By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
The Environmental Protection Agency (EPA) on Tuesday doubled down on its previous call that the chemical herbicide glyphosate is safe, making one wonder: is this a 737 Max Redux moment?
The agency announced in an April 30 press release:
EPA continues to find that there are no risks to public health when glyphosate is used in accordance with its current label and that glyphosate is not a carcinogen. The agency’s scientific findings on human health risk are consistent with the conclusions of science reviews by many other countries and other federal agencies. While the agency did not identify public health risks in the 2017 human health risk assessment, the 2017 ecological assessment did identify ecological risks. To address these risks, EPA is proposing management measures to help farmers target pesticide sprays on the intended pest, protect pollinators, and reduce the problem of weeds becoming resistant to glyphosate.
“EPA has found no risks to public health from the current registered uses of glyphosate,” said EPA Administrator Andrew Wheeler. “Today’s proposed action includes new management measures that will help farmers use glyphosate in the most effective and efficient way possible, including pollinator protections. We look forward to input from farmers and other stakeholders to ensure that the draft management measures are workable, realistic, and effective.”
This announcement reaffirms the agency’s previous position, according to the this May 1 NYT account.
Bayer acquired Monsanto for $63 billion in one 2018, and assumed liability for pending litigation against Monsanto, which originally developed and marketed, Roundup, the world largest selling herbicide, based on glyphosate. Bayer reported last week that 13,400 US Roundup lawsuits are now pending.
I wrote about Bayer and Roundup in this March post (see Second Roundup Decision: Jury Finds Weedkiller a “Substantial Cause” of Plantiff’s Cancer).That post discussed the second jury verdict against the company and rather than recap the arguments I made there, I’ll pick up where I left off and only discuss subsequent events.
Bayer returns to court this month for a third action, this time involving a husband and wife who claim long-term exposure to Roundup caused their cancer. Four more lawsuits are expected to come to trial in 2019, according to an April 26 WSJ report.
The EPA’s decision provides a boon to Bayer, as Fortune reports, as “now Bayer’s lawyers get to point to the EPA’s opinion as backing up their central argument that glyphosate is not carcinogenic.”
But environmental groups and other regulators disagree with the EPA’s findings, as Ecowatch reports:
Environmental groups have cast doubt on the [EPA’s] findings, saying they dismiss the conclusions of other public health experts. Just a few weeks ago, the U.S. Department of Health and Human Service’s Agency for Toxic Substances and Disease Registry released a toxicology report for glyphosate that acknowledged its health risks, the Natural Resources Defense Council (NRDC) pointed out.
The Environmental Working Group (EWG) agreed, pointing to the 2015 conclusion of the World Health Organization’s International Agency for Research on Cancer, which ruled it was “probably carcinogenic to humans.” EWG also cited a January report published in Environmental Sciences Europe that found the EPA had disregarded independent, peer-reviewed research that showed a link between glyphosate and cancer in favor of Monsanto-funded studies saying it was safe.
The EPA decision isby no means a get out of jail free card. As Fox points out, Bayer could still opt to settle the pending cases:
Damien Conover, an analyst who covers Bayer for Morningstar, estimates that it could wind up paying €2 billion ($2.2 billion) in costs related to glyphosate litigation.
In a worst-case scenario, Conover predicts costs could rise above €13 billion ($14.6 billion). It’s hard to put an exact number on the liability without knowing more about the quality of the cases, he said.
Bayer is presently pursuing a full speed ahead, damn the torpedoes approach – aka, a controlled flight into terrain? The WSJ reports on May 1
Roundup is getting an advertising boost after thousands of plaintiffs have alleged that the world’s most widely used weedkiller causes cancer.
Bayer AG, the manufacturer of Roundup, and Scotts Miracle-Gro Co., which markets it to home-and-garden retailers in the U.S., have spent millions of dollars this year on expanded marketing for the weedkiller, Scotts executives said.
“We were concerned, the retailers were concerned,” James Hagedorn, Scotts’ chief executive, said Wednesday on a call with investors. So far, he said, U.S. consumers haven’t abandoned the product.>
As CBS reports, consumers may still sour on glyphosate as continuing details emerge, either via revelations in litigation, actions of other regulators, or activist activity:
In addition to lawsuits, Bayer has found itself trying to tamp down a bout of unwelcome PR that came with reports by consumer groups contending traces of the chemical were showing up in beer and wine, as well as some children’s cereals Bayer dismissed the claims as “misleading.”
Glyphosate is the most widely used herbicide in U.S. agriculture. Beyond its use by farmers, Roundup is sprayed on golf courses and residential lawns to kill weeds.
Bayer has also helped finance damage control on behalf of Scotts Miracle-Gro, to which it licenses its consumer business. Scotts CEO Jim Hagedorn told analysts in a conference call that the controversy made the future less than clear. “I can’t predict that it’s going to be as good next year,” Hagedorn said Wednesday. “It’s the court of public opinion and consumers that matter here.”
Bayer’s Woes Extend Beyond its Potential Roundup Liability
Before the EPA decision was released, the FT reported Tuesday, Bayer faced a potential ratings downgrade, with Moody’s warning that a costly Roundup settlement would push its bonds into junk territory. At that point, analysts appeared to believe Bayer’s settlement exposure starts at 5 billion euros:
Any settlement worth about €5bn — still the base case for many analysts who follow Bayer — could be absorbed by the German group without jeopardising its credit rating. Should the cost spiral to €20bn, however, Bayer’s leverage could rise to a level where a cut to the group’s “Baa1” credit rating was necessary, and even a “Baa2” rating could look stretched. Such a scenario could leave the company’s rating just two notches above junk status.
