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Strategic Direction in a Competitive Environment

                    
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Ask the Experts Content 2001

December 2001

I'm a student considering an environmental career, but I'm concerned about the recession. What are the prospects?

As Steve said, we're short on experienced EH&S leaders. Although we have plenty of EH&S managers, are we cultivating leaders for tomorrow's need? This distinction is critical, as it will determine if the people holding senior jobs today are viewed as "taskmasters" or as strategic resources. Let's look at the context:

Job opportunities for entry EH&S positions are generally good, especially for engineering or science majors. Folks with several years of experience are especially attractive in today's market. If you are young or at mid-career with the right qualifications, prospects might look good, but what are your chances for long-term career advancement and security?

Neither corporations, the public nor the government recognize the need for experienced EH&S leaders. Top career positions often are filled by "administrators" taken from other professions, or by junior, lower-paid workers. We can question whether most executives consider these positions necessary.

Dramatic, unexpected events could change career prospects overnight, shifting EH&S managers from taskmasters to strategic resources. Professions do change that suddenly: look what Sept. 11 did for the security industry. And remember when job opportunities swelled on public outrage over gross contamination that triggered the pollution control era? New calamity could do the same for EH&S. For better or worse, I fully expect such a wake-up call will reinvigorate our field. Choose this career with eyes wide open, and if the balloon goes up during your tenure, expect a phenomenal job market desperate for experienced EH&S leaders.

Our nonprofit group wants to update our educational trailer display of renewable energy technologies. What interactive displays would appeal to school groups and the general public?

Personalizing the alternative energy technology message is a challenge. Anything seen, heard or touched enhances the impact of what is read. Visit any major science museum and you will find that the "touch me" theme dominates. I asked one of the leading suppliers of renewable and alternate energy devices, John Balfour, president of PerfectPower.Net (www.perfectpower.net), for his recommendations:

  • Fuel cells. Commercially available 1 kW fuel cells are about the size of a personal computer monitor and can be used as an uninterruptible power supply or a portable energy sauce (e.g., for camping). Educational fuel cells are available that clearly demonstrate the fuel cells breaking water into hydrogen and oxygen, and then recombining them to make energy. These are simple yet powerful portable tools.
  • Photovoltaic (PV). I presume that you already have PV modules. These can be upgraded to more efficient designs, but the key is to have them operate energy monitors, radios/stereos, CD players, televisions, water pumps or fans. Let the visitor experience PV technology in terms that are personal and immediate.
  • Solar heating and evaporative cooling. Commercial units are available and could readily be adapted to a trailer installation.
  • Wind. Commercial units may be impractical and dangerous if mounted within a trailer. Several wind-speed measuring devices could substitute visually for a "mini-generator."
  • Other technologies such as biomass, geothermal, and hydroelectric. The previous four technologies offer the opportunity see and touch the "real thing." These other technologies can be modeled, but one-of-a-kind models are expensive relative to photos, diagrams and text. There are new "micro-hydro" units available that would make a fascinating display, but these are expensive.

There are plenty of options, but the real challenge may be raising the funds to bring the displays to life. These days it is tough getting free brochures, much less free demonstration units. Distributors such as PerfectPower.Net will sometimes supply the equipment at cost. Check with the manufacturers and contact the local utility company. Ask volunteers or a like-minded company to sponsor a particular display. Be persistent.

 

November 2001

How would you recommend EHS managers proceed in these tough economic times?

A general guide:

DO:

  1. Take direct action. Waiting for management to tell you what to do won't set you apart in a good way.
  2. Dump non-critical programs and projects. Differentiating among pet projects, nice-to-have programs, and should-do work is difficult. Tough questioning by impartial individuals is essential. These people can come from outside the department or outside the company. Sometimes the "non-expert" can initiate the best, most challenging questioning.
  3. Reengineer your department. "Reengineering" has fallen out of favor due to disasters caused by management overlooking the human factor. Nevertheless, a systematic examination of "what is done, why, and how" can still lead to insights on what to eliminate or streamline. The traps to reengineering are well known: more thoughtful evaluations are possible.
  4. Draw attention to your good deeds. Serve as the role model on how to do things right the first time.
  5. Develop a plan, follow it, and keep management in the loop. If the call comes for more cuts, management will already know of the progress you are making, and will see you as part of the solution. If management refuses to consider your ongoing successes, you have a problem that transcends the situation. Maybe a job search is in order.
  6. Differentiate between your top and average performers. Now is not the time to give everyone similar pay raises (or cuts!) Your poor performers should already be gone. If not, shame on you.
  7. Seek feedback. Your staff, key leaders in the company and outside resources can help get you "out of the box," but only if you request their input aggressively.
DON'T:
  1. Hide in the shadows, maintain a low profile and assume that management will leave you alone. As a manager, you are responsible for helping to reduce costs.
  2. Use, "I have neither time nor resources" as an excuse to trudge along with business as usual. I have seen indecisiveness and "management by meeting" consume up to 50% of management's time. Good managers have plenty of time; poor managers just spend it non-strategically.
 

Knowing that plastic bags are environmentally more damaging but more economical to use than paper, how might a municipality go about banning plastic bags?

Plastics have gotten a bad reputation over the years. Some of the materials used to produce plastic products are toxic; plastic litter can be unsightly and long-lived. The paper-or-plastic question I get every time I go through the checkout counter is the retailer's response to the public sensitivity over this perceived problem.

Banning anything is not "the American way." And the facts of the situation do not support such a drastic action. A lifecycle analysis of paper vs. plastic does not back up the perceived environmental superiority of paper. Paper manufacturing employs toxic substances, and cutting down trees certainly is not environmentally friendly. One example: the production of 1,000 bags requires roughly 150 pounds of paper vs. 20 pounds of plastic.

