Individual Management Planning Presentation Imagine you are an executive for BP, and you are preparing a presentation for the board of directors about the organization’s direction. Create a 10- to 15-slide Microsoft® PowerPoint® presentation, with spe

APPENDIX B APPENDIX B

Managing in Our Natural Environment BUSINESS AND THE ENVIRONMENT: CONFLICTING VIEWS Some people believe everyone wins when business tackles envi- ronmental issues. 1 Others disagree.

The Win-Win Mentality Business used to look at environ- mental issues as a no-win situation: You either help the envi- ronment and hurt your business, or help your business only at a cost to the environment. Fortunately, things have changed. “When Americans first demanded a cleanup of the environment during the early 1970s, corporations threw a tantrum. Their response ran the psychological gamut from denial to hostility, defiance, obstinacy, and fear. But today, when it comes to green issues, many U.S. companies have turned from rebellious under- achievers to active problem solvers.” 2 Table B.1 gives just a few examples of things U.S. corporations are doing to help solve environmental problems.

The Earth Summit in Rio in 1992 helped increase aware- ness of environmental issues. This led to the Kyoto Protocol, an international effort to control global warming that included an unsuccessful meeting in the Hague in November 2000. 3 “There has been an evolution of most groups—whether industry, gov- ernments, or nongovernmental organizations—toward a recog- nition that everyone plays a part in reaching a solution.” 4

Being “green” is potentially a catalyst for innovation, new market opportunities, and wealth creation. Advocates believe that this is truly a win-win situation; actions can be taken that benefit both business and the environment. For example, Procter & Gamble in a span of five years reduced disposable wastes by over 50 percent while increasing sales by 25 percent. 5 Win-win companies will come out ahead of those companies that have an us-versus-them, we-can’t-afford-to-protect-the-environment mentality.

Is the easy part over? 6 Companies have found a lot of easy- to-harvest, “low-hanging fruit”—that is, overly costly practices that were made environmentally friendlier and that saved money at the same time. Many big companies have made these easy changes, and reaped benefits from them. Many small companies still have such low-hanging fruit to harvest, 7 and plenty remains to be done.

The Dissenting View The critics of environmentalism in business are vocal. Some economists maintain that not a single empirical analysis supports the “free lunch view” that spending money on environmental problems provides full payback to the firm. 8 Skepticism should continue, they say; the belief that every- one will come out a winner is naive.

What really upsets many businesspeople is the financial cost of complying with environmental regulations. 9 Consider a few examples:

• GM spent $1.3 billion to comply with California requirements that 10 percent of the cars sold there be emission-free. European automakers spent $7 billion to install pollution- control equipment in all new cars during a five-year period.

• At Bayer, 20 percent of manufacturing costs were for the environment. This is approximately the same amount spent for labor.

• The Clean Air Act alone was expected to cost U.S. petro- leum refiners $37 billion, more than the book value of the entire industry.

• California’s tough laws are a major reason why manufactur- ers moved to Arkansas or Nevada.

In industries like chemicals and petroleum, environmental reg- ulations were once considered a threat to their very survival. 10

Balance A more balanced view is that business must weigh the environmental benefits of an action against value destruc- tion. The advice here is: Don’t obstruct progress, but pick your environmental initiatives carefully. Compliance and remediation efforts will protect, but not increase, shareholder value. 11 And it is shareholder value, rather than compliance, emissions, or costs, that should be the focus of objective cost-benefit analyses. Such an approach is environmentally sound but also hard-headed in a business sense, and is the one approach that is truly sustain- able over the long term.

Johan Piet maintains, “Only win-win companies will survive, but that does not mean that all win-win ideas will be successful.” 12 In other words, rigorous analysis is essential. Thus, some compa- nies maintain continuous improvement in environmental perfor- mance, but fund only projects that meet financial objectives.

Most people understand that business has the resources and the competence to bring about constructive change, and that this creates great opportunity—if well managed—for both busi- ness and the environment.

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190 Part Two Planning: Delivering Strategic Value

TABLE B.1 What Companies Are Doing to Enhance the Environment

Toyota established an “ecotechnologies” division both for regulatory compliance and to shape corporate direction, including the development of hybrid electric-combustion automobiles.