But that’s not the only problem Bayer’s board and management face. As the FT reported on April 28:
The management and board of German conglomerate Bayer are under huge pressure to win back shareholders’ trust after a stunning vote of no confidence in the company’s bosses on Friday that has no precedent in German postwar corporate history. Investors vented their fury over the 38 per cent fall in Bayer’s share price since its deal to acquire US rival Monsanto closed last year. Once one of Germany’s most valuable companies, Bayer is now worth just the $63bn it paid for the US seed giant.
I’m no expert on German corporate practice, so I’m unduly reliant on the FTs April 28 report:
In a rare act of insubordination, a majority of Bayer’s shareholders at Friday’s AGM refused to “discharge” management. Voting against “Entlastung” or discharge is one of the strongest forms of protest available to investors under German law and Bayer boss Werner Baumann is the first serving chief executive of a Dax-listed company to suffer such a vote of no confidence.
Normally, the discharge vote is a formality, with management routinely winning the backing of more than 90 per cent of voting shareholders. If they garner substantially less than that, they are often in trouble. Shortly after 39 per cent of investors voted against discharging Deutsche Bank management in 2015, co-chief executives Anshu Jain and Jürgen Fitschen were forced out.
On Friday, 55.5 per cent of investors present voted against ratifying Mr Baumann and his team. Bayer’s directors were also hit by the revolt, with only 66 per cent voting to discharge the board.
The WSJ reported on April 29 that on the day after this vote, Bayer’s supervisory board poured oil onto troubled waters:
Bayer AG’s (BAYN.XE) supervisory board said Saturday that it stands behind the company’s management after a majority of shareholders refused to ratify management’s actions in 2018.
“While we take the outcome of the vote at the annual stockholders’ meeting very seriously, Bayer’s supervisory board unanimously stands behind the board of management,” said Werner Wenning, chairman of the supervisory board.
The WSJ further reported the company intends to contest upcoming glyphosate litigation vigorously:
“It is our top priority to vigorously and successfully defend the company in the upcoming appeal proceedings and trials concerning glyphosate, as well as to attain the ambitious operational growth and profitability targets communicated by the board of management in December last year,” said Mr. Wenning.
The consensus as of the beginning of the week was that Baumann’s position is safe – for the moment. The argument is that to force him out would plunge the company into chaos. But if the company were to lose more lawsuits – and suffer a ratings downgrade, that might prove to spark even greater chaos.
A May 1 Reuters report suggests that the supervisory board is now having second thoughts:
The supervisory board of Bayer is planning an extraordinary meeting to discuss a crisis of confidence in its leadership after an investor rebuke at the German drugmaker’s annual meeting, a magazine reported on Wednesday.
Citing an unnamed board member, Wirtschaftswoche magazine said the meeting would take place in the next two or three weeks: “We can’t just carry on like this,” the person said.
A Bayer spokesman declined to comment.
Reputational risk will remains a looming problem for Bayer.Concerns about glyphosate won’t just fade away – EPA happy talk notwithstanding.
Neoliberalism and US Regulatory Reputation
Alas, neoliberalism has led to the widespread acceptance of toxic ideas about what the relationship should be between regulators and the companies they regulate. First, there’s the idea that regulators should work closely with companies they regulate – rather than keep them on the straight and narrow. Second, is the idea that that self-regulation is a model to be championed. Third, is the idea that an agency should rely on company-funded studies when it makes regulatory judgments. Fourth is the idea that it’s okay to use the revolving door, hopping between being regulator and regulated.
The widespread acceptance of these ideas has led to the loss of credibility of US regulators. Let me just offer up a smattering of examples.
US financial regulation was once lauded, and the Securities And Commission (SEC) respected – and indeed feared. That seems to be a long long time ago and in a galaxy far away – although the agency was still a force to be reckoned with when I finished law school in 1991. That’s no longer the case. As I’ve written, that erosion set in long before Trump became President (see News Flash: Mary Jo White Claims SEC Produces “Bold and Unrelenting Results” and see The Obamamometer’s Toxic Legacy: The Rule of Lawlessness).
The 737 Max tragedies have damaged more than Boeing’s reputation. They’ve also harmed the reputation the Federal Aviation Administration (FAA) enjoyed for integrity. It’s my sense that particular agency’s good reputation endured – despite the obvious deterioration on different regulatory beats. Now regulators from Ethiopia to China no longer are willing to defer reflexively to US agencies – whether the National Transportation Safety Board on analyzing black box recordings or the FAA on certifying aircraft.
The EPA’s reputation has reached a nadir under Trump (see as just one example Another Win for Fossil Fuels: EPA to Weaken Basis for Calculating Mercury and Future Environmental Standards details of one of many concessions to fossil fuel interests).
As it has so less far to fall, the glyphosate call can’t damage the EPA’s present reputation significantly.
But if the WHO and public interest groups are right and glyphosate is indeed carcinogenic, the verdict of history on the EPA’s reputation will be much more harsh.