The environmentally preferred solution would be to eliminate single-use bags. If you want to do something environmentally friendly for your community, lobby your municipal council to require local merchants to: (1) charge a nominal fee (say 10 cents) for single use plastic or paper bags; and (2) offer cloth or "permanent" tote bags which can be sold at a high profit margin and subsidized by the sale of single use bags.

Contact the American Plastics Council and the American Forest and Paper Association to hear both sides of this issue. If, after reviewing the data, you want to promote an environmentally preferred choice, be sure to differentiate the price (although you may have to charge less for plastic!)

Recognize also that other significant issues could be at stake. You may need to take into consideration your municipality's recycling infrastructure. I suspect that even good recycling programs may not adequately segregate either paper or plastics, and much of what is "recycled" winds up in municipal incinerators. The litter laws may need to be strengthened and enforced. Some things, such as "over-packaging" of products, cannot be solved locally. That takes state or federal action.

The last thing I would recommend is a ban on plastics. It may be doable in Berkeley and Aspen, but a ban would be nothing more than a "feel-good" act that ignores the real environmental issues.

 

October 2001

How might the September 11 terrorist attacks affect global environmental programs?

If I were an incurable optimist, I would believe that multinational corporations would recognize that they must institute aggressive environmental programs to demonstrate their commitment to the communities in which they operate or sell their products or services. Yes, maybe a very few will take this enlightened approach for long term competitive gain. Overall, the "collateral damage" of this heinous act will be widespread and affect us in ways we do not yet understand.

The combination of the current economic recession and the world's fixation on the war against terrorism will draw corporate, government, and public attention away from environmental issues. In times of war, the nation often sacrifices the environment for the sake of security. For example, the Department of Defense cleanup bill for fighting the Cold War could exceed the cleanup bill for all of industry. Expediency always wins when lives are at stake.

The diminished priority of environmental issues was driven home to me in the contrast between two recent stories: the heroic efforts of the New York Fire Department to find survivors and a report about the loss of an injured whale off the coast of New England. Last spring, the Boston Globe ran front-page articles when this whale was found with a rope caught in and infecting its mouth. Imagine the importance of cell phones from the World Trade Center versus radio beacons strapped to a whale. The whale story seems trivial now.

Corporations and governments were becoming increasingly sensitive to environmental protests during recent global trade meetings. Now, one wonders if the police may overreact to any protest. The public may consider nonviolent protests unpatriotic; violent protesters could be branded as terrorists and dealt with harshly.

I am not suggesting that basic compliance will suffer dramatically. What will happen is that discretionary spending will get even tighter, and it will be exceedingly difficult to justify any longer term activities that go beyond compliance. The pressure on environmental departments to "do more with less" will dramatically increase. Staff cuts and consolidations could grow. The world has changed. I am telling my clients to dust off their strategic plans.

The Global Reporting Initiative tells companies what they can report -- but what must U.S. companies disclose?

Surprisingly, there is very little that a company must report. Toxic Release Inventory numbers are readily available on the Internet, but much of the routine data such as regulatory required monitoring is uninteresting and too difficult to consolidate. The "interesting stuff" is mostly related to Securities and Exchange Commission (SEC) requirements:

Regulation S-K:

  • Item 101 - Requires disclosure of compliance cost with environmental laws if these costs are material.

  • Item 103 - Requires disclosure of any administrative or judicial proceedings that: (1) are material; (2) involve a claim of 10% of a company's assets; or (3) involve a government party and a claim in excess of $100,000.

  • Item 303 - Requires discussion of current trends and uncertainties and the voluntary disclosure of forward-looking information.

Financial Reporting Codification 500:

  • Discusses disclosures in the Management Discussion and Analysis section. For example, section 501.02 relates to prospective information such as Potentially Responsible Parties (PRP's) at Superfund sites.

Staff Accounting Bulletin 92:

  • Provides interpretations and recommended practices when accounting for loss contingencies. It addresses the issue of joint and several liability, uncertainties in the estimation process, and accounting for time value of money.

The SEC requires financial statements be prepared in accordance with generally accepted accounting principles (GAAP), which are prepared by the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA). These not-for-profit organizations write the standards for accounting models in the U.S. Thus, the GAAP arrangement is a unique partnership in that a government agency is enforcing private guidelines. There is a similar arrangement between the EPA and the American Society for Testing Materials (ASTM). The most relevant document is the AICPA Statement of Position 96 -1, Environmental Remediation Liabilities. Contact me for a complete listing.

The SEC requires only material disclosures, and companies can exercise considerable judgment when a particular liability is considered to be unlikely or not quantifiable. Companies can also avoid probing too wide or deep, thereby reducing the chance that all outstanding liabilities will be discovered. Not surprisingly, there is growing pressure by organizations such as the Corporate Sunshine Working Group to force the SEC to close the loopholes.

 

September 2001

Why did the EPA come down so hard on General Electric over PCBs in the Hudson River?

In reality, this defeat was one in a series of losses involving GE. The bitter wrangling between GE and the PCB cleanup of the Housatonic River in Pittsfield is legendary. If there were any PCB-contaminated bridges over the Housatonic, they were burned down years ago, which may have set the stage for the Hudson defeat.

The irony is that PCBs are not as toxic as the media and the general public believe they are. In 1976, the Toxic Substances Control Act singled them out prior to the arrival of definitive toxicological data. There is some recognition of this today, since PCBs are no longer universally considered "cancer-causing PCBs" by the media. But with science on their side, GE came across as uncaring and arrogant in their negotiations with the community and agency staffs.

In 1998, even the pro-business Wall Street Journal described the "breakdown in negotiations" and "frustrated" EPA regulators. It became so contentious that Jack Welch intervened and rumors circulated that GE Plastic's headquarters would move out of Pittsfield. This was, no doubt, further compounded by GE's filing last year of a constitutional challenge that the EPA maybe overstepping its bounds.

