The Environmental Ruin of Eastman Kodak
How one of the worst blunders in corporate history might have been avoided
Posted April 12, 2018
Business historians tell us that when Kodak declared bankruptcy in 2012, the main cause was the chemical film company’s failure to “move into the digital world well enough and fast enough.” Even though the company basically invented digital photography in 1975, its leaders were uneasy about the potential of “filmless photography” to undermine its core business in chemically-based film and paper production. When other technology firms began selling digital cameras in the 1980s, Kodak’s response was a megapixel device that required users to print the digital images to film and paper (it flopped). Kodak held religiously onto its identity as a chemical company throughout the 1990s and well into this century, opting complacently to sue other companies for infringement of its digital patents.
Business-school studies insist that Kodak could have avoided its downfall if only the company hadn't ignored market research about changing consumer habits; had understood that they were both a tech firm and a story-telling business; or if they had “let go” of the past and acted more like Apple or Fuji. All these mistakes could be traced to its leadership’s complacency. Enjoying gross profit margins of 70 percent in the chemical photography business, management was in no hurry to retool operations for a digital future.
Although this argument has been central to the story of Kodak's demise, it’s misleading if not completely wrong. It is based on an accounting error, both at Kodak and the business schools that use Kodak as the poster child of digital disruption. The bookkeepers ignored the firm’s environmental costs and social liabilities, which had accumulated for decades, measurable in tonnage of pollutants, toxic chemicals, and lives and habitats threatened by poisons seeping into land and waterways around and downstream from Kodak Park.
The company should have written down its profits against its toxic practices instead of discounting these costs as mere externalities. The rationale for leaving the chemical film business, at least in the Kodak mold, would have been much clearer to management and investors. Kodak might have survived if it had dealt seriously with the environmental disasters at its doorstep. Herein lies a lesson for media companies who have yet to face up to the ecological costs of their business models.
From the mid 1980s to 2000, the same period Kodak was floundering in the new digital photography market, the company had spewed more toxic emissions into the environment than any other corporation in the state of New York. People in and around the Kodak Park neighborhood in Rochester had suffered atypical levels of exposure to dangerous chemicals, the most dangerous of which was dioxin (a bioaccumulative and carcinogenic chemical, well-known in upstate New York for the Love Canal disaster of the late 1970s).
In 1989, The New York Times ran an article describing Kodak Park as “an industrial tableau of gray smokestacks and thick white plumes.” Residents reported toxic waste seeping into groundwater and billowing out of smokestacks. Schools were routinely closed. Tests showed ground water and soil included methylene chloride, acetone, and methanol. Methylene chloride is used in making film stock and is a potential carcinogen. A Kodak spokesman was quoted in the Times article saying “Residents are questioning our reputation, and we don’t like that,” adding that people should have realized that Kodak was a chemical company, not that it “just made the yellow boxes.”
The declining support for Kodak in Rochester, the epitome of a company town, should have sounded the alarm. Even Kodak’s pledge of $100 million to look into the problem was suspicious, especially after its spokespeople admitted that they had intentionally released tons of toxic chemicals the year before. By 1998, the company faced a $185 million lawsuit filed by Rochester residents. Their mendacity and anti-environmental arrogance had become liabilities that would contribute to the company’s ruin—and leave New York taxpayers with a huge clean-up bill.
The toxic legacy of Kodak’s environmental disasters was laid bare in 2014 when the Department of Justice’s U.S. Attorney’s Office for the Southern District of New York and the U.S. Environmental Protection Agency settled with Eastman Kodak in an agreement to have the bankrupt company pay its environmental debt to Rochester, Kodak Park, the Genesee River, and for its pollution in Superfund Sites in New York and New Jersey.
But the Justice Department and the EPA cut a sweet deal for Kodak, ensuring that New York taxpayers would foot half the bill. Kodak would be responsible for a paltry $50-100 million with additional payments of two to five million for clean-up and other forms of mitigation. By some estimates, it costs upwards of $100 million to clean up a single toxic waste site. Needless to say, environmentalists and local activists were appalled by the government’s settlement agreement with New York’s biggest and least trustworthy polluter.
The clean-up continues in 2018, both of Kodak’s history and the environment it carelessly polluted for decades. We probably should not be surprised that Kodak’s compliance record is not great. After all, it was a glorified chemical business in a company town operating in a state that makes deals with polluters all the time (see Hudson River and General Electric). It's time for media companies to clean up their acts and pay for the environmental costs of their business models—if they won’t do it for the health of the planet and its inhabitants, they should do so because it’s good business, as Kodak’s failure shows.