It was 2013, and Gabriel found himself alongside dozens of other newly enlisted Marines, watching artillery rounds go off as part of a training exercise. Following standard operating procedure, Gabriel, who asked that his last name be withheld, wore earplugs. For some reason, they didn’t seem to work. He brushed off the pain; in the Marines, he explained, “God forbid you come off as weak.” He wasn’t about to complain about an earache so early in his military career.
After training, Gabriel became an aircraft mechanic. Before turning 23, he rose to the rank of corporal and did a six-month tour in Bahrain. When he left the Marines, four years after his ears started ringing, an audiogram revealed that his military service had resulted in deep damage, leaving his hearing markedly worse than when he enlisted. These days, his ears constantly ring. His inability to discern the direction of noise leaves him paranoid, “especially at night, when I’m at home,” he told me. “You’re always focused on what’s going on, is there anything in the house … [and] if you can’t hear, you’re kind of at a loss.”
Meanwhile, Elliott Berger, a division scientist at 3M, was passionate about sound. His greatest joy, he told a corporate interviewer on the occasion of his 2018 retirement, was hearing the world’s diverse noises, “from the sounds of rain on a pane of glass to a zephyr from the west passing thru [sic] a grove of saguaros.”
Berger would probably lament Gabriel’s inability to hear a gentle breeze. But Gabriel’s hearing loss is one of the casualties of Berger’s successful career. While working at Aearo, a large, private equity–owned company eventually acquired by 3M, Berger falsified crucial test data.
By the time Berger and his bosses’ obfuscation was discovered in 2015, Aearo and its parent company 3M had supplied millions of earplugs to nearly all troops who served between 2006 and 2015. Each pair of earplugs was faulty, due to a mechanical flaw discovered in 2000 by Berger and another lab scientist, Ronald Kieper, and subsequently hidden. Now, more than 160,000 veterans, current service members, and civilians are suing 3M for hearing loss, in one of the largest litigations of its kind in U.S. history.
How 3M—the same corporation basking in a PR glow from providing masks and other gear to doctors and nurses during the COVID-19 pandemic—chose to sell flawed personal protective equipment to the U.S. military is a story of misaligned business incentives, rapid monetization driven by private equity, and risk transfer by financiers onto consumers for financial gain. It’s also a story of monopoly, of sole-source contracts and market power. The smoking gun of 3M’s deception was only discovered after the company tried to strong-arm another earplug manufacturer out of the business.
AEARO, ESTABLISHED in July 1995, showed the signs of a financialized scheme from the beginning. It was born when the Cabot Corporation, a maker of protective equipment, was caught manufacturing faulty respirator masks. Cabot distanced itself from the situation by bequeathing the respirator business to a newly formed subsidiary they called Aearo. It wasn’t exactly independent, however—Cabot retained 41 percent of Aearo, while Vestar Capital Partners, a private equity firm, held the rest. Under the terms of the agreement, Cabot indemnified Aearo for respirator lawsuits, so long as Aearo paid Cabot an annual $400,000 fee.
Sometime between 1995 and 1998, Cabot and Aearo parted ways, and Aearo’s financiers adopted a growth-at-all-costs mindset. The original management team was replaced wholesale in 1998. In the words of the new CEO Michael McLain, the old team had had too much of a “classical industrial orientation”—which seems to have meant they sought to balance the need for profits with concern for the consumer. Instead, under McLain’s leadership, Aearo engaged in a rapid push to reward shareholders, which had serious consequences.
In 2004, Vestar Capital Partners sold Aearo to Bear Stearns Merchant Banking, followed in less than two years by a sale to a third private equity firm for nearly double the price, followed in another two years by 3M picking up the company for $1.2 billion, an additional 60 percent markup. Along the way, McLain and a group of some 80 executives were able to buy in with equity stakes, incentivizing them to further maximize Aearo’s shareholder value. As McLain noted to a reporter, “Each time [Aearo turns over], everybody has done well.”
Unfortunately, by “everybody,” McLain only meant shareholders.
Shortly after McLain became CEO, Aearo began pursuing a lucrative contract to provide earplugs to the U.S. military. To get the contract, which eventually comprised a significant portion of 3M’s revenue, company employees had to cut serious corners, shortcuts that ultimately cost hundreds of thousands of people their hearing.
