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Ask the Experts Content 2002

December 2002

I believe my company is violating EPA regulations, but my boss will not do anything about it. I've never thought about becoming a whistle blower, but I'm so frustrated, I may. Is this wise?

Whistle blowing is not for the faint of heart. It is like pushing the button to start a nuclear war, with your career possibly left in ruins. The movies may make it appear glamorous, but it's a living hell and should only be done as a last resort, and then only when the issue is of sufficient substance to warrant the action. 

As a general rule, it is always advisable to work within the company system to correct a problem. In my thirty-year career, I have never run into a problem involving a clear violation of the regulations that was not eventually corrected voluntarily by management once they understood the issues. What is difficult is when there are gray areas. State and federal laws are subject to interpretation and that's what keeps armies of lawyers employed. 

Be absolutely sure that there is a significant problem. The law department is a key ally in these matters. For small companies, however, there may be no inside counsel nor any budget to hire outside counsel. Find trusted colleagues outside the company to use as a sounding board. Sometimes it is possible to contact the agencies and pose hypothetical questions anonymously. Try to systematically build a case that will reverse the position of a stubborn boss. With patience, you may also encounter opportunities to bring the issue higher in the organization without appearing to go blatantly behind your boss. 

Criminal, not just civil penalties may be involved. For example under TSCA (Toxic Substances Control Act), if someone has access to information of substantial risk (as defined under section 8e), that person could be held personally responsible if they do not take prompt action. In general, companies defend their employees if there are legal problems, but if it becomes clear that an individual knowingly violated a law, they may suddenly find themselves seeking counsel on their own. Be mindful where you stand personally. 

If there is a serious problem and absolutely nothing works, it is time to ask yourself the question, "Do I want to be associated with this company?" Find another job and then reconsider if you want to disclose on your former employer. Your new employer may not appreciate having a whistle blower in its midst.

You have written that sustainable development is more talk than substance, yet there are hundreds of companies doing positive things. Just what is the basis of this very negative assessment?

Yes, I have been negative in my assessment of progress towards sustainable development (SD). Companies doing commendable projects that they publicize widely (winning awards in the process), but I believe that they have not integrated SD into their core business strategy. 

A Wall Street Journal article, "PR Firms Advise Corporations On Social-Responsibility Issues" (November 13, 2002, Page B10), reported that "Companies are interested in incorporating responsible social and environmental policies into their operations, or at least appearing to do so [Emphasis added]." The thrust of the article is that companies are turning to PR firms to manage these issues. In my view, this is akin to using a dermatologist instead of a neurologist to cure a brain tumor. 

There have been exceptions, what John Elkington calls the "Butterflies" in his book "The Chrysalis Economy," namely companies that are beautiful on SD. He points out that these have had low market influence because of their size and nature of their operations. More recently, a few high-impact companies, such as BP, have adopted and are pursuing core SD strategies. These remain the rare exceptions, however. 

What matters is not the progress within a select few companies but the advancements within the tens of thousands of companies across the globe. What will also determine success is the rate of progress in undeveloped countries where the most serious environmental problems are now manifesting themselves. Progress in downtown Berkeley is not the issue. 

It is to these ends that the SD progress story is less than encouraging. For example, Ernst & Young, in Corporate Social Responsibility - A Survey of Global Companies, recently reported that "companies are, in the main, failing to maximize the associated value." PricewaterhouseCoopers in 2002 Sustainable Survey Report reports that "most are not assessing their business strategies or activities in terms of the social or the financial risks and opportunities associated with this new form of corporate responsibility." 

Ultimately, the outcome will be determined by the rate of progress vs. the rate of degradation - in effect, the global mass balance and carrying capacity of the plant. Historically, technology has consistently come to the rescue. I am not so sure it will this time, unless more aggressive action is taken earlier, rather than later. 

 

November 2002

In the September column you had less than optimistic projections for the World Summit on Sustainability in Johannesburg. Now that it is over, what are your opinions?

I was also not there and, in retrospect, it was a good thing that I did not take the time and resources. The overwhelming message that I have received from the numerous articles and reports coming out of the meeting was disappointment. Yes, Greenpeace and business interests talked of partnerships and an international system to reduce global warming. And yes, a goal was reached to ensure reliable access to energy for 35 percent of Africans by 2022. But, any real progress on the tough issues (i.e. population control and the Kyoto Treaty) was elusive. In summary, there was a lot of talk, but no action. Two recent reports mirror the same theme of talk and no substantive action. PricewaterhouseCoopers' 2002 Sustainability Survey Report and Ernst & Young's 2002 Corporate Social Responsibility - A survey of global companies report similar trends among the top corporations. Boards of directors are talking the language of sustainable development, but this talk has not made the transition to effective strategies and certainly not significant resource commitments.

The anecdotal case studies of sustainable development abound. It is easy for the public, and even corporate directors, to get caught up in the excitement of individual success stories in sustainable development. The illusion of tremendous progress can be seductive. That is why these two studies are so valuable in helping us get back to reality. Those of us who get to peek, on occasion, behind the screen at Emerald City see some real efforts to pump up the public relations as the environmental staffs struggle just to maintain the status quo in these times of budget cutbacks. 

Reality bites, as the saying goes. The outcome of the Johannesburg Summit comes as no surprise to us and other seasoned veterans of reality such as John Elkington, Sustainability's chairman/co-founder and the author of The Chrysalis Economy. In a Business and the Environment interview nearly a year prior to Johannesburg, he observed, "Frankly, I don't think that the summit next year will even begin to scratch the service of this set of issues."

We use recycled paper grocery bags as biodegradable kitchen trash bags. Are they better than plastic? 

