Philip Services CorpAll through the day and long into the night, fleets of trucks thunder through the streets of Hamilton and down into its industrial heart. The trucks haul load after load of waste to the sprawling industrial yards of Philip Services Corp., a local success story hidden amid the chugging steel mills that line the city's harbor. This little Hamilton firm, born of a two-truck hauling company, grew to become a world leader in the field of industrial services, traded on the New York and Toronto stock exchanges. President Allen Fracassi said proudly last year that Philip was one of the fastest growing companies in the country. It is now the largest resource recovery and industrial services firm in North America.
There has been growth - but, lately, in the field of bad news (page 54). On Jan. 27, the company announced an after-tax loss in 1997 of close to $260 million. That figure, the firm acknowledged, included $88 million worth of reclaimed copper that Philip could not account for. That much copper - 50,000 tonnes - would fill an estimated 2,500 dump trucks. It was the first crack in the shiny surface of a company everyone wanted to believe in - and there was more. Since early February, six different class-action lawsuits have been filed against Philip, on behalf of thousands of disgruntled shareholders who say they were seriously misled about the company's inventory and its financial health. And as speculation has mounted about the company's future, Philip stock has tumbled - to $13.50 at week's end from a September high of $27.90. Sources have also told Maclean's that the Ontario Provincial Police, Revenue Canada, the Toronto Stock Exchange, the U.S. Securities Exchange Commission and the RCMP are all investigating the company. Suddenly, Canada's waste-management kings seem to be mired in muck.
Some residents of Hamilton, watching the company's recent financial troubles, say it was only a matter of time - and that Philip was never what it seemed. It remains, to be sure, a corporate powerhouse: a $4.3-billion firm with 12,500 employees and 320 operations across Canada, in the United States and in Europe. But its history also includes some troubling blemishes. Almost two years after Philip announced with great fanfare that it was starting work on a cutting-edge plant in Hamilton to reclaim metals from electric arc furnace dust, the facility remains unbuilt. A similar plan to recycle old paint in British Columbia lumbered along unsuccessfully for five years before being shut down in 1996. The critics note that Philip has promoted its environmental image - but its sewage-treatment plant in Hamilton spews out effluent containing far more than the provincially prescribed limit for fecal matter.
Philip has faced down the opposition, relentlessly fending off scrutiny and trying to silence anyone who dared ask questions with a barrage of threats, injunctions and subpoenas. The Fracassis refused numerous requests for an interview from Maclean's. Lynda Kuhn, Philip's vice-president for corporate communications, said the firm was in "busy times" and could not respond. She also claimed that Maclean's was relying on information from a disgruntled ex-employee who was being sued by the company.
At the edge of Hamilton harbor, where smokestacks stab the sky and the air has a metallic tang, lies a bleak little avenue called Brant Street. It was once a low-income neighborhood, home to the men who worked in the steel mills. Allen and Philip Fracassi grew up there. Today, where the family home once stood, is a holding yard for the brothers' Philip Services Corp.: the boys from the 'hood made good. They started with a small trucking firm they took over from their father. Within 20 years, Allen and Philip Fracassi rose to be chief executive and chief operating officer, respectively, of a multinational empire. In the past two years, Philip has taken over an astounding 39 companies, and now has interests in businesses as diverse as demolition and water treatment. Today, the Fracassi brothers park their sleek sports cars outside huge stone houses in Ancaster, an upscale suburb of Hamilton.
The company was born as Philip Enterprises in 1980, when the Fracassis started making money by hauling loads of industrial sand - used in ingot moulds in the steel mills. They dumped out the sand in their own yard, sifted through it for iron and steel nuggets, and sold what they found back to the mills. They called it "recycling," just in time to catch the wave of green fervor that swept the country throughout the 1980s. There was money to be made in other people's garbage: Philip expanded until they had operations to reclaim, reuse or recycle almost everything, from pop bottles and cardboard boxes to the detritus from steel mill furnaces.