Interface Corporation’s new Shanghai carpet factory circulates liquid through a standard pumping loop like those used in most industries. But simply by using fatter pipes and short, straight pipes instead of long and crooked pipes, it cut the power requirements by 92 percent.

Xerox used “zero-waste-to-landfill” engineering to develop a new remanufacturable copier. AT&T cut paper costs by 15 percent by setting defaults on copiers and printers to double-sided mode.

Electrolux uses more environmentally friendly water- based and powder paints instead of solvent-based paints, and introduced the first refrigerators and freezers free of chlorofluorocarbons.

Many chemical and pharmaceutical companies, including Novo Nordisk and Empresas La Moderna, are exploring “green chemistry” and seeking biological substitutes for synthetic materials.

Anheuser-Busch saved 21 million pounds of metal a year by reducing its beer-can rims by 1/8 of an inch (without reducing its contents).

Nissan enlisted a group of ecologists, energy experts, and science writers to brainstorm about how an environmentally responsible car company might behave. Among the ideas: to produce automobiles that snap together into electrically powered trains for long trips and then detach for the dispersion to final destinations.

SOURCES: P. M. Senge and G. Carstedt, “Innovating Our Way to the Next Industrial Revolution,” Sloan Management Review, Winter 2001, pp. 24–38; M. P. Polonsky and P. J. Rosenberger III, “Reevaluating Green Marketing: A Strategic Approach,” Business Horizons, September–October, 2001, pp. 21–30; C. Garfield, Second to None: How Our Smartest Companies Put People First (Burr Ridge, IL; Business One-Irwin, 1992); H. Bradbury and J. A. Clair, “Promoting Sustainable Organizations with Sweden’s Natural Step,” Academy of Management Executive, November 1999, pp. 63–74; A. Loving, L. Hunter Lovins, and P. Hawken, “A Road Map for Natural Capitalism,” Harvard Business Review, May–June 1999, pp. 145–58; P. Hawken, A. Lovings, and L. Hunter Lovins, Natural Capitalism (Boston: Little Brown, 1999); and S. L. Hart and M. B. Milstein, “Global Sustainability and the Creative Destruction of Industries,” Sloan Management Review, Fall 1999, pp. 23–32.

TABLE B.2 Some U.S Environmental Laws

Superfund [Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)]: Establishes potential liability for any person or organization responsible for creating an environmental health hazard. Individuals may be prosecuted, fined, or taxed to fund cleanup.

Clean Water Act [Federal Water Pollution Control Act]: Regulates all discharges into surface waters, and affects the construction and performance of sewer systems. The Safe Drinking Water Act similarly protects groundwaters.

Clean Air Act: Regulates the emission into the air of any substance that affects air quality, including nitrous oxides, sulfur dioxide, and carbon dioxide.

Community Response and Right-to-Know Act: Mandates that all facilities producing, transporting, storing, using, or releasing hazardous substances provide full information to local and state authorities and maintain emergency-action plans.

Federal Hazardous Substances Act: Regulates hazards to health and safety associated with consumer products. The Consumer Product Safety Commission has the right to recall hazardous products.

Hazardous Materials Transportation Act: Regulates the packaging, marketing, and labeling of shipments of flammable, toxic, and radioactive materials.

Resource Conservation and Recovery Act: Extends to small-quantity generators the laws regulating generation, treatment, and disposal of solid and hazardous wastes.

Surface Mining Control and Reclamation Act: Establishes environmental standards for all surface-mining operations.

Toxic Substances Control Act: Addresses the manufacture, processing, distribution, use, and disposal of dangerous chemical substances and mixtures.

SOURCE: Dennis C. Kinlaw, Competitive and Green: Sustainable Performance in the Environmental Age (Amsterdam: Pfeiffer & Co., 1993). Reprinted by permission of the author.

WHY MANAGE WITH THE ENVIRONMENT IN MIND? Business is turning its full attention to environmental issues for many reasons, including legal compliance, cost effectiveness, competitive advantage, public opinion, and long-term thinking.