Both paper and plastic have their problems. While plastic is well known for its longevity in nature, even paper can take a long time to decompose as demonstrated by Dr. William Rathje at the University of Arizona. In the "The Garbage Project", he uncovered decades old newspapers that had been land filled; they were still perfectly legible. There are, of course, truly biodegradable plastic bags made from cottonseed and cornstarch, but they have never gained widespread commercial success. 

Plastic bags are more inert once they get into the landfill. Biodegradable materials generate gases and liquid products as they degrade, and if the landfill or compost pile is not properly designed, these decomposition products could present environmental problems. Improperly managed waste can also be unsightly as it blows about the countryside. Where I live in the Sonoron desert, paper bags probably last longer than plastic ones on the surface because of the intense sunlight (UV) and lack of moisture. The reverse is true in humid climates. In Phoenix, it is actually illegal to have a compost pile in your back yard. What is the best alternative? No bag at all, if you have a collection dumpster and a kitchen trash can that collects the daily waste. Save those plastic or paper bags for another trip to the store or better yet, use permanent cloth tote bags.

What are the top five issues facing recycling today?

Public apathy may be the primary issue. State recycling managers report that one of the most significant factors in waste diversion is high voluntary recycling. How are the volunteers doing? Not very well. For example, the Aluminum Association reported that recycling of aluminum beverage cans fell below a 60 percent rate last year for the first time in more than a decade. Raymond Communications' October 2002 State Recycling Laws Update reported similar trends in overall recycling: of the states surveyed, twelve reported declines and only nine reported increases. The Chartwell survey found declining recycling trends in seventeen states between 2000 and 2001.

Why the loss of interest? The economic downturn and the war on terrorism get blamed as the distraction du jour for just about everything. With respect to recycling, however, we do not think that they are the real culprits. The decrease is driven by a public that no longer feels threatened with environmental issues in their everyday lives. Local environmental conditions have improved over the past two decades and complacency has taken root. The global environmental issues that grab the headlines today are either invisible to the public (e.g., loss of topsoil) or are so massive that people feel they can do little locally to impact the outcome (e.g., decreasing fresh water supplies).

In addition to apathy, there are at least four other significant issues facing recycling today:

1. Pricing. Virgin raw material prices fall during periods of economic slowdown, eliminating the incremental savings, if any, associated with the use of recycled raw materials. Without the pricing discount to balance the uncertainties of raw material consistency and availability, the market demand for recycled materials declines.

2. Materials separation. Closely related to pricing, the market demand and pricing have not yet sufficiently taken root to spur the widespread product design that would facilitate, hence reduce the cost of, separating the desirable component materials from the whole product. Floor coverings may have made the most significant advances in this area. Electronics manufacturers have been so good at reducing the amount of valuable materials used in their products that there is little or no economic advantage to recovering electronics for their intrinsic material value. Shipping scrap metals to the Far East recovers metals, though uses fuel and generates emissions.

3. Local/regional rules in a global marketplace. Various states, groups of states and even countries can issue standards and regulations relating to recycling, but the evidence shows that the global marketplace abhors local/regional disruption - materials and pricing will adjust to those requirements and produce the proverbial 'unintended consequences'.

4. Environmental footprint. Unless there is a 360 degree value chain within a relatively local region for the collection, processing, and reuse of the materials collected, I am not so sure that the emissions and resources associated with recycling, especially transportation, may not be greater than if recycling did not occur. I suspect that this is the case with the electronics recycling situation noted earlier. This type of analysis prompted many environmentally-sensitive producers of products using plastic containers to switch from polyethylene (which is the preferred plastic for recycling) to polypropylene (strictly a one-way packaging material).

 

October 2002

What environmental accounting system or method do you recommend?

One that fits in seamlessly with the existing accounting system.

Accounting systems, even for relatively small companies, are very complex and must work reliably all of the time. If invoices are not sent out and employees are not paid on time, all hell breaks loose. In addition, environmental costs for most companies represent only a few percent of total costs. With this perspective in mind, it is no wonder that CFOs are reluctant to make major modifications to their accounting systems to facilitate environmental tracking. Adding a few extra cost center codes may appear like no big deal, but the accounting department may be wary if the existing system is already marginal.

For the same reasons, attempting to institute a separate accounting system, either as a stand alone or as an adjunct to an existing system, may not be well received. The environmental folks may think that these costs are worth tracking (and indeed they may be), but the case has to be extremely compelling to get over the activation energy needed to affect change. The very best way to go about implementing a system is to leverage an upcoming accounting system modification that is demanded by other business needs. It is during these times that adding extra tracking codes or reports requires little extra effort.

Modern environmental accounting systems are derived from activity based costing (ABC). ABC systems were designed in the 1980s to support a clear understanding of product and customer profitability and help prioritize areas for process improvement. If your current system is based on this principle, the effort should be directed at overlying the proper framework needed to gather the key costs.

Some robust commercial accounting systems are supported with environmental modules. For example, the SAP AG enterprise resource planning (ERP) system contains several environmental modules, although overall system is quite limited. If your current system has no environmental functionality, review existing environmental accounting software packages to determine how they are structured (e.g., cost centers and report structures). Donley Technology is a good starting point for examining environmental software packages. You may not be able to use the specific software these vendors sell, but they may be able to help set up the structure within your existing system.

Would additional environmental taxes significantly benefit the environment?

In a perfect world, taxes are the ideal tool to shift consumer spending towards more environmentally friendly products and services. The most commonly cited examples are carbon taxes on fossil fuel to encourage renewable energy sources and gasoline taxes to encourage more energy efficient cars and lower dependence on foreign oil sources.

