An Engaging Editorial What’s Stifling American Manufacturing? by Frank C. Sullivan

As this annual report is being mailed, America is entering the heart of election season. Politicians from both parties are wringing their hands over severe challenges in the economy. Certain to be missing from the many solutions being suggested to fix our current economic problems are two things that could do much to support America’s vital manufacturing sector.

One is the reduction of burdensome regulations that hamper America’s ability to compete on a global basis. American manufacturers are hamstrung by much of the regulations surrounding the Sarbanes-Oxley Act, which were inspired by financial market shenanigans perpetuated by a handful of companies like Enron and WorldCom. What has five years of implementation of the overly burdensome Sarbanes-Oxley law done to head off today’s financial crisis? Not much, as we learn while enduring our nation’s worst financial and credit crisis in a generation. As Congress and government agencies write new regulations, they must also relook at minimizing or eliminating the existing burdensome regulatory regime that has done little or nothing to forestall yet another financial market disaster.

The second area is pursuit of meaningful tort reform that holds trial lawyers accountable for deliberate fraud in mass tort cases.

As you will note from our letter to shareholders, we are taking yet another sizable asbestos liability reserve charge bringing the total amount expensed through our income statement since 2004 to nearly $900 million.

As a reminder, RPM’s asbestos liability is principally associated with a patch-and-repair product manufactured by our Bondex subsidiary or its predecessors. It was discontinued more than 30 years ago. Bondex sold a patch-and-repair product that had a mere one percent of its product category, and it was only sold in hardware stores. Significantly, this product did not have the commercial or industrial distribution that led to the sustained occupational-based asbestos exposure that is the proven cause of asbestos disease.

Today, most of RPM’s asbestos liability costs are associated with people truly sick from asbestos disease. Yet, in more than 90 percent of our cases, these individuals had years of exposure to asbestos-based products on a daily basis in occupational settings, such as shipbuilding, insulation, boiler making and other areas. Unfortunately, for these individuals, the companies associated with the products that they used are either gone or in bankruptcy. Despite these facts, or perhaps because of them, plaintiffs are often coached to identify this small Bondex product as the cause of their illness. While it is believable that someone would remember their exposure to a product they used repeatedly on a daily basis over the lifetime of their work, it is inconceivable that somebody would remember going to a hardware store in the 1960’s and buying a product for a small D-I-Y patch-and-repair project in their home. Yet, that is the basis for the nearly $900 million of charges that we have taken through RPM’s income statement. There is a legal term for this coaching: “Subornation of Perjury,” which is the crime of persuading another to commit perjury. According to Wikipedia, subornation of perjury “may be applied to an attorney who presents testimony or an affidavit the attorney knows is materially false to a judge or jury as if it were factual.”

More than 80 American manufacturing companies have been put into bankruptcy because of asbestos lawsuits, and we now know that much of this was done on the basis of hundreds of thousands of fraudulent medical diagnoses. To quote one federal judge, these cases were “manufactured for money.”

The subornation of perjury that happens regularly in asbestos cases against thousands of American companies, along side the now-revealed fraudulent medical diagnoses, must be addressed by Congress, prosecutors and by judges, who themselves, when aware of these activities, can put a halt to this pervasive corrosion in our justice system and its related destruction of what remains of America’s mighty manufacturing base.

The American manufacturers still standing in many ways are the envy of the world. We have survived the competition from globalization and cheap offshore labor. We are here to stay – unless what remains of the vibrant American manufacturing base is driven away or killed by American legal and regulatory system self-inflicted wounds.