Legal Compliance Table B.2 shows just some of the most important U.S. environmental laws. Government regulations and liability for damages provide strong economic incentives to comply with environmental guidelines. Most industries already have made environmental protection regulation and liability an

integral part of their business planning. 13 The U.S. Justice Depart- ment has handed out tough prison sentences to executives whose companies violate hazardous-waste requirements.

Some businesspeople consider the regulations to be too rigid, inflexible, and unfair. In response to this concern, regulatory reform may become more creative. The Aspen Institute Series on the Environment in the Twenty-First Century is trying to increase the cost-effectiveness of compliance measures through more flexibility in meeting standards and relying on market- based incentives. Such mechanisms, including tradable permits, pollution charges, and deposit refund systems, provide positive financial incentives for good environmental performance. 14

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and low key, but much pressure is exerted by environmental organizations, aroused citizen groups, societies and associations, international codes of conduct, and environmentally conscious investors. 20

Another important reason for paying attention to environ- mental impact is TRI, the Toxic Release Inventory. 21 Starting in 1986, the EPA required all the plants of approximately 10,000 U.S. manufacturers to report annual releases of 317 toxic chemi- cals into the air, ground, and water. The substances include freon, PCBs, asbestos, and lead compounds. Hundreds of others have been added to the list. The releases are not necessarily illegal, but they provide the public with an annual environmental bench- mark. TRI provides a powerful incentive to reduce emissions.

Finally, it is useful to remember that companies recover very slowly in public opinion from the impact of an environmental disaster. Adverse public opinion may affect sales as well as the firm’s ability to attract and retain talented people. You can see why companies like P&G consider concern for the environment a consumer need, making it a basic and critical business issue.

Long-Term Thinking Long-term thinking about resources helps business leaders understand the nature of their responsi- bilities with regard to environmental concerns. For example, you read about sustainable growth in the chapter. 22 Economic argu- ments and the tragedy of the commons also highlight the need for long-term thinking.

Economic arguments In Chapter 3, we discussed long-term versus short-term decision making. We stated that it is common for managers to succumb to short-term pressure for profits and to avoid spending now when the potential payoff is years down the road. In addition, some economists maintain that it is the responsibility of management to maximize returns for share- holders, implying the preeminence of the short-term profit goal.

But other economists argue that such a strategy caters to immediate profit maximization for stock speculators and neglects serious investors who are with the company for the long haul. Attention to environmental issues enhances the organization’s long-term viability because the goal is the long-term creation of wealth for the patient, serious investors in the company 23 —not to mention the future state of our planet and the new genera- tions who will inhabit it.

The tragedy of the commons In a classic article in Science, Garrett Hardin described a situation that applies to all business decisions and social concerns regarding scarce resources like clean water, air, and land. 24 Throughout human history, a com- mons was a tract of land shared by communities of people on which they grazed their animals. A commons has limited car- rying capacity, or the ability to sustain a population, because it is a finite resource. For individual herders, short-term inter- est lies in adding as many animals to the commons as they can. But problems develop as more herders add more animals to graze the commons. This leads to tragedy: As each herder acts in his short-term interest, the long-run impact is the destruction of the commons. The solution is to make choices according to long-run rather than short-run consequences.

In many ways, we are witnessing this tragedy of the com- mons. Carrying capacities are shrinking as precious resources,

Cost Effectiveness Environmentally conscious strategies can be cost-effective. 15 In the short run, company after company is realizing cost savings from repackaging, recycling, and other approaches. Union Carbide faced costs of $30 a ton for dis- posal of solid wastes and $2,000 a ton for disposal of hazardous wastes. By recycling, reclaiming, or selling its waste, it avoided $8.5 million in costs and generated $3.5 million in income during a six-month period. Dow Chemical launched a 10-year program to improve its environmental, health, and safety performance worldwide. Dow projected savings of $1.8 billion over the 10-year period. 16

Environmentally conscious strategies offer long-run cost advantages as well. Companies that are functioning barely within legal limits today may incur big costs—being forced to pay dam- ages or upgrade technologies and practices—when laws change down the road.

A few of the other cost savings include fines, cleanups, and litigation; lower raw materials costs; reduced energy use; less expensive waste handling and disposal; lower insurance rates; and possibly higher interest rates.