One cannot help but wonder if the underlying cause of GE's defeat was a seriously flawed community-relations strategy, coupled with an aggressive legal strategy that backfired. A new administrator, with the managerial and political skills required to be governor, knows that you do not trash the recommendations of your staff upon your arrival. Were the EPA and state career employees gunning for GE because of years of resentment and frustration? The answer to that question may go to the ultimate cause of GE's defeat.

If the environment represents a core value to the public, why is obtaining widespread political backing for environmental initiatives apparently so difficult?

Many people say they believe it is because industries are able to unduly influence politicians with campaign funds. If it were only that simple. The underlying problem is that the environment is not a core value to society. Values such as freedom, justice and respect for human rights are well engrained in the Judeo-Christian belief systems that dominate North America and Europe. Flora and fauna occupy a place somewhere else in the value spectrum. As such, concern over the environmental can manifest itself in contradictory behavior: I'm for saving the planet, but just don't take away my SUV.

Trying to unravel complex human behavior is not a simple task and I turn to the experts: the philosophers that have been at it for centuries. One of the best books that explores this complex subject matter is by Louis Pojman, Global Environmental Ethics, Mayfield Publishing, Mountain View, Calif., 2000. This tome is not an easy read, but one does gain an appreciation of why agreement on environmental values is so elusive.

When Jane Citizen struggles to rationalize the SUV with her love for the environment, a philosopher might conclude that she is caught between the moral philosophy of utilitarianism and the ethics of deontology. Utilitarians, such as the editors of the Wall Street Journal, believe that the correct action is the one that maximizes utility and pleasure to society. The time horizon is very short by Mother Nature's standards, and unless you can put a concrete value on something, it is worth nothing. Thus, a panda bear that brings in revenues to the National Zoo has a high value, but an ugly bug (that may in the next century contain the molecular code for the next miracle drug) has absolutely no standing today.

The internal conflicts arise when the deontological ethics (from the Greek deon, duty or obligation) kick in. For deontologists, there is intrinsic value in saving the ecosystem. Exemplified by preservationists, it is their duty to protect the environment, just as telling the truth and keeping a promise is inherently good. Save that ugly bug because it is the morally right thing to do.

Understanding the underlying philosophies helps to make sense out of what otherwise appears to be a very confusing world.

 

August 2001

We have 10 environmental professionals per 1,000 employees. Is this a good staffing ratio for the chemicals industry?

You could be grossly overstaffed, hopelessly understaffed, or organized just perfectly. Ratios are one of the worst ways to judge the adequacy of an environmental staff. Nonetheless, business executives and their outside management consultants seem to be enthralled with these ratios.

This type of question is fairly common. The most recent came to me from a manager in the finance department who was given the task of "trimming the fat" in a multibillion-dollar corporation. She wanted to know the ideal environmental staff ratio based on her company's size and industry sector. When I started to go into a list of factors to consider, she got really annoyed. It reminded me of the times when I asked engineers what I though were simple questions, only to have them drone on and on with the details. Just give me the number! Asking the time and getting a lecture on how to build a watch would annoy anyone. This businesswoman was convinced that environmental staffing must be just this simple. Indeed, it works for other service functions such as payroll. I refused to give her a number, suggesting that a simple evaluation be performed to first evaluate the key considerations and only then come up with a number. She was in a hurry and would have none of this.

Senior veterans, such as Steve and myself, are accustomed to seeing decisions concerning environmental departments made in a matter of seconds with little supporting information. It can be sobering for new entrants to realize that their fate can be so fickle. So what should be done?

As a first step, visit my writings on the subject at http://www.Competitive-E.com/Abstracts.htm#Organizational Design, especially a November 2000 article, Staffing by the Numbers. Second, be prepared: ratios may be the wrong way to go, but the subject will come up. Prepare the necessary evaluations to both respond quickly to an inquiry and know you are properly staffed.

I have heard the expression "tragedy of the commons" used to describe the standoff on global warming. What is the connection?

William Lloyd, a 19th century mathematician, studied the fate of a common pasture shared among herdsman. He concluded that if they each were to act rationally, the pasture would eventually be overexploited and destroyed. In mathematical terms, an individual would gain nearly the full benefit from one added animal, but would only suffer a proportionally negative fraction from the additional overgrazing. Technology improvements would delay this eventual outcome, but could not provide an infinite increase in the carrying capacity of a finite commons.

The problem extends to not only taking something out (fodder), but also putting something in (pollution). Without a system to control its use (e.g., governmental regulation; subdivision into private property, etc.), the common area is doomed.

With an issue as huge as global warming, it is often difficult to grasp the underlying economic, technical, and sociologic issues at play (sort of "can't see the rainforest for the old growth timber"). When viewed from the fundamental perspective of the tragedy of the commons, one can better understand the massive challenge that global warming presents, more so than even that conveyed by the most pessimistic press articles. Just substitute "countries" for herdsmen and "planet" for commons.

Resource issues have been settled by wars. Getting one country to sacrifice for the "common good" is rare, and what may be good for the majority may be devastating for the minority. Implementing global governing systems over key issues related to trade and resources has been a challenge (think Seattle WTO and the recent Genoa G-8 Summit riots). Global governing systems that may restrict individual freedom or control population are particularly unpopular in the U.S. For example, think of Big Brother banning your SUV or regulating the size of your family). The technological solutions to lowering greenhouse gas emission might someday be found but will they come soon enough or at a cost that some of the "herdsman" can afford?

Steve and I normally have a "here is the answer" for readers, but if we view global warming from the perspective of the tragedy of the commons, sorry, there is no technical or political solutions in sight. What's your opinion?

 

July 2001

What surveys are available on corporate environmental initiatives?

