[TheAceOfHearts]

> Financial research firm CreditSights estimates that 3M could ultimately be on the hook for nationwide PFAS cleanup costs of up to $142.7 billion. That’s almost triple the company’s $53 billion market capitalization, and that’s before any personal injury claims and other lawsuits.

What does this actually mean? It's just showing off a big number without giving any real context. 3M is the only manufacturer of tons of important materials as I understand it, so it's not like they can just get erased from the market. But what does accountability actually mean in this context?

[slymon99]

They go bankrupt, because their liabilities exceed their assets. There are three main sets of creditors - the US government who are receiving this $142.7 billion, equity shareholders who own $MMM, and bondholders. In a bankruptcy, you arrange levels of creditors by "seniority", where more senior creditors are paid first. In this case, I would imagine the levels of seniority are:

1. The US government 2. Bondholders 3. Equity shareholders

3M has plenty of assets to be distributed to the creditors - the manufacturing capabilities that you mention, intellectual property, relationships with purchasers. These assets might be sold directly on the market (this is easier with physical assets like manufacturing labs). A new corporation with new management might be established to handle liquidating the assets, or even running the business (this is what happened with FTX). Either way, it seems like bondholders and shareholders alike would get zero'd out and the US government could do what it want with 3M's assets.

To answer your question succintly: > 3M is the only manufacturer of tons of important materials as I understand it, so it's not like they can just get erased from the market

3M is a corporation and one of their assets is their ability to manufacture tons of important materials. 3M the corporation would be obliterated but their ability to manufacture tons of important material would likely be sold off.

[CameronNemo]

The shareholders shouldn't just get zeroed. There should be a clawback of profits made by 3M since the 1970s. Raid my 401k -- someone has to pay.

[abeppu]

Everyone's hating on this, but I do think we have to rethink limited liability because of some of these contexts. 3M paid out dividends for years while producing these chemicals. Their liabilities exceed their _current market cap_, but their market cap could have been higher had they not decided to consistently make those payouts.

Consider J&J's (failed) attempt to spin out a new company to hold their liability over the talcum powder case. It was attacked and shot down because it was so clearly a post-hoc maneuver. If they had merely spun out that child company earlier, would it have been ok?

What if the new playbook is:

- spin out a new company for every potentially risky product line. A parent company may hold a large stake, but other investors can hold shares too.

- sell, grow revenue, but keep few assets in the company; pay out dividends aggressively

- drag out or quash or deny any research or evidence suggesting your product is dangerous, or being sold in an irresponsible way

- when you're finally sued and lose, the company has very little money left in it; plaintiffs get relatively little compensation for their harm, but you don't care because you're busy growing your next dangerous company

If that works, it sounds like a broken system. If you're doing something you should expect will cause large liabilities to crop up later, it seems abusive to pay out dividends to shareholders today and become insolvent tomorrow.

[sokoloff]

We'll put you down in the "not a fan of the rule of law" category.

[CameronNemo]

Thanks!

https://www.copblock.org/40719/myth-rule-law-john-hasnas/

[rapht]

Hello, "limited liability company".

[hgsgm]

Taking the L out of Limited Liability Corporation.

If you paid $100 for a share after the damage was done, who should pay? You, or the shareholder who sold to you?

[KMag]

Exactly. Dollars are fungible, and spread around the economy pretty quickly. It's just not clear the "right" way to do any clawbbacks after a few years. If not done carefully, someone who inherits $1,000 worth of stock from their rich uncle on just the wrong day could the very next day discover they've inherited a $100,000 debt through the crime of being born in the wrong family. People die, people inherit stock, there are lots of second- and third-order effects to take into account in order to have a proper accounting of everyone who profited from the misbehavior.

In a relatively short period, the answer becomes "pretty much the whole economy benefited financially". On the one hand, that's a good argument in favor of partially funding the healthcare system via a financial transaction tax, but is also less emotionally satisfying than what you're looking for.

If you want to make long-term clawbacks practical, you need to do something like force all dividends to be paid as long-duration low-seniority zero-coupon corporate bonds backed by a special-purpose legal entity that holds cash/treasuries to fully back the bonds and can only be raided via bankruptcy hearings. That way, the value is kept non-fungible and risk explicitly tracked.

Though, in practice, equity holders would probably sell those bonds immediately on the market, offloading the risk to third parties. You could make the bonds non-transferable except in case of inheritance, and ban short-selling/creating derivatives to prevent transferring the risk, but that's a lot of complication and overhead with little chance of improving corporate behavior.

Ultimately, long-term corporate responsibility is much harder to enforce than long-term personal responsibility. You need a licensed Professional Engineer (or something similar) overseeing safety testing of the chemicals putting their personal career on the line with their stamp of approval. "If everyone's responsible, nobody is responsible." You need a mechanism to make individuals both responsible and legally empowered.

[Ekaros]

Both?

Just track everyone who has ever owned a share and confiscate their whole property.