Aearo’s dual-sided earplug, called the Combat Arms Earplug (CAE), quickly became one of ordered over 20,000 pairs. In 2004, the CAE became standard for all deploying service members. During the ten-year period from 1999 to 2009, according to internal sales figures, Aearo supplied more than 5.2 million pairs of CAEs to the military.
Until the development of the CAE, earplugs had not been mandatory. With millions of earplugs newly deployed in the field, military audiologists expected to see a steep decline in medical issues. Instead, they were shocked to find that, by 2007, almost 52 percent of combat soldiers had at least moderately severe hearing loss. Disability payments for hearing loss and tinnitus (ringing in the ears) skyrocketed by 319 percent in the five-year period between 2001 and 2006; during at least part of that time, the CAE was standard issue. The troops in question all had functioning earplugs, researchers thought, so the cause must have been the uniquely loud weapons and style of urban, modern warfare. But the researchers didn’t account for the earplugs offering a mere 10 percent of the advertised levels of protection.
AEARO’S FIRST SHORTCUT with the CAE was its simplest: The company never tested the earplugs’ effectiveness before selling them. In November 1999, Elliott Berger admitted as much in an email to his boss, writing, “It recently occurred to us that we have no data on the actual version of the [CAE].” By that point, according to internal sales numbers, Aearo had already sold 2,000 pairs to the military, while never putting the CAE through controlled hearing tests.
Trials on the earplug didn’t begin until the following spring. Berger and Kieper decided to test the CAE in Aearo labs, using some subjects who were current Aearo employees. This gave Berger and Kieper more control over the tests and was, according to attorneys representing harmed service members, “consistent with Aearo’s ‘off-book’ practice of fishing for high [protection levels] by starting and stopping tests.” Indeed, when the CAE immediately fell short of the desired numbers, Berger and Kieper were able to stop the first trial after testing only eight subjects.
It was apparent to Berger and Kieper that something was seriously wrong with the earplugs; they were barely providing any protection at all. As Garrad Warren, the president of Aearo North America, would later testify, the results from that first test, if reported accurately, would’ve made the earplugs “impossible to sell.”
Berger and Kieper examined the CAEs and discovered a mechanical flaw. The CAE had a short stem, with large arms on each side. Each arm had three rubbery flanges that looked like small umbrellas stacked on top of each other. As designed, the stem of the CAE was too short, allowing the flanges to imperceptibly pull the earplug out of the user’s ear canal. With a longer stem, the problem might be averted.
Instead of going back to the design lab, Berger and Kieper decided to take another shortcut: They folded the flanges back. With this improvised method, they got much better lab results. The scientists took other shortcuts, too. They rounded numbers up and down as needed; in some tests, they folded back the flanges, and in others, they didn’t. The final numbers were so unreliable as to be largely fake.
Despite the unscientific methods, emails made public in subsequent lawsuits suggest that Berger thought Aearo could continue selling the CAE, as long as the instructions included in the package recommended folding back the flanges. To his boss, Brian Myers, Berger noted that “[i]t looks like the existing product has problems unless the user instructions are revised,” referring to the need to fold back the flanges. But Myers never responded, and Berger seems to have simply let it go. He was just one scientist of many, and it wasn’t in his job description to decide instructional messaging for the military. Berger later testified that he had no written documentation that the military was advised about performance issues with the CAE at all. Myers, in later testimony, said he “did not recall” communicating with any military official about the issue.
A 3M scientist told his boss “the existing product has problems unless the user instructions are revised.” There was no response.
THOUGH THEY WERE routinely used on the battlefield, the CAEs, up to this point, had limited military distribution. This changed in 2006, when the Defense Logistics Agency, part of the Department of Defense, formulated a Request for Proposal (RFP) with the CAE clearly in mind. The RFP requested dual-arm earplugs that coincidentally looked very much like Aearo’s model. The document provided minimal specifications, except for numerical requirements for how much noise the earplugs should block. To no one’s surprise, Aearo won the first $4.5 million contract, and several thereafter, making it the exclusive provider of earplugs for large portions of the U.S. military. (The Air Force is a notable exception; due to the constant noise of jet engines, that branch regularly issues earmuffs.)
Two years later, 3M bought Aearo, bringing it into its Personal Safety Division. 3M, formerly the Minnesota Mining and Manufacturing Company, is a throwback to the days of conglomerates, when the same firm could sell Post-it Notes and Scotch tape, and also aircraft parts and body armor. With $32 billion in sales last year and 96,000 employees, it’s a regular entry in the Fortune 500, a rare manufacturing stalwart with many plants in the U.S. It’s one of those boring companies that books solid sales and pays its dividends every year. (3M has increased its dividend for 62 straight years.)