There are several such surveys, but first a word of caution: surveys can be both helpful and deceptive. They often are distributed en masse and the return rate can be as low as 10%. The person completing the survey may low on the organizational totem pole, which can definitely skew the results if the questions relate to strategy and direction. Responses to sensitive questions may be heavily edited by the legal department or may reflect the politically correct response, not actual company practice.

The most reliable surveys are based on face-to-face interviews or those using "binary" questions such as, "Do you have a written environmental policy?" Even binary questions can capture misleading information if they are written poorly (e.g., in the example question they fail to include "written") or if the survey captures only a tiny fraction of the industry segment being evaluated.

That said, a number of recent surveys yield interesting insight into what is happening within companies. My favorite is a European report, Prudently Protecting Profits? -- The (Mild) Greening of Global Corporate Management -- A Survey of the state of the art of Corporate Environmental Management within Europe's Top Companies, by Chris Hibbitt and Nancy Kamp-Roelands, published by the Royal NIVRA (Koninklijk Nederlands Instituut van Registeraccountants), March 2001. This report is available from the International Corporate Environmental Reporting Site, which is itself a good source of survey information on various environmental topics, including corporate reporting practices.

GEMI (Global Environmental Management Institute) offers a collection of its benchmarking reports on a free CD-ROM.

Organization Resources Counselors, Inc. has conducted numerous surveys of its member companies. Management consulting firms use surveys as a marketing tool to promote their service areas among potential clients. The EPA routinely conducts surveys. The National Database on Environmental Management Systems is another good source on comparative information.

There is a wealth of information available: some general and others very focused on specific issues. I've only described the top inch of a very big iceberg that Steve and I use to benchmark performance. And again, let the survey reader beware!

Do you agree with President Bush that significantly expanding the supply of fossil fuel energy resources will help solve the energy crisis?

I believe that it will take expanded energy supplies plus long term and dramatic improvements in renewable energy generation and conservation technologies, not to mention a basic change in consumer attitudes towards the use of non-renewable resources. The Bush/Cheney energy plan has all of these factors; however, the mix is way off and the communication style was a disaster.

Their approach illustrates the fundamental problem with industry's view of resource utilization. First, there is an overwhelming faith in the ability of technology to solve future problems. Sure, the current fuel mix will run out in 100 years, but we will invent the techno-wiz perpetual energy machine! It is high-stakes gambling in which future generations will pay for our current optimism.

We can easily get philosophical about all this debate. Instead, let's examine the hard facts according to mathematical analysis; sort of the "Liars figure, but figures don't lie" methodology. One of my colleagues at Arizona State University, Evar Nering, has done just this. A mathematician, not an environmentalist, Nering states the hard cold facts as follows:

"The amount of a natural resource consumed under the assumption that it is consumed at an increasing rate is an integral. To determine how long a resource will last under these circumstances we have to solve for the number of years in the resulting formula. It turns out that N = ln[rS+ 1]/r, where S is the available supply and r is the rate at which consumption increases each year.

To increase the life span of the resource we have just two variables that we can control, the supply S and the rate of increase r. The striking thing about this formula is the appearance of the logarithm, which signifies that increasing the supply is a very poor way to increase the life span of the resource."
The bottom line is that if both the population and the standard of living are increasing globally, future generation are in for tough times unless we conserve today and find new resources other than the non-renewable ones we rely on today

 

June 2001

What's the internet got to offer EH&S professionals beyond providing information?

The Internet and e-mail have revolutionized the consulting world. I find it difficult to imagine how Steve and I could do what we do today using only snail-mail, fax and the telephone. The teams that we assemble exchange documents and key material daily from offices around the country. Another colleague is teaching a university course with students who log in from around the world and interact real-time!

Clearly the Internet is terrific information tool, but what could that mean beyond the obvious stuff? Yes, EH&S professionals can be more informed and make better decisions. And yes, individuals can search for and obtain EH&S services and products cheaper, better, and quicker. This is the underlying principle of Business to Business. But what about profound uses?

"Just providing information" may not seem like much, but the impact that this information can have is nothing short of remarkable. Maybe that is why the first step dictators and despots take is to control information. After all, the First Amendment to the Constitution is about freedom of speech. Americans often take this freedom for granted; it is wise to recognize that the Internet's greatest impact could be within developing nations, especially those with limited access to external sources of information. The technology exists, and costs are plummeting.

I predict that the Internet will become an essential tool in making the public aware of key issues at local, regional, national and global levels. The current work on EH&S performance indicators may someday be transformed into access to indicators that really matter to citizens and governments who are deciding key issues (such as which companies are granted permits and what products are the safest). For example, Environmental Defense already has a site that reveals major emitters by ZIP code. Imagine this information, only a thousand times more comprehensive and with the capability of being benchmarked to known standards of performance.

The danger is that the information highway may become so cluttered that the good, the inaccurate, and the deceitful information all seem to blend together. That would be information overload at its worst. I do not think that this will destroy the Internet as a tool, but it may require the creation of "trusted sites" with independently verified information

In light of environmental justice and sustainable development objectives, why don't more government agencies add up total contaminated areas (e.g., landfills, waste storage areas, contaminated underground aquifers, Superfund sites, etc.) per county or city? This can then be translated into a "per capita" value for comparison.

I think it would be fascinating if there were a national metric for land area "wasted." Maybe some regions already do this, but in general, I would think that there would be political pressure not to release these figures. First, it would be technically difficult to determine precisely. For example, 1,000 acres contaminated with diesel oil is not the same as 1,000 acres contaminated with dioxin. As soon as you get into relative weight factors the controversy and confusion increases exponentially. Second, people do not want their community to be viewed as a bad place to live. Property values may suffer. Imagine the reaction of the chamber of commerce of Anywhere, USA, if they score in the bottom ranks.