The theory behind environmental taxes is simple: consumers are not fully paying for the "hidden" environmental or societal costs associated with these products or services. You may pay $1.50 per gallon to fill your tank, but Mrs. Brown across town pays $350 each month for asthma medication and you pay an extra $1,000 in federal taxes to support our access to "cheap oil" in the Middle East.

If you paid the fully loaded cost of all these "externalities," some argue that gasoline should cost five to twenty dollars per gallon. It is easy to imagine the dramatic shift that would occur in driving habits, automobile design, and urban transportation systems if prices at the pump increased dramatically. Indeed, Europe has traditionally had higher taxes and both automobile fuel efficiency and public transportation infrastructure is greater. Gas taxes in the UK are about $3.40 vs $0.40 in the US.

Tobacco "sin taxes" have been based on the same premise: fully load the cost of the product to offset the long term societal damage. Examining the benefits is instructive. Some say that the 1998 state tobacco settlement has done little more that re-distribute wealth, mostly into the pockets of lawyers. Tax revenue has wound up going towards some questionable projects, including technical assistance for tobacco farmers. Politicians have already started to cut prevention programs and shift funding to other more politically expedient needs (see the National Center for Tobacco-Free Kids' press release of July 22, 2002).

In our real, non-perfect, world run by politicians, do not think for a moment that the money will go towards solving the problems collectively called externalities. Yes, taxes will change behavior, but they may also have very negative effects on the economy and produce unintended consequences. Taxes could be the solution, but only if a way can be devised both to provide the intended behavior and to use the funds collected to achieve the desired permanent transformations.

September 2002

We are doing an environmental benchmarking study. What companies can be considered as 'top performers'?

Steve and I recently asked ourselves this same question when we wanted to learn about the organizational and staffing best practices of leading-edge companies for the research program, Organizations in Transition. We soon found out that no single characteristic defines top environmental performance.

Jim Collins, in researching his book Good to Great, had to first define great business performance before he could identify the companies that were able to break away from mediocrity. He chose "cumulative stock returns three times the market over a fifteen year period." Simple and straightforward. All the complexities of business rolled into one parameter.

Environmental performance, however, defies such a simple definition. Steve and I, with support from Yilun Yang, a doctoral candidate at Arizona State University, have classified four performance indicator groups: (1) Awards and recognitions; (2) Peer recognition by opinion leaders; (3) Classical performance measures (e.g., fines, toxic releases); and (4) Composite indicators of performance. Elements of these groups are prioritized based on significance and the overall score totaled.

In a perfect world, there would already be a universally recognized rating system for environmental performance. No such system exists, in part, because the systems used by many of the rating companies such as SAM are proprietary and many corporations have not yet been rated.

We sought excellence in multiple categories; in other words, an overall demonstration of superior performance. Many companies rated high in one or two groups, but did not necessarily stand out overall. Several dozen companies demonstrated high performance in many groups. Though the details and the individual rankings are debatable, there were clear overall leaders.

The "usual suspects" emerged (e.g., Intel and Johnson & Johnson), but it was fascinating to find that corporations such as ExxonMobil were among the performance leaders -- a result that the general public and environmental activists would never fathom in the aftermath of Valdez or position on global warming. Senior environmental professionals would, however, recognize that if objectively examined, the company has some of the best management systems in the world. Public image often drives the reputation of companies, even when it bears no relationship to actual performance.

You may also want to refer to our May 2001 Ask the Experts column for additional information on this topic.

Is there any link between terrorism and environmental degradation?

This question is sparking fierce debates as the war against terrorism continues. Is there a cause and effect relationship? The focus is not on the traditional forms of environmental degradation such as industrial pollution, but on the impact of shortages of food and water, groundwater depletion or contamination, soil erosion, habitat destruction, diminishing fish populations, and so on. The answer to this question is significant, since it may get at the root cause of terrorism and offer possible solutions.

In the August 26, 2002 issue of Time magazine featuring the Earth Summit, Jared Diamond, a UCLA professor and director of the WWF, implies that "by breeding the desperation that drives some individuals to become terrorists and other to support terrorists" a relationship exists. On the other hand, the Wall Street Journal points out in several recent editorials that some impoverished countries do not have terrorism, and that many of the terrorists are from middle or upper income families in countries without widespread environmental problems.

Both positions make sense, but they may be missing the key point: Terrorism may be more about power and who is getting what slice of the pie (literally, the Earth). Indeed, for many centuries this is one key reason why wars have been waged. Japan needed the resources of Southeast Asia. Germany had their eyes on the rich resources beyond their borders, such as the oilfields in the Caucasus. In the broadest sense, this struggle over the earth's resources is exactly the source of the issues we face today: does anyone think that there would have been a 9/11 if Saudi Arabia had no oil or if the developed world were self sufficient in renewable energy?

Today's environmental issues have moved beyond the factory fences to global impacts on raw materials and foodstuffs. The difference between the haves and the have-nots becomes increasingly more apparent in a world filled with communication technologies and tools of mass destruction that even the have-nots can now afford.

An unsustainable approach to resources only increases these pressures and continues to foster "warfare on the cheap" (i.e., terrorism) led by individuals who believe that they personally or their tribe/religious sect/countrymen do not have what they deserve.

It may fall under the umbrella of pious religious passion and with contempt for Western materialism, but let there be no mistake: this is about power, and the primary way that you seize power from those who currently have it is to have control of the resources.

 

August 2002

What are the most effective methods to persuade management to build an EMS?