Competitive Advantage Corporations gain a competitive advan tage by channeling their environmental concerns into entre- preneurial opportunities and by producing higher-quality prod- ucts that meet consumer demand. Business opportunities abound in pollution protection equipment and processes, waste cleanup, low-water-use plumbing, new lightbulb technology, and market- ing of environmentally safe products like biodegradable plastics. With new pools of venture capital, government funding, and spe- cialized investment funds available, environmental technology has become a major sector of the venture-capital industry. 17

In addition, companies that fail to innovate in this area will be at a competitive disadvantage. Environmental protection is not only a universal need; it is also a major export industry. U.S. trade suffered as other countries—notably Germany—took the lead in patenting and exporting anti–air pollution and other environmental technologies. If the United States does not pro- duce innovative, competitive new technologies, it will forsake a growth industry and see most of its domestic spending for envi- ronmental protection go to imports. 18

In short, competitive advantage can be gained by maintaining market share with old customers, and by creating new products for new market opportunities. And if you are an environmental leader, you may set the standards for future regulations—regu- lations that you are prepared to meet, while your competitors are not.

Public Opinion The majority of the U.S. population believes business must clean up; few people think it is doing its job well. Gallup surveys show that more than 80 percent of U.S. con- sumers consider environmentalism in making purchases. An international survey of 22 countries found that majorities in 20 countries gave priority to environmental protection even at the risk of slowing economic growth. Consumers seem to have reached the point of routinely expecting companies to come up with environmentally friendly alternatives to current products and practices. 19

Companies also receive pressure from local communities and from their own employees. Sometimes the pressure is informal

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192 Part Two Planning: Delivering Strategic Value

is conservation. The conservation movement is anthropocen- tric (human centered), technologically optimistic, and concerned chiefly with the efficient use of resources. The movement seeks to avoid waste, promote the rational and efficient use of natural resources, and maximize long-term yields, especially of renew- able resources.

The environmental movement, in contrast, historically has posed dilemmas for business management. Following the lead of early thinkers like George Perkins Marsh (1801–1882), it has shown that the unintended negative effects of human eco- nomic activities on the environment often are greater than the benefits. For example, there are links between forest cutting and soil erosion and between the draining of marshes and lakes and the decline of animal life.

Other early environmentalists, such as John Muir (1838–1914) and Aldo Leopold (1886–1948), argued that humans are not above nature but a part of it. Nature is not for humans to subdue but is sacred and should be preserved not simply for economic use but for its own sake—and for what people can learn from it.

Science and the Environment Rachel Carson’s 1962 best- selling book, The Silent Spring, helped ignite the modern environ- mental movement by alerting the public to the dangers of unre- stricted pesticide use. 27 Carson brought together the findings of toxicology, ecology, and epidemiology in a form accessible to the public. Blending scientific, moral, and political arguments, she connected environmental politics and values with scientific knowledge.

Barry Commoner’s Science and Survival (1963) continued in this vein. Commoner expanded the scope of ecology to include everything in the physical, chemical, biological, social, politi- cal, economic, and philosophical worlds. 28 He argued that all of these elements fit together, and have to be understood as a whole. According to Commoner, the symptoms of environ- mental problems are in the biological world, but their source lies in economic and political organizations.

Economics and the Environment Economists promote growth for many reasons: to restore the balance of payments, to make nations more competitive, to create jobs, to reduce the deficit, to provide for the elderly and the sick, and to reduce poverty. Environmentalists criticize economics for its notions of efficiency and its emphasis on economic growth. 29 For example, environmentalists argue that economists do not adequately con- sider the unintended side effects of efficiency. Environmentalists hold that economists need to supplement estimates of the eco- nomic costs and benefits of growth with estimates of other fac- tors that historically were not measured in economic terms. 30

Economists and public policy analysts argue that the benefits of eliminating risk to the environment and to people must be bal- anced against the costs. Reducing risk involves determining how effective the proposed methods of reduction are likely to be and how much they will cost. There are many ways to consider cost factors. Analysts can perform cost-effectiveness analyses, in which they attempt to figure out how to achieve a given goal with limited resources, or they can conduct more formal risk- benefit and cost-benefit analyses, in which they quantify both the benefits and the costs of risk reduction. 31

water chief among them, become scarcer. Inevitably, conflict arises—and solutions are urgently needed.