In its environmental policy, Philip promised to "be open and operate with integrity by protecting public health, safety and the environment." Investors, looking for environmentally friendly investments, rushed to pledge their funds. And Philip offered more than just a green solution: it was also dangling the promise of new jobs in Hamilton, a city struggling with huge industrial layoffs. Not to mention respectability in a region long criticized for its pollution problems. The strong recycling industry helped the region of Hamilton-Wentworth win recognition from the United Nations as a "sustainable community" in 1993. And as cost-conscious Ontario sharply cut back its environmental inspection staff, Philip boasted of its green policy and pledged to monitor itself. Everyone wanted to believe in the promise of Philip Services.
Has the promise been fulfilled? In April, 1996, the company gathered dignitaries at a site in Hamilton where it announced it would build a $26-million factory to recycle the dust from electric arc furnaces - used to smelt scrap steel. The zinc and iron from the dust - classified as a hazardous waste by the province of Ontario - would be reclaimed and sold, Philip said; the harmless leftovers would go to landfill. There was also a bonus: the Fracassis promised that the enterprise would create 120 new jobs.
William Saunderson, then-Ontario's Economic Development Minister, attended the ceremony, where Philip Fracassi said the use of the groundbreaking technology would show the company's "ongoing commitment" to the environment. But almost two years later, there is no sign of the factory. In 1997, Philip transported 51,000 tonnes of its dust stockpile to Sarnia, Ont., putting 17,000 into a hazardous waste landfill and 34,000 into an industrial waste dump after chemically stabilizing the dust so that, under environment ministry regulations, it was no longer considered a hazardous waste. As of the beginning of 1998, 75,000 tonnes of the dust still sat in Philip yards.
The company has said it delayed construction of the reclaiming factory because of reports that superior technologies will soon become available. But Mark Winfield, director of research at the Canadian Institute for Environmental Law and Policy, questions that explanation. "One would expect that a competitive enterprise in this business would be intimately acquainted with the technology available, its effectiveness and its cost," he notes. Philip now says it will be bringing in new technology from Britain, where it bought a metal recycling company, Allied Metals Ltd., in January, 1997.
Is this a textbook example of a practice critics call "sham recycling"? Waste-management firms often claim they will recycle a product, or that they will soon be able to, explains Ramani Nadarajah, counsel for the Canadian Environmental Law Association. "Then they are exempt from regulatory control." (By saying materials are bound for recycling, a company can store or transport them without many of the restrictions that would apply to the same substances if they were waste.)
It can also be lucrative - as Philip's paint recycling operation in Surrey, B.C., shows. In 1991, Philip bought a local firm that had tried and failed to recycle old paint, and promised to make the process work. The company used a kiln to burn the paint, planning to extract titanium dioxide for sale to manufacturers to make new paint. But that proved too difficult and costly. Then, Philip itself unsuccessfully tried to use the ash as a base for low-grade industrial primer. This, however, failed because of impurities in the ash, resulting in a primer with the consistency of glue. Finally, the company said it would send the ash to a hazardous waste landfill, while it tried to develop another method for recycling paint. Five years after Philip first promised to recycle paint, the ash was still going to landfill. But meanwhile, sources say, the company made an estimated $1 million a year on the paint operation: Philip was paid $365 a drum to haul the old paint away from manufacturers and autobody shops, and they put the ash in a landfill site for only $45 a drum, including labor and transport costs. The plant was finally closed in 1996; Philip employees at the company's Seattle office, which managed the plant, refused to comment on why it was closed or to say whether it had ever actually recycled paint.
If a company could lose 50,000 tonnes of copper, what could happen with its ever-increasing stockpile of hazardous electric arc furnace dust? That question, asked by environmentalists, only underscores the rocky relationship Philip has always had with its critics. In fact, Winfield and Nadarajah suggest it is stretching the definition to even call Philip an "environmental" business. "You have to look at what's been 'recycled' and what's ended up being disposed of," Winfield says. Philip might more accurately be described as a waste-processing outfit, he says - and sometimes such industries have a net negative impact on the environment. "These hazardous waste recycling processes can produce a wide range of emissions and sludges that are themselves classified as hazardous waste," Winfield explains. "That has to be taken into account."