An Environmental Management System (EMS) is generally regarded as essential by most environmental managers, yet many still struggle when trying to convince management that one is needed. Their fatal mistake is to position the EMS as something new: a package to be bought, installed and maintained as if it were a new piece of pollution control equipment. It is not and, indeed, every facility already has some sort of "management system," whether it is well documented and sophisticated or absolutely rudimentary (e.g., Billy Bob escorts the inspectors when they show up).

I think the mystique of an EMS began with the introduction of ISO 14001 in the early 1990s. During the mid 1990's, ISO was one of the few growth areas for consultants; having a well-run system became synonymous with certification under ISO 14001. In fact, these are three separate issues (well run system - ISO 14001 - and certification), but they have been conceptually bundled together and now we have a generation of environmental professionals and business managers who think that they go hand in hand. Certification can be expensive and ISO 14001 is a conformance-based system that may do little to improve performance at facilities with pre-existing, well-run systems.

I encourage my clients to make the business case for upgrading the existing system: improve its effectiveness, cut costs, and reduce liability. I NEVER recommend that they request funding to install an EMS. The emphasis should be on streamlining what exists and bringing it up to minimum standards, while carefully selecting the documentation and record keeping practices that make sense and do not add needless bureaucracy. More companies are moving towards hybrid systems which include ISO 14001 as a lower platform, but only if certification is one of the objectives.

If ISO certification is desirable, it should be given separate consideration. The easiest justifications for certification are market dynamics, particularly in Europe and Japan, or for specific industries such as automotive parts suppliers. Company policy and public image are other common justifications, though the benefits are much harder to quantify. Compliance and liability reduction are weak justifications, since hybrid, performance-based systems such as Baldrige are better suited for such goals.

What are the career prospects for environmental professionals?

Short term - rather dismal; long term - excellent.

The good job market for environmental professionals in the late 1980s and early 1990s produced a wave of students eager to enter the field. Regulatory stabilization, combined with consolidations and downsizing within industry, greeted the new graduates with bad news at the end of the decade. The word is beginning to filter back to campuses that EHS may not be a sure bet for a good position, especially in today's gloomy economy.

This current picture is based on anecdotal information, such as observations reported to me from colleagues in academia and industry. I witnessed it myself when I recently posted job openings on various web sites and received a flood of responses from extremely well-educated recent graduates located around the world. Middle and senior level EHS professionals have been particularly hard hit during the reorganizations over the past five years.

My suspicion is that things may have reached rock bottom and an upturn may be in store. Governance concerns by directors may put a damper on continued forced cutbacks in an image-sensitive area such as EHS. Senior positions in industry may not be backfilled or may be downgraded in position level, but this will not have the same impact as the reductions of the past. Talented individuals continue to transfer out of EHS into other areas, leaving behind openings.

The first clear upswing may be caused by the retirement of senior regulatory agency staff members. I have heard that as many as one-third will retire within the next five years. One senior, unemployed colleague in California reported recently that the job prospects looked quite good within government agencies.

As with any profession, students need to examine the job prospects at the end of ones education, not the beginning. Today, the incoming talent pool may be shrinking while the demand grows rapidly over the next four-plus years. A surge in interest in sustainable development due to some environmental "wake-up-call" would dramatically increase demand. That said, it would also be wise for students to "hedge their bets" by majoring in one of the essential competencies, such as project engineering, while continuing their environmental studies. Hard sciences and engineering always fair better in tight job markets.

 

July 2002

What are the most important elements needed for a company to achieve environmental leadership?

The company needs either a major disaster or an extraordinary, visionary CEO. Seriously. I have thought long and hard to come up with a list of the companies that have approached this elusive goal that did not first either go through one or more gut-wrenching screw-ups or have a visionary executive at the top, usually the CEO. The closest I could come was 3M for their pollution prevention program, and some may argue that this was less about environmental excellence and more about a centralized management philosophy of waste reduction designed to save money.

Many of my colleagues in industry management owe their positions to major problems that they were called in to straighten out. I was hired into one such company after the EPA levied a record breaking fine. These "burning platforms" provided the resources and the management access to do what most companies have no interest in pursuing. Royal Dutch Shell had Brent Spar. Today, they receive accolades from NGOs for their stakeholder outreach. Union Carbide had Bhopal and for the decade that followed, they were the company to use for auditing practices benchmarking. The list goes on and on.

I believe that most corporations that have gone through a truly traumatic experience institute systems that become a part of the company's ingrained systems and polices, if not its cultural fabric. This is not always the case when the CEO takes a leadership position. For example, Maurice Strong led Ontario Power as a champion for sustainable development. The programs were abandoned as soon as he left the company.

Regardless of the motivating force behind a leap forward, the fact remains that these companies define the path for others to follow. The McDonald's partnership with Environmental Defense set the stage for NGO/company relationships. Dow set the model for international environmental due diligence with the acquisition and reconstruction of BSL, the former East German chemical industry giant. A burning platform is not, however, a guarantee of forward progress. General Electric has its Hudson River but, if anything, the company seems more entrenched than ever in legal positioning rather than proactive programs. Much depends on executive management's personal views of the environment and their responsibility to society, not just shareholders and employees.

What grade would you give the EPA's Administrator, Christie Whitman?

For leadership, D+; for following orders from the boss, A-; for protecting the environment, C-; and for playing the Washington political game, B+.

Last year, I was a strong supporter of Christie Whitman. In an article appearing in Environmental Protection magazine in June 2001, I stated that "someone with the talent and political skills to be elected governor is not going to plod along, as Carol Browner, Clinton's EPA Administrator . . . did in the 1990s." The administrator read my article and I even received a letter back from her office. I was psyched for the great things that would now be accomplished by the EPA.