That said, you are on the right track. Full disclosure -- transparent metrics -- is the cornerstone of progress toward environmental justice and sustainable development. While it may be a political hot potato, especially at a local level, the environmental community may view this as just what it needs to help raise awareness. Environmental Defense online offers its Scorecard/Pollution Locator on potential sources of land contamination. The EPA, of course, offers several sites that disclose Superfund information.

The Environmental Defense site is relatively user friendly and depends on published government sources. I believe that the average citizen would find difficult to interpret much of the information that I have seen. We are a long way from your suggestion, but maybe someday we'll have more relevant and comparable information.

Can you provide a critical appraisal of environmental cost accounting?

Environmental cost accounting has not yet taken off, at least to the degree that many had hoped in the 1980s, because of two problems. First, most environmental costs are just too insignificant, relative to all the big-ticket issues that a company's management tracks. As far as business executives are concerned, these details just do not matter if they require either added accounting effort or significant modifications to the accounting systems.

Line items, such as major remediation projects, are already tracked. Major environmental costs, such as capital equipment and operating costs for pollution control facilities, are tracked as required process expenses. It can be difficult to convince management that splitting these out further will reduce costs instead of just adding to the accounting bureaucracy. You can snag yourself in a Catch-22: limited hard data to prove it's of value, so no approval to build the process to get the needed data.

Second, no one has come up with convincing, hard data to estimate hidden costs such as long-term liabilities and social costs. The EPA probably is in the best position to do this, however both the government and companies are reluctant to deal with such politically sensitive issues.

Companies routinely using some of the tools Steve listed (e.g., Life Cycle Assessment, Design for Environment) are, however, much more familiar with the longer-term, "big picture" issues.

Although the costs may not be quantifiable, the process frames these issues in a way that can be more easily communicated to management. The hard data may not exist but the strategic significance can be apparent. These tools also can help identify which cost metrics to track.

The bottom line is: (1) don't worry about the small stuff; (2) track the big, strategic stuff, even if you can not precisely quantify it; and (3) educate executive business management on the competitive significance of this information.

 

May 2001

What techniques are available to maximize environmental performance within my company?

There are many techniques to assess and improve performance. Which method or methods you use will depend on your definition of "performance." Just as beauty is in the eye of the beholder, so too can environmental performance mean different things to stakeholders. That also goes for "value" and "excellence."

Excellent environmental performance according to a CEO, a CFO, or the board of directors may mean full compliance or consistent annual progress toward compliance at minimum cost; to an EHS manager, it may mean full implementation of state of the art programs and pollution prevention systems; to the marketing department or the public relations department it may mean unique activities or accomplishments that set the company apart from competitors; to external stakeholders it may mean low-waste generation and emission releases, or significant annual progress toward zero discharges. In essence, each stakeholder may say it wants "improved environmental performance," and have different priorities.

For example, an environmental manager may report with pride that her team has implemented an award-winning environmental management system, only to be asked by an angry business executive, "What was the value in spending company resources on this new system?" In the face of widely publicized spills and non-compliances by ISO 14000-certified companies such as Eternal Chemical Company, Taiwan; Petrobras, Brazil; and Ebara Corporation, Japan, it's not hard to see why there'd be resistance to investing in an EMS. But if this executive is: (1) focused only on compliance at lowest cost; and (2) has heard that an EMS does not guarentee compliance, the environmental manager may be in for some rocky times.

To a business executive, an award-winning EMS may appear to be a waste of resources, or at best a necessary bureaucratic hurdle to achieving ISO 14000 certification for market penetration. It is no wonder that management's acceptance of ISO 14000 can revolve around gaining certification and not be concerned with improving "performance," whatever that is. Indeed, ISO 14000 is a conformance model -- not a performance model. A conformance model focuses on whether the organization is conforming to the requirements of a particular standard such as ISO. It tells you what to do, not how to do it. By contrast, a performance model focuses on how the organization performs.

Before a company can improve environmental performance, value, or excellence, it must first set the Key Performance Indicators (KPIs) that define these terms in precise, measurable terms. It is much more involved than the commonly used tabulation of notices of violation, emissions, and wastes. These few, relatively simple measurements of end results do not express fully the nature of the environmental performance that is needed to achieve business goals.

Robert Kaplan and David Norton drove home to executives and financial analysts the need to examine a more comprehensive set of performance indicators through articles in the Harvard Business Review and in their book, The Balanced Scorecard: Translating Strategy into Action. Kaplan and Norton write that organizations can manage end results more effectively with a balance of measures in four categories: financial, customer, internal processes, and learning/growth. Once developed, a balanced scorecard becomes an instrument for aligning organizational performance with strategy.

More recently, Richard Chang and Mark Morgan published a book entitled Performance Scorecards. These authors do not restrict their scorecard to four categories, but rather allow an organization's management team to define their optimum number of categories and label them to fit the organization's current and future strategies.

These authors recognize that to obtain profits or other desired results, one cannot focus exclusively on a few financial indicators. In effect, there are precursors to successful results and an overall model can be useful to structure a framework for tying together the most relevant performance indicators. Performance drives results, not the other way around. The scorecard helps measure the pulse of performance items, not necessarily the end results.

There have been some attempts to develop various EHS models using this scorecard approach (such as Scott Johnson in an article appearing in the Spring 1998 issue of Corporate Environmental Strategy). ISO 14000 might be considered a good framework, but again, it is conformance-based.

I collaborated with Bob Pojasek on a modification of the Baldrige model, the business tool for measuring business excellence, to define, assess, track and improve EHS performance. Bob originally was involved with the New Mexico Environmental Department to adapt the Malcolm Baldridge National Quality Award for its annual excellence award, Green Zia Environmental Excellence Program.

We took what we learned from this experience and modified the model to more fully recognize the differences among stakeholders in defining the EHS performance goals required to obtain the desired business results. In Baldrige, the first six categories of the model are performance-related items that drive the results (the last category). Most EHS managers focus only on environmental end results - say, lower emissions or fewer non-compliances. However, the most important goals may be to improve performance and not to simply achieve results. The results will come if you do the right things.