The Environmental Movement The 1990s were labeled the “earth decade” when a “new environmentalism” with new fea- tures emerged. 25 For example, proponents of the new envi- ronmentalism asked companies to reduce their wastes, use resources prudently, market safe products, and take responsi- bility for past damages. These requests were formalized in the CERES principles (see Table B.3 ).

The new environmentalism combined many diverse view- points, but initially it did not blend easily with traditional business values. Some of the key aspects of this philosophy are noted in the following discussion of the history of the movement. 26

Conservation and Environmentalism A strand of environ- mental philosophy that is not at odds with business management

TABLE B.3 The CERES Principles

Scie sell men stri of t to t she kno

this eve cal, of t a w men lies

Eco gro to the pov effic env side hold nom tors

of e anc effe and cos in w with ben b

Protection of the biosphere: Minimize the release of pollutants that may cause environmental damage.

Sustainable use of natural resources: Conserve nonrenewable resources through efficient use and careful planning.

Reduction and disposal of waste: Minimize the creation of waste, especially hazardous waste, and dispose of such materials in a safe, responsible manner.

Wise use of energy: Make every effort to use environmentally safe and sustainable energy sources to meet operating requirements.

Risk reduction: Diminish environmental, health, and safety risks to employees.

Marketing of safe products and services: Sell products that minimize adverse environmental impact and are safe for consumers.

Damage compensation: Accept responsibility for any harm the company causes the environment; conduct bioremediation; and compensate affected parties.

Disclosure of environmental incidents: Public dissemination of accidents relating to operations that harm the environment or pose health or safety risks.

Environmental directors: Appoint at least one board member who is qualified to represent environmental interests; create a position of vice president for environmental affairs.

Assessment and annual audit: Produce and publicize each year a self-evaluation of progress toward implementing the principles and meeting all applicable laws and regulations worldwide. Environmental audits will also be produced annually and distributed to the public.

SOURCES: Chemical Week, September 20, 1989, copyright permission granted by Chemical Week magazine. CERES Coalition Handbook.

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tally conscious. Italy, Ireland, Spain, Portugal, and Greece are in the early stages of developing environmental policies. Poland, Hungary, the Czech Republic, and former East Germany are the most polluted of the world’s industrialized nations. 35

U.S. companies need to realize that there is a large growth market in western Europe for environmentally “friendly” prod- ucts. U.S. managers also need to be fully aware of the envi- ronmental movement in western Europe. Environmentalists in Europe have been successful in halting many projects. 36 China has been paying a high ecological price for its rapid economic growth. But the government has begun recognizing the problem and is creating some antipollution laws. 37

Industries that pollute or make polluting products will have to adjust to the new reality, and companies selling products in certain parts of the world must take into account a grow- ing consumer consciousness about environmental protection. Manufacturers may even be legally required to take products and packaging back from customers after use, to recycle or dis- pose of. In order to meet these requirements in Germany, and be prepared for similar demands in other countries, Hewlett- Packard redesigned its office-machine packaging worldwide.

WHAT MANAGERS CAN DO To be truly “green”—that is, a cutting-edge company with respect to environmental concerns—legal compliance is not enough. Pro- gressive companies stay abreast and ahead of the laws by going beyond marginal compliance and anticipating future requirements and needs. 38 But companies can go further still by experiment- ing continually with innovations that protect the environment. McDonald’s, for example, conducted tests and pilot projects in composting food scraps and in offering refillable coffee mugs and starch-based (biodegradable) cutlery. 39

Systems Thinking The first thing managers can do to better understand environmental issues in their companies is to engage in systems thinking. Environmental considerations relate to the organization’s inputs, processes, and outputs. 40 Inputs include raw materials and energy. Environmental pressures are causing prices of some raw materials, such as metals, to rise. This greatly increases the costs of production. Higher energy costs are caus- ing firms to switch to more fuel-efficient sources.

Firms are considering new processes or methods of produc- tion that will reduce water pollution, air pollution, noise and vibration, and waste. They are incorporating technologies that sample and monitor (control) these by-products of business processes. Some chemical plants have a computerized system that flashes warnings when a maximum allowable pollution level is soon to be reached. Many companies keep only minimal stocks of hazardous materials, making serious accidents less likely.

