On The Firing Line At Dow Corning

For a guy whose company just filed for bankruptcy protection, Richard A. Hazleton sounds remarkably relaxed. No matter that product-liability lawyers want Dow Corning Corp. to fork over far more than the $2 billion it already has promised to settle class-action suits, including claims from 410,000 women with breast implants. Or that as many as 5,000 other women have filed individual lawsuits against the company. "I knew this was going to be a tough issue," says Hazleton. "I'm not discouraged."

The mounting legal onslaught prompted the Midland (Mich.) company, once the leading maker of silicone-gel breast implants, to seek reorganization on May 15 under Chapter 11 of the federal bankruptcy code. It also catapulted Hazleton, a little-known chemical engineer who took Dow Corning's helm nearly two years ago, into the limelight.

QUICK STUDY? Until now, the 52-year-old Chicago native has kept a low profile, letting the company's lawyers fight its battles in the courtroom. Now, Hazleton suddenly is playing front man, aggressively defending Dow's implants against charges that link them with auto-immune disease. More crucial than polishing Dow Corning's tarnished image, though, will be Hazleton's tricky balancing act as mediator. As Dow Corning wends its way through reorganization, Hazleton must try to placate a bankruptcy judge, disgruntled creditors, angry breast-implant litigants and their lawyers, anxious employees, and balky insurers.

Such maneuverings "were nothing I ever learned about in chemical engineering school," Hazleton admits. He had better be a quick study. A bevy of plaintiffs' lawyers, including Cincinnati attorney Stanley Chesley, packed the courtroom of U.S. Bankruptcy Judge Arthur J. Spector on May 17 as he heard the first round of motions on Dow Corning's filing. They want to use their inside perch on a creditors' committee to block any reorganization plan that doesn't provide adequate compensation for their clients. Wendell H. Gauthier, a New Orleans plaintiff lawyer involved in the settlement, says their huge legal claims will give implant litigants plenty of clout in bankruptcy court. "We think the victims may fare better from Dow Corning because we'll be involved," he says.

Hazleton also faces intense pressure for Dow Corning to cough up more cash for the so-called global settlement in the class action. U.S. District Court Judge Sam C. Pointer Jr. said May 1 that the $4.2 billion fund, established 14 months ago by Dow Corning, Baxter International, Bristol-Myers Squibb, and other implant manufacturers and distributors, is dramatically underfunded.

Despite the long odds, "we would like to see a global settlement hold together," Hazleton says. Certainly, it's the company's best hope for settling the bulk of the claims against it en masse. But, he insists, "we don't have any more money to contribute." Dow Corning has already pledged $2 billion over 30 years, with a $275 million installment due soon after the settlement is completed. Conceivably, the bankruptcy court could order Dow Corning to pay more, based on the company's recent healthy results: Profits were up 33% in the first quarter, to $49.5 million, on record sales of $612 million. But to keep making payments to plaintiffs, "we have to remain a healthy company," Hazleton says. "It's not in anyone's best interests to bleed this company dry."

All of this is a far cry from what Hazleton expected in 1965, when he joined Dow Corning after graduating from Purdue University. He migrated from engineering into finance jobs, and in 1983 took charge of the company's big Midland factory. In 1991, he went to Europe to streamline the operation. Those were also "uncommonly difficult" economic times there, says Keith R. McKennon, the former Dow Corning chairman who chose Hazleton to be his successor: "Dick has the ability to make the hard decision."

So far, too, Hazleton has effectively negotiated what insiders call a tense relationship with Dow Corning's joint venture owners, Dow Chemical Co. and Corning Inc. Hazleton responded to his board's growing anxiety by quietly building a consensus for a bankruptcy filing. "He responded to us with calm and objectivity--always in short supply in something as contentious as this," says Dow Chemical Chairman Frank P. Popoff. Can Hazleton stay so calm through what is expected to be at least two years of bankruptcy proceedings? "It's not going to be fun or easy," he says. In that, certainly, he is not mistaken.


Claims and lawsuits against Dow Corning:

THE PLAN Dow Corning, Baxter International, and others created a $4.2 billion fund to pay off claims from a class-action settlement. Dow agreed to kick in up to $2 billion over 30 years. Women with implants had the option of skipping the class-action settlement and suing on their own. Dow Corning set aside $241 million as a reserve against such lawsuits.

THE RESULT Of more than 1 million women with silicone breast implants, about 410,000 registered claims against the class action--far more than expected. A Federal judge overseeing the settlement in April declared the fund inadequate. Dow Corning says it also currently faces 3,000 to 5,000 individual lawsuits in the U.S. Its original reserve now looks inadequate as well.