There are subtle, important distinctions in explaining to business management how environmental programs add value. For example, business managers recognize that behavior-based safety programs, those based on safe behavior observations as a performance indicator, yield superior end results -- say, fewer injuries yielding higher productivity and lower worker compensation claims. Unless business executives understand these connections, they likely won't see the value of your programs.

 

April 2001

Will Christie Whitman, the new EPA Administrator, become the next James Watt?

No. Although Watt was Secretary of the Interior -- not EPA -- under Reagan, "James Watt" is established in political parlance as a lightning rod for environmental protest. It is interesting to read the abundant speculation over our new EPA Administrator, former New Jersey Gov. Christie Whitman. Journalists and editors from a range of print media, from the Wall Street Journal to Time magazine to E magazine, have weighed in on what the Bush Administration might do for the environment. Now it's my turn.

Most people judge the qualifications of the Administrator by his or her "green" track record. Not me. I look for skill as an executive and a leader. The Clinton/Gore Administration is considered by many to be one of the greenest ever. But what is its legacy? The millions of acres of land set aside by executive order under the 1906 Antiquities Act? These unilateral decisions were based on neither consensus nor a genuine effort to build the understanding for the need to preserve these precious natural resources. The president used the raw power of his office in the environmental equivalent of pardons -- nearly as controversial as those issued to people.

The past eight years of the DC "dream green team" were a dismal failure. I said as much in Green Arthritis, published in the September issue of Environmental Forum. EPA and the Clinton /Gore Administration repeatedly failed to build consensus for their programs -- a point of view embraced as a mantra by the Bush campaign.

Despite the previous administration's talk about reinventing government, and all the calls by blue ribbon studies to rebuild an outdated system, EPA has been unable to break out of its role as enforcer. Based on all the grumbling I've heard from career EPA employees over the past eight years, morale at the Agency seemed to have dipped below its James Watt-era low.

That said, what about all the recent actions by the Bush administration? Many critics claim that recent rollbacks are clear evidence that we are all in for a regressive period. I disagree: Rolling back the OSHA ergonomic standards and the recent refusal to lower the arsenic drinking water standard may be more of a residual reaction to the Clinton/Gore way of doing things than a real lack of commitment on the part of the new administration. Backing away from controlling CO2 as a "pollutant" may be a reasoned political move in the wake of bad economic news and an emerging energy crisis. Reconsidering the tougher standards for hard-rock miners digging gold and silver in Western public lands might represent a legitimate need to review critical legal and policy implications.

I think the true test will be in how well Whitman is able to lead a stuck and demoralized organization. It is not whether she gets the details right (yes, the ozone hole has nothing to do with global warming), but whether she can inspire the Agency to do things that eluded the previous administration. In this regard I am very optimistic. Washington Republican political strategists may not always get it right, but one thing is clear: they recognize that a James Watt-type anti-environment administration will surely lead to a single-term Bush presidency.

Is the Global Reporting Initiative becoming the definitive corporate reporting model?

Yes and no. Yes, in that the Global Reporting Initiative (GRI) clearly is the leading change agent in promoting more comprehensive and transparent reporting. In the four years since the GRI was conceived, GRI has transformed the landscape of corporate reporting world-wide.

Most people focus on the GRI's Sustainability Reporting Guidelines as the deliverable of value. I am impressed with the consultation process that was used to generate these guidelines. While only a fraction of the global reports have adopted the GRI guidelines (e.g., 21 companies formed the 1999 pilot group), probably every report being issued is influenced by these guidelines. This is in largely because GRI helps raise key issues and stimulate dialogue.

No, in that a single, voluntary model probably will never dominate. There already is a tremendous amount of flexibility built into the GRI guidelines. GRI recognizes that companies and industry sectors vary significantly; one size does not fit all. There are more than 30 models to date; each has its strengths and weaknesses.

Companies will always want to "do their own thing." Environmental and community relations staff might gather the hard data, but public relations departments still dominate the process used to produce the final report. Each has to have the look and feel of the particular company's culture and identity.

What should stabilize eventually is the selection of certain benchmarkable indices against which all companies in an industry sector will report. These will become the de facto industry reporting standards -- not the packaging that most seem to focus on. The strategic issue that my clients are concerned with is what these metrics will be and where will they stand relative to the competition. Thus, the challenge moves from completeness and transparency to fundamental competitive issues.

Take a page from financial reporting: shareholders could not care less about the nice-looking report: they want to see the hard numbers that form a solid bottom line.

 

March 2001

What is the most common environmental strategy large corporations employ?

It depends who you believe. If you ask environmental managers, you may surmise that the answer is Environmental Excellence, Sustainable Development, Minimum Harm to the Environment, or some similar nice-sounding phrase. But what do these expressions really mean in business terms? Not very much.

One of the problems with environmental management today is that strategy, policy, vision, and value statements get intermingled. It is truly rare that company environmental vision statements present what they should: a clear compelling image of the desired future state that helps employees understand the future direction and achievement of the organization's purpose. They usually wind up as value statements sounding a lot like "We believe in Mother Nature and cute furry animals."

Similarly, strategy statements get intertwined with public policy positions that are meaningless to employees. Even worse, these politically correct statements may in actuality be diametrically opposed to the true business strategy expressed by business executives. Business-minded expressions of desired strategy are usually clear, blunt and unambiguous. Thus, while the declared strategy may be "environmental excellence," the CEO is heard in private to say, "We do not want any compliance screw-ups!" When all is said and done, this is the strategy that will drive budgeting and capture the attention of individuals.

