Why the Stock Market Should Worry About Product Liability

The stock market in which Union Carbide was listed in 1984 had a narrow escape. Many influential stake holders demanded the company’s entire net worth as compensation for the victims of the accident in Bhopal. Others wanted the company’s Chairman arrested. Neither of these extreme actions has taken place, but it is a matter of concern for every stock market investor. What if a company on which you are invested is faced with a sudden product liability for which it does not have cover?

Most member companies of a stock market have insurance against likely and relatively routine risks. However, what about unusual events that no one has thought of, or of extraordinary damages that insurance cannot cover fully? The stock market investor bears the brunt of charges that apply to the assets of a company. Executives are careful nowadays to prevent the kind of personal liability that the Enron matters involved, but small and trusting stock market investors remain vulnerable.

A business with obvious risks may actually be safer in investment terms because adequate cover is more likely. Pesticide companies would, for example, routinely cover themselves against polluting accidents. Healthcare companies involved in research for new entities would be insured against compensation claims from victims of their drugs.

What about a food company with salmonella in chocolates on retail shelves, or with virus infection from prions in meat? What about a company which markets cosmetics that contain phthalates, engineered nanoparticles and carcinogenic solvents, or of theft of data by an outsourced employee, or of shoes and clothes made by children in the third world? Companies in enterprises commonly considered ‘safe’ may in effect take massive risks with your precious investments!

The technique of Life Cycle Analysis can uncover disturbing surprises. A company may use materials about which it does not know enough. So, find out about the products and services of your company-how are they produced, where and by whom. How are obsolete products and waste disposed off, and which limits apply to risks for which your assets are covered?

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