[sigstoat]

what’s the point of even typing such silliness? you just said “confiscate the property of everyone on the _planet_ who has ever had a retirement account”

you might as well propose “we should just snap our fingers and wish really hard for utopia”

[batmenace]

Well if the company goes bankrupt, theoretically other companies can buy e.g. 3M's patents / processes / subsidiaries and continue their production. THe company isn't unprofitable, so it would be sold off in parts and the proceeds of the sale (theoretically) would go towards settling lawsuits.

[s1artibartfast]

or it might just be sold as a whole to another company, or continue to exist post bankruptcy

[dylan604]

Unlikely though. Nobody would want to buy the company whole as that would include all of this liability. Selling of the individual parts to raise funds for paying the debts of the unsold parts of the business entering bankruptcy seems like the only way to go

[s1artibartfast]

Breaking it up doesn't change the liability post bankruptcy.

[nickelpro]

If I buy a candy bar from a bankrupt chocolate company I don't inherit any liability from the candy bar.

"Breaking up" a company by selling its assets and distributing the profits to creditors absolutely does vanish the liability.

[s1artibartfast]

I think maybe we're confusing terms here. Breaking up a company normally means separated into smaller existing companies. If you buy 3m's candy bar division, you still might be on the hook for the forever chemicals the candy shop dumped in the river.

If you're just talking about dissolving a company and selling off the tangible assets, not selling off functional business units then I agree, liability doesn't follow material Goods. This generally isn't considered breaking up a company.

Breaking up a large company into smaller ones during bankruptcy does not by default absolve the smaller companies of liability. Courts can add bankruptcy settlement terms that absolve a company of liability moving forward, but these can be applied to the company at all as a whole or the smaller businesses if it is broken up.

[dylan604]

I didn't say it removed the liability of the company. It just means that the company that is left after selling off its profitable assets has the burden of the liability but with nothing but literal toxic assets. They can use the proceeds of the sales to start paying down the debts.

The assets sold would obviously not be the toxic assets.

[s1artibartfast]

See my response to the sibling post for Clarity on what I mean.

The nature of the liability depends on what is being sold off and the terms of the bankruptcy settlement

[prpl]

There’s some irony that one of the M is for Mining - the poster boy for superfund cleanups. I guess this would be an ultrafund

[arrosenberg]

What it should mean is the US government taking ownership of the company, appointing its' own executives and either selling the company to pay for the cleanup, or using the forward profits from the company to pay for it.

That won't happen, but wouldn't it be nice if it did? Just once.

[simonster]

It means that the market believes they are unlikely to be on the hook for that amount, or else the market cap would be near-zero. Given 3M's current profits, assets, and liabilities, a 142.7B payout would bankrupt it.

[paiute]

I'm starting to see a pattern which basically amounts to corporate shakedowns. I think the trend has only been accelerating since Perdue Parma. They will take the money and never do a thing to clean up the chemicals.

[hgsgm]

Better than not taking the money, at least.

At a minimum it reduces inflation a tiny bit which helps everyone.

[moomoo3000]

Are there examples of that happening?

[kmod]

Assuming those numbers are realized it would mean bankruptcy, essentially, and questions like this are pretty standard and well-thought-about there. IANAL but I think this is why Chapter 11 bankruptcy exists (where you keep the company going because that's valuable) vs Chapter 7 (where you liquidate it). I think the Purdue bankruptcy is similar where the company is somewhat being handed over to the people that were harmed, because that's more valuable to them than selling the company piecemeal and then distributing the proceeds.

[TylerE]

3M going under would be bad in a lot of ways. They are THE name is serious respiratory and other PPE, for instance.

[Jeff_Brown]

Would it? If they can earn the value of their liabilities in three years, why not just do that?1

[sokoloff]

How can they do that? Their entire sales for full year 2022 were only $34.2 billion, with adjusted free cash flow of only $4.7 billion.

They literally could not cover the interest charges on a $143B judgment, let alone pay it off in 3 years.

[Jeff_Brown]

I stand corrected, thanks.

[feifan]

I read that sentence as saying someone came up with a cost estimate of $142.7b to clean up everything, and then there's a comparison to 3M's $53b market cap for scale/comparison.

[cwkoss]

I don't think all the money in the world could cleanup "everything" that is contaminated with PFAS - it is effectively pervasive in the ecosystem at this point.

[delfinom]

Government bailout, it's clearly too big to fail

[NickC25]

Exactly. They should be nationalized. If they are the only producer of a number of strategically important materials, nationalization needs to happen.

The private markets are great, but cannot be trusted to clean up after their own mess - they have proven this time and time and time again. The taxpayers will ultimately be on the hook for this payout, and that's simply unacceptable.

If the public has to bail out this company, at the very least, the board and C-Suite need to be liquidated and be fined substantially for this sort of behavior. They've known about the danger of these chemicals for almost 60 years, and not once did they (AFAIK) go to the government and actively ask for help to replace said chemicals with safer alternatives that don't literally last forever if consumed.

[gwright]

Right, because nationalized industries/companies have a wonderful track record of environmental concern and practices?

I'm not sure what the solution is to these problems (or this particular problem) but "nationalizing" producers certainly isn't one of them. Destroying 3M isn't one either.

I don't understand the approach to difficult problems that starts with thinking "the government" is effectively a magic wand.