Companies may package their strategies using a wide variety of statements, but when you cut through all the verbiage, generally there are only a few basic environmental strategies. This is similar to the business world where, for example, Michael Porter, professor at Harvard Business School, defines just three generic strategies: Overall Cost Leadership, Differentiation, and Focus.

In my work with corporations I have found six:

  • Minimum cost. Use resources for high-value business opportunities.
  • Compliance focus. Do the minimum required in what is considered a low-value-added area.
  • Risk-averse. Protect shareholder assets.
  • Brand protection. Protect/enhance product branding.
  • License protection. Ensure continued operation and ability to develop new sites.
  • Fully integrated. Achieve long-term competitive advantage.
Companies generally do not deploy one "pure" strategy, but rather a combination of one dominant strategy plus one or two others. Thus, a company may be risk-averse and have a particular focus on compliance as well. Another might have a minimum cost strategy, but also be interested in protecting its brand name or ability to maintain permits.

Minnesota Mining and Manufacturing is a good example of the latter through its well-known Pollution Prevention Pays program. 3M achieved a low-cost strategy that also reaped rewards in brand name protection and favorable regulatory reviews.

In addition, there is what I call the "Opportunistic" or "Do what appears right at the moment" non-strategy. It is all too often what many companies do. Sustainable development might be the stated policy (what I call "fully integrated") but the marching orders from management might change from year to year, depending on the CEO, what the competition is claiming, budget pressures, or the recent environmental track record. Companies recognize that they cannot change their business strategy from year to year or chaos will ensue; yet some feel perfectly comfortable doing this on issues requiring even longer-term focus.

So what works best most often? A clearly defined and consistent strategy -- one not couched in politically correct terminology. The public relations people can spin their magic, but all employees need to understand the central theme of what they are doing and why this approach is being used. The worst-case scenario is an avowed strategy of sustainable development but an actual strategy of minimum cost.

 

February 2001

What industry sector is the most sensitive to furthering sustainable development?

That is not an easy question to answer, in part, because it is so difficult to separate the public relations hype from reality. For example, there has been a rapid growth in the number of sustainable development or "social responsibility" reports. SustainAbility, a London-based consulting firm, reports that 28 percent of the 200 major, non-reporting companies examined in 1998 have now begun reporting. Originally focusing on environmental, health and safety issues, this newer generation of reports often encompasses community relationships and provides specific information on the company's efforts at sustainable development.

Clearly, sustainable development is a hot topic right now. But is there true commitment behind the words? A recent report, Corporate Spin: The Troubled Teenager Years of Social Reporting by the New Economics Foundation (http://www.neweconomics.org), claims that there are huge discrepancies between what some of the leading companies say they do compared to what they actually do. Another recent report by SustainAbility (http://www.sustainability.co.uk), The Global Reporters, claims that companies are being more transparent but are failing to address the major environmental and social impacts, including sustainable development.

Another element of the problem in identifying the best industry sectors is that there is no common opinion as to what top-level sustainable development performance means in measurable business terms. Without agreed upon metrics, who can tell the good from the bad from the ugly? A better identifier may be to determine the industry sectors that are currently taking the issue very seriously -- the industries committing substantial resources and executive management attention. To determine which industry sectors these might be, ask yourself, "Which sectors will be the major winners or losers in the sustainable development movement?"

During the 1980's the focus was on toxics and the chemical industry was the shining star in developing new programs to reduce risk. They led the way for all industries. Today, the major resource companies obviously have the most at stake in the sustainable development game plan. For a company making widgets, it is relatively easy to change internal recycling and product take-back practices, but for mining and petroleum companies, sustainable development cuts to the core of how they do business.

For innovative ideas, I'd look towards these two industries -- both of which, ironically, are still considered the Neanderthals of corporate responsibility. You can see evidence of this thinking already within the petroleum industry -- in the form of Shell's leading social responsibility report and BP's position on Global Warming and emission trading. For the mining industry, keep an eye on the Mining, Minerals and Sustainable Development project (http://www.iied.org/mmsd/) for new innovations. This effort is managed by the well respected International Institute for Environment and Development in London, UK, (IIED, http://www.iied.org/index.html) under contract to the World Business Council for Sustainable Development (WBCSD, http://www.wbcsd.org/).

From a strategic standpoint, what are the key techniques for minimizing environmental liability when buying property or a business?

The two cardinal rules are: (1) perform an adequate due diligence investigation, and (2) negotiate a deal commensurate with the conditions discovered. Sounds like a simple "no-brainer," but this fundamental rule is more often than not ignored. I have lost track of the number of times my colleagues have relayed horror stories of last minute investigations of multiple sites scattered around the world requiring a final report in a matter of days.

I think that procrastination on due diligence may be, in part, due to business management's subconscious fears that issues might crop up and squelch their dream deal. Another factor is that some transactions can take on a life and momentum of their own, not to mention the enormous egos that may be in play in the really big ones - indeed, the ones that demand the most careful scrutiny. Superficial or last minute environmental due diligence can be easily rationalized because of the need to "fast track" the process while keeping focused on the "significant business issues" (i.e., don't sweat what is assumed to be the small stuff).

Here is my list of key strategic steps. You may not need each one and some may not even apply in some circumstances, but the overall approach is generally the same.

  • Obtain as much background information from the seller as possible.
  • Establish a letter of intent giving buyer the right to terminate purchase.
  • Conduct a thorough Environmental Assessment, Phase I or II, depending on the nature of the business and preliminary findings.
  • Obtain warranties relative to contamination, permits, compliance status.
  • Identify emerging issues that could interfere with future operations.
  • Agree on how remedial actions will be handled as a pre-condition to the sale.
  • Subdivide property if necessary so that seller retains the contaminated portion of the property.
  • Obtain indemnification against liabilities and third party claims.
  • Recognize that indemnification is only as good as the financial strength of the seller so it may be advisable to:
  • Purchase insurance or require seller to insure buyer against future liabilities.
  • Have seller set up a trust fund or account to provide a letter of credit.
  • Adjust purchase price to cover environmental costs such as operational deficiencies, capital items, contamination, liabilities, etc.