But the Aearo acquisition highlighted 3M’s willingness to push the envelope. With a monopoly on the military earplug market, Aearo, and subsequently 3M, raised prices, inching upward from $5 to nearly $8 per pair. Such defense profiteering is in poor taste but not unusual. Procurement officers are not trained to evaluate technical data, audiological or otherwise, from contracted companies, and sales executives know they can take advantage of this dynamic.
CAEs were available for civilians to purchase as well, under a different brand name and at lower prices than the military (in 2006, according to a deposition, the civilian version cost approximately a dollar less per pair). With the majority of sales coming through the military, the massive profit margin of the monopoly defense contract inspired jocularity inside 3M. In one internal email later made public as part of a lawsuit, a marketing manager wrote, “$0.85 cost, $7.63 selling price … What more does he need to know? LOL.” A brand manager replied, “CAE pays the bills.”
Although 3M employees in the hearing division knew 3M was profiteering, and some knew the CAE protection data was falsified and unreliable, the earplugs indeed paid the bills for an outsized portion of 3M. Internal sales figures show that from 2003 to 2013, an average of $4 million in CAEs were sold per year. At its peak of usage, the CAE alone accounted for almost 20 percent of the hearing division’s total operating income, according to internal emails from executives.
Jim Mone/AP Photo
3M headquarters in Maplewood, Minnesota. It’s a rare Fortune 500 company with many manufacturing plants in the U.S.
3M’S MONOPOLY THOUGH, was not safe from outside attack. In 2011, panicked emails began to ricochet between executives. A competitor, Moldex, had decided to enter the earplug market, offering an earplug called the BattlePlug, priced below the inflated CAE. 3M got early warning thanks to its contacts in the military procurement office, and executives in charge of the contracts went into overdrive. Before switching to a phone call, the contents of which were not recorded, one emailed the others, “I can’t stress enough how important our prompt defense of 3M’s [intellectual property] is.”
What they resorted to was a frivolous patent infringement lawsuit. This is a common tactic for a monopolist looking to maintain its hold on a market. As Bert Foer, the founder and former president of the American Antitrust Institute, told me in an email, while all companies seek competitive advantage, corporations with high market share are “in the strongest position to do this because they are likely to be highly profitable, and also because they have the most to gain by expending money to exclude rivals from their market.” 3M benefited simply by filing this case; by using patent infringement claims to delay Moldex from entering the earplug market, 3M was able to extract a few more years of monopoly revenue.
But the case ultimately led to the collapse of 3M’s hold on earplug contracts. After a process that took over a year, Moldex won the patent lawsuit—their BattlePlugs were single-armed, and the CAE was dual-armed. Shortly thereafter, Moldex reciprocated with an antitrust lawsuit against 3M. As Moldex lawyers sifted through 3M documents during the discovery phase, they discovered the startling paper trail of the falsified tests from 2000.
Hours after learning that the damning CAE test results were in Moldex lawyers’ hands, Brian Myers, who was still a vice president at the now merged company, sent a frantic, late-night email to a supply chain manager. “Kay,” he wrote, “please cease shipping immediately and put on hold indefinitely the [CAE].” After over a decade of sales, the faulty earplugs were finally off the market—but only because Aearo and 3M had been caught.
The urgency with which the CAEs were pulled from the market reflected how poorly the plugs actually functioned, but it was about 15 years too late. Hundreds of thousands of troops had relied on the earplugs to provide protection and had suffered hearing damage. Many suffer constant ringing in their ears or have permanent hearing loss. Some can never hear high frequencies again, even with a hearing aid—which is particularly painful, because this deafness can overlap with the frequencies of the voices of their wives, children, and mothers. Troops who never saw action in the field still returned home with damage they never anticipated. “[We] never thought, at [age] 25 that we’d be losing hearing so quickly,” Gabriel told me.
In 2016, with the information it had gathered during the antitrust case, Moldex filed a whistleblower lawsuit with the U.S. government, alleging that Aearo/3M had falsified data and obscured the faultiness of the CAE. The government negotiated a $9.1 million settlement, of which Moldex received approximately 20 percent. (The government’s settlement comprised less than two years of 3M’s average revenue on the CAE.) Under the terms of the settlement, injured soldiers received nothing. Since then, separate lawsuits brought by individual soldiers have been winding through the courts. Most of them have been organized into a mass tort, a type of class action in which every participant has their own lawyer.