[NickC25]

I'm not saying nationalized companies are great. I'm saying that if a company engages in such deceptive practices with materials that they know are toxic, and they fail to disclose that to the relevant parties (the government, and the people), they have no business being in business, as they are effectively externalizing the risk their products put on the rest of us.

Destroying the company is not the best idea, but there has to be a line society has to draw and be vigilant about defending it. Otherwise, you're going to just encourage more of this behavior...because the flip side is a really ugly precedent to set.

You want companies to use toxic chemicals in their products, lie about it, and when found out, just pay some fine and walk away like nothing happened?

No, there has to be a line where we say "you made a ton of money by lying to us and putting toxic chemicals in our air, our water, and our bodies. you're going to now pay that back with substantial interest, and be barred from ever being in a position of any level of corporate power whatsoever for the rest of your life". The taxpayer CAN NOT be the one to be on the hook for corporate misdeeds time and time again.

In countries like China, executives get disappeared for such hubris.

[youreincorrect]

> Destroying the company is not the best idea, but there has to be a line society has to draw and be vigilant about defending it.

Why is it not the best idea? It's a great idea. Fine them more money and let them go bankrupt. Let companies that did not go under for such awful practices pick up the pieces. Why is bankruptcy acceptable for Kmart but not 3M? Be specific, no nonsense about how they are the only company in existence ever capable of creating some mysterious chemical yet also only have a $50B market capitalization (if their chemicals were so rare, impossible to produce, and highly sought after, market cap would be higher).

> The taxpayer CAN NOT be the one to be on the hook for corporate misdeeds time and time again.

I don't understand. You think the taxpayer cannot be on the hook, yet you also think we are obligated to bail out the business by nationalizing it? What do you think nationalizing a business entails? It would literally place the taxpayer on the hook for that business. Nationalizing it would not imply any guarantee the business remains profitable, and future losses would be owned by the public.

I do agree that execs should be punished more severely though. We are absolutely on the same page there. And I don't care if the current execs are not the original execs responsible. As far as I can tell, they've allowed the problem to continue if not get worse.

[justrealist]

The US government cannot and should not run a chemical company. It's a dumb idea.

You're just throwing around the word "nationalize" because it feels empowering and edgy, not because it solves any problems.

[NickC25]

Thanks for taking my points in good faith - others have not done the same (or to your points either). Upvoted.

>Why is it not the best idea? It's a great idea. Fine them more money and let them go bankrupt.

It's not good politics, unfortunately. The political actors that have the will to do such a thing would get trounced by the next "pro business" candidate, and a lot of Americans would back such a candidate no matter how obvious the problem is. Job losses (albeit temporarily) as well as the temporary supply shock if 3M is the sole producer of any chemical or material that is of strategic importance. Voters who aren't the smartest lot would eat that sort of candidate up, and that candidate would also be backed heavily by other corporate wrong-doers who might also be in the crosshairs down the road. It's a tough situation.

The issue then becomes - if they don't have enough money to pay the fine, who is on the hook for the remaining damages? Think about it - if the company's market cap, assets, C-Suite/board combined net worths, etc.. is worth $N, and the total fine is $X (and N is less than X), who picks up the remainder of the cost to fully help those affected by the toxic chemicals? It's a tough question.

On a personal level, I fully agree with you - burn the company down and punish their board and C-Suite. Those who play by the rules get to participate in the free market, and those who don't need to suffer (and have their golden parachutes shot down). Skirting the rules is hubris at the end of the day, and hubris is not good.

>I don't understand. You think the taxpayer cannot be on the hook, yet you also think we are obligated to bail out the business by nationalizing it? What do you think nationalizing a business entails? It would literally place the taxpayer on the hook for that business. Nationalizing it would not imply any guarantee the business remains profitable, and future losses would be owned by the public.

Fair point. This is where things become difficult - because as I said above, who ultimately bears the responsibility if the company cannot afford to pay the full cost of damages? My solution would essentially be placing the company into a trust owned by the government - and the trust would be responsible for conducting a sale of the company's assets in a timely fashion.

The problem is that the taxpayer eventually foots the bill in one way or another. Damned if you do, damned if you don't.

>I do agree that execs should be punished more severely though. We are absolutely on the same page there. And I don't care if the current execs are not the original execs responsible. As far as I can tell, they've allowed the problem to continue if not get worse.

Fine them all. Old and new.

[mensetmanusman]

In a company of 100k, probably like 8 people are at fault for this from the 80s and 90s. The rest are taking orders and are working on completely different areas of industry.

3M only works because they share R&D across various divisions. If it was broken up, the R&D goes away and new materials development all moves to Asia.

[CoastalCoder]

I wonder - could a bankruptcy court simply transfer ownership of all 3M stock to the injured parties?

Seems to me that would make them as whole as possible, while retaining 3M's ability to manufacture other crucial products.

[BobbyJo]

That's effectively how bankruptcy works but with more paperwork. You take assets (whether it's the deeds to the equipment or ownership of the whole company via stock) and you give the value of that (in the form of money or assets) to the claimants.

Either way it's a transfer of wealth from the current business owners (stockholders) to claimants, just a matter of how that transfer happens.

[atoav]

Socialization.