In the article, I pointed out the key ingredient for success: " I think that the true test will be in how well Christie Whitman is able to lead a stuck and demoralized organization forward. It is not whether she fails to get 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 remained elusive for the past eight years."

How wrong I was. "Plodding along" could be the perfect description of the EPA today. To be fair, 9/11 has altered the country's priorities. The economy and corporate scandals have not helped either. On the other hand, environmental activists have held back criticism for nearly a year. This EPA holiday will not last much longer. I was surprised by a June 2002 editorial in Pollution Engineering magazine in which the editor lambastes the EPA, stating "the EPA is no better that those it is trying to enforce." Strong words.

From my own personal experience, I have spent the past seven months trying to get someone in authority at EPA to make a decision on a non-regulatory, non-legal issue that, to my possibly naive view, should take a few seconds. Robert Townsend, author of the 1970 classic, Up the Organization, states it this way: "The common or garden variety decision - like when to have a cafeteria open for lunch or what brand of pencil to buy - should be made fast." Maybe that about sums it up. We have a massive bureaucracy without leadership - just another politician at the helm.

 

June 2002

What are the costs and disadvantages to a company providing environmental reports?

There are thousands of companies that produce formal environmental reports. We sometimes overlook the fact, however, that this represents only a small percentage of all corporations. In other words, the costs and disadvantages appear to outweigh the benefits gained. The companies that do report are rapidly moving to broad-based reporting on health, safety, environmental and social responsibility. In many respects, this gives an insight into one of the primary motivations for voluntary reporting - public relations.

SustainAbility, in conjunction with the United Nations Environment Programme, has produced some of the best material on reporting trends and advantages/ disadvantages. The 1998 "Non-Reporting Report" contains a good summary on why companies choose to report or not report. The 1999 "Social Reporting Report" and the 2000 "The Global Reports" are rich in information on reporting. Most of the material published, including the work by SustainAbility, has been very upbeat and positive on reporting. You asked about the downside. 

The UK Department of Environment, Food and Rural Affairs recently sponsored a survey by Environ on the cost of reporting. The results were surprising to many: $124,000 at the low end to $1,310,000 at the high end, if you consider the range of costs from strategy formation to final production. I think that these costs are on the low side if one also includes building the internal infrastructure needed to gather key metrics. 

Reporting may be expensive, but the greatest hurdle may be the legal issues. CEOs take the advice of attorneys very seriously. By their very training and nature - right to the DNA level - attorneys hate to disclose information for fear that some public statement, commitment, goal, etc. will come back some day to haunt the company. Their killer question is "why do we have to do this?" It's a tough question to answer if your main arguments revolve around difficult-to-quantify benefits such as "community good will." Professor David Case of the Vanderbilt Center for Environmental Management Studies has described these legal difficulties in an Environmental Law Reporter article.

From my perspective, the entire point is lost. Companies should be building the infrastructure to gather key performance indicators to better manage and strategically position the company. Public relations and external reporting should be secondary considerations; today they are often the primary goals for reporters. External disclosure could, in fact, be very inexpensive if internet-based reporting was done on selective indicators and the PR could be kept to a minimum. 

I was recently transferred from manufacturing to be in charge of EHS for the company. Since I am not an expert on EHS, what first steps should I take to get up to speed?

You have already taken the first key step: ask lots of questions. I would not be concerned about not being an EHS expert. Some of the very best corporate EHS managers that I have known have come from manufacturing. They all shared three essential traits: they were very intelligent people who led good people and had communication skills. You can get up to speed quickly on the technical issues through reading, workshops, industry associations, conferences, and peer networks. If you need immediate assistance and expertise is not available in-house, consultants can provide it. 

Just like newly elected presidents, you have approximately a six-month "grace period" with executive management. Of all the advice I can provide, here is the most critical: take maximum advantage of this goodwill window. Three essential things must happen if you are to have long-term success. 

First, get a very accurate assessment of all current and potential future issues. If problems are uncovered a year down the road, they are YOUR problems. The mistake that most newly promoted EHS managers make is to assume that a competent job was done in the past in laying out the issues. Generally, this is true, but a mistake on this front can be career wrecking. Perform an independent governance review using internal and one or two very senior experienced experts. This review should not be limited to compliance and should include all past, present and future strategic issues. 

Second, perform a detailed review of the existing staff. If there are "bad apples", now is the time to quickly deal with them. The most critical issue is not competency, but how these individuals work as a team and how they interface with other departments. If there are dysfunctional people in the group, deal with it now or you will pay dearly for your indecisiveness in the future as these people undermine what you are trying to accomplish. 

Third, establish strong communications channels with executive management and ideally, establish a mentor relationship with one of the key officers. These relationships, built on trust, take months if not years to establish, and if critical issues arise in the future, your career may be dependent on the sturdiness of these relationships. 

 

May 2002

Could ISO become the future global reporting standard, instead of the GRI?

Richard: It could, if the International Standards Organization (ISO) decides that there is a need for a standard. The "place holders" for an environmental reporting standard already exists under the ISO 14000 umbrella. In addition, in April ISO released the report "The Desirability and Feasibility of ISO Corporate Social Responsibility Standards" calling for comments on the viability of a new standard. The report was developed "in light of increasing worldwide consumer and public interest . . . on the social responsibility leadership of companies."

There have been more than thirty reporting standards and guidelines over the past twenty years, but the Global Reporting Initiative (GRI) is the undeniable leader today. Its stature was increased at an April United Nations event marking the launch of GRI as an independent global institution headquartered in Amsterdam. What many do not realize, however, is that the GRI is not a standard but a voluntary guideline. This is evidently clear in the draft "2002 Sustainability Reporting Guidelines."