3M bought into a monopoly contract and used its monopoly power to extend it, as service members suffered hearing loss.
As of June 2020, the mass tort represents more than 160,000 veterans, current soldiers, and a few civilians who allege hearing loss as a result of Aearo/3M’s earplugs. A trial is expected to begin in the U.S. District Court for the Northern District of Florida, with the first bellwether cases scheduled for early April 2021.
The outcome of the mass tort remains to be seen, but 3M has remained defiant. The corporation asserts that the military forced them to provide faulty earplugs by requesting that the plugs fit into the standard carrying case. And during depositions, executives have insisted that they had the right to withhold testing data from the military. When asked if it was OK for Aearo/3M to sell a product and conceal information that would have a negative effect on soldiers, Martin Salon, a former vice president at Aearo, replied, “Yes.” Similarly, Timothy McNamara, 3M’s sales manager for the Midwestern U.S., was asked, “You don’t believe that the combat soldier is entitled to know … he has 90 percent less protection than represented by you because it was tested differently than you are telling him to use it?” McNamara answered affirmatively.
In a lengthy emailed statement sent to me by communications manager Fanna Haile-Selassie, 3M denied the mass tort allegations. “3M has great respect for the brave men and women who protect us around the world, and their safety is our priority,” the statement reads. “3M’s predecessor, Aearo, worked in close coordination with the U.S. military on the CAEv2 product and informed the military that the company’s testing had shown that the military’s decision to shorten the CAEv2 created potential fitting issues. The U.S. military was aware of those issues and the need to train users of the product to fold back the flanges on the opposite end, as needed, to get a good fit. We deny that any information was withheld from the government, and we deny that this product was defectively designed or caused injuries. We will vigorously defend ourselves against such allegations.”
WHATEVER THE OUTCOME, the case reveals something striking about how large corporations imagine their role in society. From its inception, Aearo existed as a limited liability shield between the financial well-being of its executives and the physical harm caused to hundreds of thousands of consumers. For the executives, Aearo made their career: Michael McLain made millions and now works at a private equity firm himself. For military service members, though, who trusted the U.S. government—which in turn trusted the data given to them by private contractors—to provide them with safe equipment, Aearo made their time serving more dangerous.
The case also reveals the bankruptcy of focusing on shareholder value above all else. From the shareholders’ perspective, Aearo was a pure win; at its peak turnover between private equity firms, shareholders saw Aearo’s value nearly double every two years. With gains like that, no shareholder would want to stop the money train. And with the bigness of 3M and the complexities of military procurement, no single consumer could claim hearing loss and make a difference.
Finally, it reveals the problem of monopoly. The sole-source contract granted to Aearo and then 3M removed the need to provide superior quality as the years went by, instead relying on the same faulty product. When 3M did face competition, it used a time-honored tactic to prevent that rival from getting to market, delaying its ultimate exposure, as service members continued to use its products and suffer hearing loss. 3M bought into a monopoly contract and used its monopoly power to extend it. Only a private antitrust lawsuit brought the whole thing crashing down.
During the coronavirus pandemic, 3M has been hailed as a hero for providing gear to protect medical personnel, which makes its previous role with personal protective equipment all the more salient. The contract 3M obtained from the military for N95 masks and other equipment, awarded without competitive bidding, totaled $1 billion, making it the largest federal contract related to COVID-19. The company’s past history of failing to meet expectations on government contracts didn’t deter the Pentagon.
According to Lucas Kunce, a former military officer familiar with defense procurement and an American Economic Liberties Project senior fellow (who, full disclosure, is one of my colleagues), “This appears to be another case of financiers monetizing risk. Like the subprime mortgage crisis or the 737 MAX … They appear to have converted a risk to service members’ hearing into profit for themselves. I wish I could say this was a one-of-a-kind case, but it’s not.”
Countless other financiers have leveraged the complexities of military contracting to slip faulty products into use. In some cases, as with the CAE, real people are hurt. But the cycle of monetization and light punishment continues, business school professors keep professing the morality of shareholder value, and the risk is always passed down to the individual.
Today, Gabriel has found work in the computer industry, where he thankfully doesn’t need to hear much. The ringing in his ears bothers him, enough that he’s helped recruit new plaintiffs to the case. “We’re going after a company that created a bad product on purpose,” he told me. “The military sued them first and won, and now it’s our turn.”