Outputs have environmental impact, whether the products themselves or the waste or by-products of processes. To reduce the impact of its outputs, Herman Miller recycles or reuses nearly all waste from the manufacturing process. It sells fabric scraps to the auto industry, leather trim to luggage makers, and vinyl to stereo and auto manufacturers. It buys back its old furniture, refurbishes it, and resells it. Its corporatewide goal is to send zero waste to landfills. Environmental manager Paul Murray says, “There is never an acceptable level of waste at Miller. There are always new things we can learn.” 41

Qualitative Judgments in Cost-Benefit Analysis Formal, quantitative approaches to balancing costs and benefits do not eliminate the need for qualitative judgments. For example, how does one assess the value of a magnificent vista obscured by air pollution? What is the loss to society if a particular genetic strain of grass or animal species becomes extinct? How does one assess the lost opportunity costs of spending vast amounts of money on air pollution that could have been spent on produc- tivity enhancement and global competitiveness?

Fairness cannot be ignored when doing cost-benefit analysis. 32 For example, the costs of air pollution reduction may have to be borne disproportionately by the poor in the form of higher gaso- line and automobile prices. Intergenerational fairness also plays a role. 33 Future generations have no representatives in the current market and political processes. To what extent should the cur- rent generation hold back on its own consumption for the sake of posterity? This question is particularly poignant because few people in the world today are well off. To ask the poor to reduce their life’s chances for the sake of a generation yet to come is asking for a great sacrifice.

International Perspectives Environmental problems present a different face in various countries and regions of the world. The United States and Great Britain lag behind Germany and Japan in mandated emissions standards. 34 In Europe, the Dutch, the Germans, and the Danes are among the most environmen-

The environmental movement is a worldwide phenomenon. The “Greens,” pictured here demonstrating in LePuy, France, are an important growing European political party.

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194 Part Two Planning: Delivering Strategic Value

environmental audits. 44 The Community Environmental Responsibility Program includes strategy and planning, and the development of products and processes with neutral environmental impact.

3. Engage in “green” process and product design. The German furniture maker Wilkhahn uses an integrated strategic approach that minimizes the use of virgin resources and uses recycled materials in an environmentally designed plant. 45

4. Establish environmentally focused stakeholder relationships. Many firms work closely with the EPA and receive technical assistance to help convert to more energy-efficient facilities. And to defray costs as well as develop new ideas, small companies like WHYCO Chromium Company establish environmental management partnerships with firms like IBM and GM. 46

5. Provide internal and external education. Engage employees in environmental actions. Dow’s WRAP program has cut millions of pounds of hazardous and solid waste and emissions, and achieved annual cost savings of over $10 million, all through employee suggestions. 47 At the same time, inform the public of your firm’s environmental initiatives. For example, ecolabeling can urge consumers to recycle and communicate the environmental friendliness of your product. And BPAmoco redesigned its logo (BP’s logo has always been green) as a sun-based emblem, reflecting its strategic vision of a hydrogen/solar-based energy future. 48

Implementation How can companies implement “greening” strategies? One tactic you read about in the chapter is life-cycle analysis. 49 That and other approaches begin with a commitment by top management. Specific actions could include commission- ing an environmental audit in which an outside company checks for environmental hazards, drafting (or reviewing) the organi- zation’s environmental policy, communicating the policy and making it highly visible throughout the organization, having envi- ronmental professionals within the company report directly to the president or CEO, allocating sufficient resources to support the environmental effort, and building bridges between the orga- nization and other companies, governments, environmentalists, and local communities.

Ultimately, it is essential to make employees accountable for any of their actions that have environmental impact. 50 Texaco, Du Pont, and other companies evaluate managers on their ideas for minimizing pollution and for new, environment-friendly prod- ucts. Kodak ties some managers’ compensation to the preven- tion of chemical spills; the company attributes to this policy a dramatic reduction in accidents. 51

Companies can employ all areas of the organization to meet the challenges posed by pollution and environmental challenges. A variety of companies have responded creatively to these chal- lenges 52 and may serve as models for other organizations. The following sections describe specific actions companies can take to address environmental issues.