But given what is at stake, controversy may always be a part of the Philip story. Not only does the company deal with dangerous substances generated in Canada, it is also one of the top importers of hazardous waste from the United States every year. And there have been stumbles: Philip has been convicted of four violations of the Environmental Protection Act in Ontario (including storing waste on a site not approved by the environment ministry, and transporting waste in a vehicle that was not leakproof), and of four more in Quebec for illegal hazardous waste dumping. Those violations cost the company more than $26,000 in fines. In Alberta, the company has been hit harder: an employee at the Philip waste-processing centre in Nisku, east of Edmonton, was convicted in 1996 of illegally dumping oil-contaminated soil, and Philip paid a $100,000 fine.
Last fall, Philip took over disposal of PCB-contaminated soil for General Electric in Toronto. The company trucks the carcinogenic waste to St-Ambroise in the Saguenay region of Quebec, for burning in an incinerator owned by Vancouver-based Bennett Environmental Inc. - even though an inquiry held by the Quebec government has found that test burn results done by Bennett were inconclusive about the effects of burning PCBs. The local community is outraged: Philip trucks were blockaded and searched for PCBs on Jan. 21 while passing through Laurentian Provincial Park. "Politically, this is not a good time to be bringing Toronto's PCBs to the riding beside Lucien Bouchard's," says Daniel Green, of the Montreal-based Société pour Vaincre la Pollution (the Society to Stop Pollution).
But Bouchard's government has, to some degree, cleared the way for Philip. Last October, the Parti Québécois amended the province's laws: while the incineration of PCBs is still regulated, the burning of contaminated soils is not. Philip can transport and process soil in Quebec virtually unmonitored. "Companies like Philip see a way to make a fast buck, transporting this stuff and burning it," says Green. "And no government is going to stop them." In Ontario, Winfield says Philip has also had some lucky breaks from that province's government. He points to a controversial 1997 Ontario Court of Justice case in which Philip successfully argued that the lead-drenched plastic left over when valuable copper is extracted from old cable was not waste - because it could theoretically be recycled. "That decision means that virtually all recycling activity falls outside the waste-management provisions of the Environmental Protection Act," he says.
In 1992, Dr. George Sorger, a biology professor at Hamilton's McMaster University, began a program to teach local high-school students how to test the water quality in rivers and streams. Two years ago, as a class project, the students studied Red Hill Creek, which runs past Hamilton's sewage treatment plant - managed since January, 1995, by a Philip subsidiary - and empties into the harbor. The students took samples of water above the plant, and then from a site below where effluent is discharged from the plant into the creek.
The results of that work showed that the plant was discharging excessively high amounts of total coliforms - bacteria from human and animal intestines - and of the bacterium E. coli, both of which indicate the presence of fecal matter. Samples collected by Maclean's on Jan. 31 showed that, on that day, Philip was spewing more than 300 times the allowable limit of those indicators into the creek. "You can see the different color and you can smell it," Sorger said. "It doesn't take a scientist to figure out something's wrong here."
Leo Gohier, director of water and sewage treatment for the Region of Hamilton-Wentworth, says winter levels of E. coli are insignificant because sewage treatment plants stop using chlorine to kill the bacteria, instead allowing the cold temperatures to do the job. But Sorger says the Maclean's test matched his results from the summer of 1996 - indicating the plant is not doing its job. Since it began to manage the plant three years ago, Philip has itself collected test samples and handed them over to the on-site regional government laboratory.
Gohier defends the test results, noting that samples are collected both manually and automatically, and he says the facility functions well, just as well as it did when the region ran it before the Philip takeover. But employees maintain that the plant's performance has deteriorated - including a rise in the number of times raw sewage has been sent into the harbor. In January, 1996, an inexperienced operator shut off the plant's pumps, flooding the basements of 150 Hamilton homes with waste water and sending 180 million litres of untreated sewage into the bay. Carl Slater, Hamilton district supervisor for the provincial environment ministry, says he would like to hear from workers who feel the plant is mismanaged. "Like any enforcement agency, we can't be everywhere," said Slater, whose ministry's budget has been severely cut by the Ontario government.
