial Services Firm Identifies Reporting Omissions

The shareholders’ letter also references a 2004 report by Innovest financial advisors (http://www.innovestgroup.com/pdfs/2004-04_Dow_Report.pdf) that reports that Dow has failed to disclose in its SEC filings potential liabilities related to Agent Orange, the chemical defoliant used in the Vietnam War, and relating to Dursban, a Dow pesticide brand.

Numerous U.S. and foreign veterans groups and Vietnamese citizens affected by Agent Orange exposure have recently sued Agent Orange manufacturers, including Dow. In addition, a 2003 U.S. Supreme Court decision, the letter states, “may open the door for Vietnam veterans not covered under a previous settlement…with a right to pursue liability of Dow Chemical for alleged health risks associated with the chemical defoliant commonly known as Agent Orange. Given the number of claims and the extent of damage alleged to be caused by Agent Orange, the proceedings could result in sizable ongoing liability.”

The Innovest report also indicates that Dow failed to disclose in statements to investors its $2 million settlement of a consumer fraud lawsuit brought by the New York State Attorney General in 2003. The payment, which set the record for a consumer pesticides suit, settled charges that Dow had falsely advertised Dursban as safe, when it is believed to be associated with illness in thousands of exposed people, including potential neurological damage to children. Dow had previously been fined approximately $730,000 for failing to disclose adverse effects associated with the use of and exposure to Dursban.

For the text of the shareholder letter, see http://www.dowchemicalinvestors.strategiccounsel.net/.

For analysis of Dow Chemical’s potential liabilities associated with Bhopal, Agent Orange, dioxin contamination, Dursban and other environmental issues, see Dow Chemical: Risks for Investors, Innovest, 2004 (www.innovestgroup.com/pdfs/2004-04_Dow_Report.pdf).

Attorney Lewis is a leading expert on corporate environmental accounting and coauthor of the recent report, “Fooling Investors, Fooling Themselves” (www.rosefdn.org) which identified leading accounting and asset management strategies used by corporations that can lead to poor disclosure of environmental liabilities and corporate accounting fraud.

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Contact:
Lauren Compere, Boston Common Asset Management, (617) 720-5557