Its voluntary nature also extends to verification. The GRI's Verification Work Group states, "There has never been any intention to prescribe standards or procedures to be followed by verifiers or assurance providers, nor how such persons should be credentialed."

From a practical standpoint relative to how it is used, the GRI is the governing standard to which more and more companies are subscribing. GRI will be the dominant player in the foreseeable future, but if ISO decides to move forward on a standard, the landscape could radically change. While a new ISO standard may not center on reporting, by the mere fact that it would specify metrics and "transparency practices," its net effect would be equivalent to a reporting standard.

My intuition tells me that if ISO decides to go forward and if GRI and ISO do not reach an agreement on which organization is defining reporting practices, industry may immediately gravitate to an ISO standard. GRI has its roots in CERES, an "activist organization" not widely trusted in business circles. Even as an independent institution, there may still be concern that the organization is moving too fast or too extreme. ISO, on the other hand, is already well entrenched, indeed, business management is very comfortable with ISO-type standards.

Do you think "Janitors Insurance" has affected management push for improved safety programs?

Obviously, you have been reading the Wall Street Journal. There has been a recent series of articles on the widespread but little known practice of companies taking out life insurance polices on workers at all levels, including the lower ranks. It offers companies tax-free investment buildup and provides tax-free death benefits when workers, former workers or retirees die.

It was originally designed to insure against the death of key employees, under the rationale that their loss would significantly affect the company. Before the 1980s state insurance laws specified that the person or entity had to have an "insurable interest" in the individual, but after industry lobbying this restriction was liberalized considerably. Now companies in most states can insure any employee and not even tell the individual.

So we are left with a situation where "dead peasants" (another name for this insurance) are worth far more dead than alive to companies such as Dow Chemical, American Electric Power, Procter & Gamble, PPG, Olin, Nestle, Wall-Mart, and scores of others. There are various moves afoot by the IRS and congress to crack down on this practice, but back to your question.

I doubt that it has influenced management's support for safety. Injured employees represent a tremendous cost to companies. Companies spend billions on worker compensation, medical and disability costs, not to mention lost productivity. Indeed, these costs are the financial justification for beyond compliance safety and health programs. It is an all or nothing proposition: either you do a stellar job at protecting employees from death, or you risk an even greater cost in the form of injury either on or off the job.

I suppose that if employers had the morals of Attila the Hun and no legal restrictions, they could treat workers like injured horses at the race track and just shoot them to collect. This statement may bring smiles to some (sounds like my company!), but let's face it, management would not even remotely consider putting workers at such lethal risk.

The real concern is the optics. If your company has "broad-based life insurance" (the technical name), you should openly discuss it with employees to put their concerns or misunderstandings to rest.

 

April 2002

What is the definition of Environmental Excellence?

There is no "official definition." That may seem surprising, since the phrase is so widely used (e.g., 573,000 hits on an internet search!). There are even institutes for environmental excellence, but no widely accepted definition.

Around a decade ago, the term was very much in vogue, similar to popularity of sustainable development today. These terms share similarities: (1) no universally accepted definition (the 1987 Brundtland commission offers the most commonly accepted definition for sustainable development, but the "Triple Bottom Line" is vying for first place); and (2) business management is all for them (although they are not always certain what they really mean in actionable terms). Public relations pieces are filled with both terms, but when they involve substantial resource investments, knees get all wobbly.

When environmental excellence rose to prominence, EHS departments were still trying to get their houses in order and build the systems that are so very well defined and common today. Because it was an abstract term back then, "environmental excellence" made it into the mission and policy statements of scores of companies. After all, who could be held strictly accountable for something that was ethereal?

Sufficient time has elapsed since the term first appeared; the lower platform of basic environmental management is now very well established. Thus, while environmental excellence may still elude definition, one could confidentially conclude that it is at least better than the basics. This is a critical point. There are well-developed tools to quantitatively measure a company's status with respect to environmental management system (EMS) implementation. If your company's environmental policy states that excellence is the objective and a basic EMS does not even exist, you have a very big gap.

The media loves gaps. Companies appear to be disingenuous; witness the feeding frenzy with Enron. Even more important, if there is a lawsuit and your EMS is found to not pass muster, punitive damages may be in order, since the company was clearly not following its own policies.

My definition is as follows: fully implemented, state of the art EMS; performance at least in the upper half of your industry sector; and one or more cutting edge initiatives. Recognize also that this definition is a moving performance target.

If all companies have their unique cultures, can EHS staffing and organizational best practices be generalized among companies?

Some things cannot be directly translated; however, other best practices can be universally adapted. This applies to EHS management, as well as business management. If every company were truly unique, management consultants and the university professors who write volumes on organizational practice would be hard pressed to develop unifying theories.

There have been, of course, many common approaches to effectively organize and run businesses. Enterprise resource planning, reengineering, Six Sigma, etc. can be modified to meet specific company objectives, but each has its common underlying theory and best practices. The bottom line is that management philosophies can be generalized and translated among companies. This is especially true for similar sized companies in the same industry sector.

Unfortunately, some business managers have attempted to use business management techniques (usually with cost cutting as the primary objective) to re-organize EHS departments without sufficient recognition of the unique issues involved. The method that is least translatable among companies is the one that business managers most often use, namely comparing EHS staff size ratios. A simple ratio such as number of employees per total revenues is bogus comparison tool, but EHS staffs are routinely hammered on this point. A previous Ask the Experts (GreenBiz.com, August 2001) addressed this topic.