The bottom line is that any deal is possible, no matter how badly contaminated a site may be; you just need to factor the issues into the contract. Dow Chemical proved this by acquiring one of the most contaminated complexes in the world, Buna Sow Leuna Olefinverbund (BSL), the former East German chemical industry. The remediation program was carefully laid out at the time of acquisition in 1995. In 2000, Dow won international acclaim for completing the reconstruction program within the original time frame agreed upon with the German government (http://www.dow.com/dow_news/corporate/20000524a.html).

This positive message that "any deal is possible" should be delivered to business management time and again to alleviate fears that EHS issues are deal spoilers. The object is to ensure that you will be brought in at the very onset of any business transaction.

 

January 2001

What are the major environmental issues that will drive change over the next decade?

I'll answer your question by referring to two excellent recent publications, one that examines domestic issues and another that takes a more global view.

The National Academy of Public Administrators released in November 2000 the report environment.gov - Transforming Environmental Protection for the 21st Century. Although it focuses on Unites States government environmental policy, it also contains an excellent evaluation of the underlying environmental stressors. This 220 page report is available for free in pdf format at http://www.napawash.org/napa/index.html. I highly recommend it.

The blue ribbon panel that prepared this report believes that the government should focus more of its attention on the major problems, rather than the minutia that consumes regulatory agencies today. The top three issues are: reducing nutrients in watersheds; reducing smog; and reversing the accumulation of greenhouse gases. In part, these three were picked as worthy issues that could be used to demonstrate new approaches to better manage environmental issues. They also described several other, interrelated drivers for change:

  1. Increased wealth and demand for resources, including a growing demand for energy services and for access to relatively unspoiled natural areas for recreation and housing.
  2. Increased pressures on ecosystems, particularly from land-use changes caused by development, and from the spread of non-native plant and animal species
  3. Increased costs for maintaining and replacing the nation's aging infrastructure for safely delivering drinking water and treating wastewater

Aside from the issues themselves, the bad news is that (taken from the very first line in the report), "The nation's current environmental protection system cannot deliver the healthy and sustaining world that Americans want." The good news is that there are policy solutions, as laid out in a ten-step action plan, however, this approach will take what they call "a precious commodity" in environmental management today: leadership." I wholeheartedly agree.

The second reference is State of the World 2000, by Lester Brown, et. al. of The World Watch Institute, (http://www.worldwatch.org/) W.W. Norton & Company, Inc. NY, NY. Lester Brown is a contributor to GreenBiz.com and one of the leading experts on global environmental trends. In this book he focuses on seven significant trends: population growth, rising temperature, falling water tables, shrinking cropland per person, collapsing fisheries, declining forests, and the loss of plant and animal species.

Although there is some overlap between issues examined in these two sources, the differences are troublesome. My fear is that the US will focus on "in your face" problems such as urban sprawl, while ignoring or not leading the solutions to the other, far more significant issues. Many of these issues are related to the price of resources, especially food. In a rich, developed country such as the US, who cares if a loaf of bread is two cents extra? The problem is that major disruptions in the flow of resources eventually impacts global trade which, of course influences everyone. Wars are fought over resources and our borders no longer an effective barrier to the kinds of wars that will be fought in the future.

Do you think that the current corporate social responsibility movement will be another passing fad, only to disappear when the public loses interest?

Maybe, based on history. Maybe not, based on emerging technologies.

From a historical perspective, the corporate social responsibility movement is on at least its third cycle. I'm no historian, so the cycle count may be even higher. The first may have been the labor movement at the turn of the last century. Upton Sinclair's writings brought on a wave of public awareness and new legislation over working conditions and employee safety. Child labor was another early social/industry issue both here and abroad. The next major movement occurred around the time of the Vietnam War when environmental issues and the military/industrial complex were caught up in the activist movement of the time. Some of the better social responsibility evaluations were created during this time.

Little quantitative data exist to track the social responsibility movement, since accurately monitoring something this broad and loosely defined can be problematic. There is, however, considerable antidotal evidence of its recent rapid growth on the corporate agenda. For example, I have seen in the past year several of my clients appoint full time, senior professionals to track and manage this area. Probably the best indicator is the rapid growth in the number of community reports issued either separately or combined with environmental reports. The November 2000 meeting of the Global Reporting Initiative is another indicator: the attendance doubled from the previous year.

Clearly, this is a hot issue right now. But is there true commitment behind the words? A recent report, Corporate Spin: The troubled Teenager Years of Social Reporting by the New Economics Foundation (http://www.neweconomics.org/) claims that there are huge discrepancies between what some of the leading companies say compared to what they do. Another recent report, The Global Reporters by SustainAbility (http://www.sustainability.co.uk/) claims that companies are being more transparent but fail to address the major environmental and social impacts.

So, if the substance behind these reports is shaky, will the movement last? How, for example, would a global recession impact the movement? Companies can afford to be good citizens when they are making money. But when they are cutting back, what then?

My prediction is that poorly managed, short sighted companies will cut back on these activities, akin to how companies immediately cut back R&D, travel, and training budgets at the slightest downturn in profits. The most successful companies weathering bad economic storms will, however, strengthen their activities and use their performance to competitive advantage.

This view may sound idealistic, but the deciding factor this time is rise of instantaneous communication through cheaper computers, environmental monitors, cameras, and, of course, the web. Local problems can receive worldwide attention overnight. A continuous stream of irresponsible corporations being exposed in this new publishing media call the web will have a powerful influence on where the social responsibility movement is headed in the future. In effect, the genie of mass communication has been let out of the bottle and there is no way to get it back inside.

 

 

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