In 1996, Philip also received permission to turn the Taro East quarry, above the town of Stoney Creek, into an industrial waste dump. The dump, built on fractured bedrock at the edge of the Niagara Escarpment, was bitterly opposed by local residents. Richard Leitner, a reporter with the Stoney Creek News, keeps a close eye on how Philip is running the site. He claims the company is respecting neither the letter nor the spirit of the environment ministry's certificate of approval. An important concern for the residents was the hiring of a full-time, on-site independent environmental inspector. Philip only hired an inspector a year after the company opened the dump, and he is on-site for only two-thirds of the time it is open, says Leitner, whose paper was shortlisted for a 1996 Michener Award for meritorious public-service journalism for its work on the dump controversy. "There are three or four complaints a month about dust and odor to the ministry, and we don't know what's happening with the leachate [chemically contaminated runoff] - it's a huge joke."
But Leitner knows that Philip is not an easy adversary. In early 1996, the company threatened the Stoney Creek News with a lawsuit if he continued to write about the Taro dump controversy. (His publisher pulled him off the story for a week, but after dozens of phone calls and an angry public meeting, Leitner was back on the beat, with no more threats from Philip.) Others have also felt the sting. Accountant Michael Hilson, who resigned from Philip in 1994, was served a $30-million lawsuit for defamation after he wrote a critical letter about the company to the Ontario environment minister in October, 1995. In April, 1996, Philip filed an $11-million lawsuit against journalist Paul Palango a day before he delivered a speech that the company thought might include the results of some of Palango's reporting on Philip. And Terry Ott, the volunteer host of a local cable show in Hamilton, found himself unceremoniously pulled off the air hours before show time one night in 1995, after a series of programs about the Taro dump. "Philip exerted a lot of influence in the political process in Stoney Creek, and I was criticizing their dump," he says.
In the end, Philip's intimidation campaign backfired. Instead, it galvanized a team of people who are determined to be watchdogs, keeping close track of the company's every move. Even at the sewage- and water-treatment plants, concerned employees have risked their jobs to provide journalists and community groups with samples for testing. Peter Yemen of Local 772 of the International Union of Operating Engineers, which represents plant workers, says Philip's modus operandi is "management by intimidation. I have more grievances with them since they've taken over than I have with my 36 other collective agreements put together."
But Philip has nurtured connections to high places. In 1995, the company was the ninth-largest contributor to the Progressive Conservative party in Ontario, sending the Tories $23,436. (Covering its bets, Philip also gave the Liberals $19,688; the NDP received $600). Tony Skarica, a maverick Tory MPP from Wentworth North, says there is a price to be paid for being on Philip's bad side. He defied both Philip and advice from a Tory cabinet minister to go public about the company's environmental record during the fight over the Taro dump. Philip's lawyer, Herman Turkstra, showed up at Skarica's office with a list of names of 80 Philip employees who live in his riding. "He was there to tell me that 80 people and their spouses would be voting against me in the next election if I continued to raise Philip's negative image," he says. Skarica was also subpoenaed by Philip in the Hilson lawsuit, and was grilled by Turkstra as though he was "part of a large conspiracy." Skarica says he was shocked by the tactics - he says that in 10 years as an MPP, let alone his own career as a lawyer, he had never seen such behavior from a company.
Philip's financial woes, meanwhile, are fuel for the fire for the citizen watchdogs. "Every day, regular people stood up to these guys and said, 'We're not letting this happen' - and every time they hit us," says Ott, who now covers Philip for the Hamilton alternative weekly View. "But now, we're getting up off the canvas. They're just not getting away with it any more." Those are fighting words - the kind the Fracassi brothers used to hear growing up on Brant Street.
Maclean's March 2, 1998