The trend in the 1990s toward shared services and outsourcing is another area where "less than desirable" results have been obtained when improperly applied to EHS. Management, viewing EHS solely as a service-type function, grouped EHS functions with other service groups such as accounting, engineering, and human resources. In some companies, this had disastrous consequences when EHS governance functions were views as "service options" by the business units.

Our research with the Center for Environmental Innovation (Organizations in Transition) has shown that there are universally applicable best practices for EHS management. Again, the specific practice must be modified to meet company needs, but the unifying theory is the same. For example, the various functions provided by EHS appear to fall within four distinct clusters of activities. Thus, while companies may organize differently to provide technical services, governance, human capital and strategic support, management, as a minimum, must recognize that these are distinct functions that must be considered individually in the organizational design

 

March 2002

With all the attention on governance lately, what do you think corporate directors need to know about their EHS status?

I have been flooded with questions from clients who are concerned about upcoming board presentations (see the related question on audits and governance).  My recommendation is that even if your management has not raised the question, be prepared to raise it yourself.  You should be prepared to answer the following:

  1. Are there any truly major problems that could impact shareholder value?

  2. Is there anything that could impact the company's reputation in a significant way?

  3. Do we have the right organization in place, staffed with the right people, and reporting at the right level?

  4. Is the corporate/group/site EH&S organization adding value to the Company?

  • What are the strategic, competitive advantages that can be gained through the EHS organization's activities?
  • Are there any strategic issues that could seriously hurt the company?

  1. Is the company doing the right things well? (the classic 4 box model)

  2. How does the company stack up against its competitors?

  • Is the competition gaining competitive advantage through their EH&S activities?
  • Can we?
  • Do we have comparable tools and programs?
  1. What will it cost (how much can we save) to implement recommended changes? What will the return on these investments be?
  2. Are we getting unfiltered, accurate information?
  3. Is there sufficient accountability and control?
  4. Is there anything out there that could create difficulties for me (i.e., the office, director or executive) personally (e.g., lack of required due diligence)?

If you believe that the preceding questions would only arise in the narrow context of the company's regulatory compliance and community relations status, you may have an added responsibility to educate your management on emerging issues.  Command and control regulations and public relations have dominated EH&S efforts over the past thirty years but, in the future, governance will require the added dimension of sustainable development measured by a new set of performance indices.

The EHS audit and due diligence practices (especially as they relate to business transactions) have been systematized and perfected to a very high standard.  You can buy the book or computer program off the shelf.  Governance as it relates to emerging sustainable development issues is a much tougher exercise.

What's the difference between environmental audits, due diligence and governance?  Aren't they one and the same?

No, they are not the same.  Audits are an essential component of governance, however governance refers to the much broader responsibilities of a corporation and its executives and directors.  Similarly, audits can be a major component of due diligence and due diligence is a component of governance.

The definition of audits is the "systematic review process to determine whether all or selective levels of the organization are in compliance with laws, regulatory requirements, and standards."  Some definitions expand this to include internal policies and best management practices; however, much of the focus is on specific, well defined requirements that lend themselves to detailed, check-list type reviews.

Governance focuses on assurance that the company's policies and systems are being implemented according to the instructions of the directors and business executives.  While audits are often outsourced, governance should never be completely outsourced.  In addition, governance should be budgeted through an overhead account and not controlled or viewed as an option by the business units.

For example, the push for shared services and outsourcing over the past six years created heartburn for many EHS managers when the governance function was treated as just another EHS service.  EHS auditors in some companies have been literally told to go away when they showed up at uncooperative manufacturing facilities.

Due Diligence generally refers to specific steps that a corporation should take when faced with a potential issue or liability.  The classic example is the requirement for a systematic review of new business acquisitions or divestments for hidden liabilities.  The primary component in such a review is a phase one investigation, which, in turn, may trigger additional investigations.

When the issues are straightforward and simple, checklist-type audits can serve the function of proper due diligence and governance.  If, however, the issues are complex, audits do not suffice.  "Adult supervision" may be required to get at the real issues.  Clearly in the case of Enron, there was a lot of auditing going on, but very little governance and due diligence.  That is the key point.  If your company has a good environmental audit system, it could in actuality be failing in terms of governance.  If you ensure that your management understands these distinctions, you will be performing a governance function!

 

February 2002

What environmental fallout can we expect from the Enron mess?

Lots. The fallout will focus not only on environmental issues within the company, but also the underlying issue of widespread governance failure. The push for environmental reform may come from two sources:

First, directors and executives will ask their staffs, Where are we vulnerable? The corrective process has already begun; several energy companies quickly began shoring up their balance sheets. These probes will not, however, be narrowly confined to Enron-type issues. It is to be hoped that boards are staffed by strategic thinkers who will probe far and wide.

For example, after Bhopal, boards reviewed vulnerabilities in both chemical risk and community relations. Methyl isocyanate was not the issue. A plethora of internal policies and procedures on risk management resulted. Because the underlying problems were systemic to industry, new laws and industry initiatives such as Responsible CareŽ also ensued.

Boards may raise concerns over EHS governance structures: Are the "independent" auditors also performing consulting services? Should the company who performs attestations of the EHS report also provide consulting services? Why is the EHS governance function part of shared services? Are our EHS governance communication lines unfiltered? Should audits include more than compliance?

Second, organizations such as the Corporate Sunshine Working Group have already raised concerns over EHS information disclosure. The concern intensified after Professor Cynthia Williams concluded in a 1999 Harvard Law Review article that the SEC has the duty and the authority to demand greater EHS disclosure. The SEC has taken little substantive action; but the pressure may now grow to close loopholes that allow companies to keep certain EHS liabilities off the books. The staggering impact of company bankruptcies due to asbestos litigation may be another impetus for change.

Companies have been avoided reporting liabilities by hiding behind narrowly defined regulations (Wall Street Journal, When Rules Keep Debt Off the Books, January 18, 2002, page C1). How might this work within EHS practice? Today if you can't define and quantify a liability and estimate its timing, it does not get booked. Wink: we really should not investigate too extensively -- right? And nudge: this is so fuzzy; we really cannot quantify or time its impact -- right? Prepare for the day that the SEC removes the ability of companies to rationalize EHS liabilities.

What are the essential ingredients of an EHS strategic plan?

 

Most of the strategic plans I have reviewed were constructed and executed poorly. They were essentially task lists for incremental improvements, generally focused on maintaining or slightly expanding the EHS function's services while cutting costs. Looking at the bright side, most of these elements are useful, though usually inadequate in EHS planning:

  • Future focus. Start from a point at least five years out and work backward to the present. Determine where you have to go and then figure how to accomplish it. This process avoids incrementalism. Scenario development is a wonderful technique to use to develop a forward-looking focus.

  • Get external input. This input should come from individuals who have their finger on the pulse of the "fringe" elements of emerging issues; the more unconventional the better. If they shake you up and get you out of your traditional way of thinking, they have served you well.

  • Seek executive input. Get to know your executive management so you can cut through politically correct rhetoric and learn what your leaders are really thinking. This will help you to align your plan and identify critical disconnects and disagreements between the officer and directors that need resolution. A management education program may be necessary to increase awareness of emerging issues so the executives can make informed decisions.

  • Business alignment. Develop an in-depth understanding of the business vision and core competencies. Map this to the EHS function's core competencies to gain a clear picture of how EHS adds value to the company and why certain EHS strategic action plans are needed. This step will also keep the plan at a strategic level, instead of a tactical level.

  • Metrics matter. Include one or two metrics that track the actual implementation of the strategic plan -- and then track them!

  • Use a proven process. The strategic planning process can be used to gain buy-in and understanding. The strategic plan is a cognitive process used to implement change, which cannot be obtained in a meeting or two. The depth at which you undertake each element will determine the robustness of your plan.
     

January 2002

What is the ideal EHS organizational structure?

Company organizations seem to change every few years with each passing management fad and new executive team in charge. Shaking up the organization from time to time, as traumatic as it may be, has its benefits. The top business executives and their management consultants understand the core business functions (e.g., manufacturing, marketing, finance) and service functions (e.g., human resources, information technology). In other words, when they tinker, it is for specific business objectives and they know (or at least we hope they know) what they are doing.

I wish I could say the same about business executives' understanding of the EHS function. The EHS function is three-dimensional: service, governance and strategic. Unfortunately, management often views EHS departments exclusively in the first dimension: a service function (i.e., overhead, non strategic) needed to complete transactional tasks (e.g., permit writing, monitoring). As a result, the organizational thrust over the past decade has placed EHS groups in shared service-type organizations or outsourced specific activities.

Companies that were early proponents of outsourcing and/or shared service have backed away once they better understood the governance dimension (e.g., risk management, due diligence). Management responded by regaining control over some functions that were outsourced and by strengthening the oversight function.

The third dimension, strategy, has not been widely recognized by business management and most EHS organizations are still structured to address the issues of the past thirty years. Business managers are still puzzled by the environmental buzzword called sustainable development. This confusion has prevented the EHS function from being adequately positioned to shape the strategic business agenda. Companies have initiated a number of strategic efforts in market development, product design, and competitive positioning related to their EHS strategies, but most appear to be one-off efforts, not fully integrated into the business fabric.

The bottom line is that the ideal structure is one that fully addresses all three dimensions. The next generation of EHS organizations will not resemble those of today. For example, external partnerships and internal integration may dominate the service dimension; the governance dimension may be taken over by finance or legal, and the strategic role may be provided by a new group of strategists working among the executive ranks.

How can I explain sustainable development to our business management groups?

Sustainable development boils down to:

    1. Responsible resource utilization as measured by key metrics, and

    2. A business strategy anchored to emerging ecological realities.

First, explain the difference between the views of an ecologist and an economist on the global economy. The definitive reference is by Lester Brown of the Earth Policy Institute in his free book, Eco-Economy. The essence of his analysis is that an economist sees short-term prices for resources as relatively low (i.e., all is well with the global economy). They rely on the market to guide decisions. An ecologist sees an economy that is increasingly in conflict with earth's ecological limits -- a path which will lead to economic decline if the earth's "natural capital" is depleted.

Skilled workers and efficient technology used to be in short supply. Now human capital is increasingly abundant and natural capital is growing scarce. Technological innovations have been able to keep pace, but an ecologist sees these forces as already reaching critical limits in some regions. When it comes to a conflict between the laws of economics and the laws of the environment, Mother Nature rules.

Key point: in an integrated, global economy, a collapse in one country (e.g., widespread starvation or economic ruin due to depleted resources) affects us all. Business strategies must address their resource demands and the markets for their products and services within both economic and an ecological contexts.

Second, the future will be all about the care and use of natural capital. Those that demonstrate that they are using resources efficiently and responsibly gain competitive advantage. Those that are irresponsible are not even allowed to operate. Stakeholders will increasingly demand proof that companies are being responsible citizens and that the systems they use to measure, monitor and verify this commitment are evolving.

Companies will need to identify what metrics will matter in the future and ensure that they are, as a minimum, in the middle of the pack.

 

 

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