Strategy Actions companies can take in the area of strategy include the following:

1. Cut back on environmentally unsafe businesses. Du Pont, the leading producer of CFCs, voluntarily pulled out of this $750 million business. 53

Strategic Integration Systems thinking reveals that environmen- tal issues permeate the firm, and therefore should be addressed in a comprehensive, integrative fashion. Perhaps the first step is to create the proper mindset. Does your firm see environmen- tal concerns merely in terms of a business versus environment trade-off, or does it see in it a potential source of competitive advantage and an important part of a strategy for long-term sur- vival and effectiveness? The latter attitude, of course, is more likely to set the stage for the following strategic actions.

These ideas help to strategically integrate environmental con- siderations into the firm’s ongoing activities: 42

1. Develop a mission statement and strong values supporting environmental advocacy. Table B.4 shows Procter & Gamble’s environmental quality policy.

2. Establish a framework for managing environmental initiatives. Some industries have created voluntary codes of environmental practice, for example, the chemical industry’s Responsible Care Initiative. Not all standard practices are adopted by all companies, however. 43 At J&J, Environmental Regulatory Affairs uses external audit teams to conduct

TABLE B.4 Procter & Gamble’s Environmental Quality Policy

Im str ana by ing for zat ma ron the the niz and

any Du for uct tio dra

the A v len fol to

Str inc

1.

Procter & Gamble is committed to providing products of superior quality and value that best fill the needs of the world’s consumers. As part of this, Procter & Gamble continually strives to improve the environmental quality of its products, packaging, and operations around the world. To carry out this commitment, it is Procter & Gamble’s policy to:

Ensure our products, packaging, and operations are safe for our employees, consumers, and the environment.

Reduce or prevent the environmental impact of our products and packaging in their design, manufacture, distribution, use, and disposal whenever possible.

Meet or exceed the requirements of all environmental laws and regulations.

Continually assess our environmental technology and programs, and monitor programs toward environmental goals.

Provide our consumers, customers, employees, communities, public interest groups, and others with relevant and appropriate factual information about the environmental quality of P&G products, packaging, and operations.

Ensure every employee understands and is responsible and accountable for incorporating environmental quality considerations in daily business activities.

Have operating policies, programs, and resources in place to implement our environmental quality policy.

SOURCE: K. Dechant and B. Altman, “Environmental Leadership: From Compliance to Competitive Advantage,” The Academy of Management Executive, August 1994, p. 10. Reprinted by permission.

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2. Comply early. Because compliance costs only increase over time, the first companies to act will have lower costs. This will enable them to increase their market share and profits and win competitive advantage. 3M’s goal was to meet government requirements to replace or improve underground storage tanks five years ahead of the legally mandated year.

3. Take advantage of innovative compliance programs. The EU started a carbon-cutting and trading system in 2005. 66 Instead of source-by-source reduction, the EPA’s bubble policy allows factories to reduce pollution at different sources by different amounts, provided the overall result is equivalent. Therefore, 3M installed equipment on only certain production lines at its tape-manufacturing facility in Pennsylvania, thereby lowering its compliance costs. 67 Today, there is greater use of economic instruments like tradable pollution permits, charges, and taxes to encourage improvements. 68 Joint implementation involves companies in industrialized nations working with businesses in developing countries to help them reduce greenhouse gas emissions. The company lending a hand then receives credit toward fulfilling its environmental obligations at home. The developing country receives investment, technology, and jobs; the company giving a lending hand receives environmental credits; and the world gets cleaner air. 69

4. Don’t deal with fly-by-night subcontractors for waste disposal. They are more likely to cut corners, break laws, and do a poor job. Moreover, the result for you could be bad publicity and legal problems. 70

Operations The actions companies can take in the area of operations include the following:

1. Promote new manufacturing technologies. Louisville Gas and Electric took the lead in installing smokestack scrubbers, Consolidated Natural Gas pioneered the use of clean- burning technologies, and Nucor developed state-of-the-art steel mills.

2. Practice reverse logistics. Firms move packaging and other used goods from the consumer back up the distribution channel to the firm. Make them not just costs, but a source of revenue— inputs to production. Fuji Australia believes that remanufacturing has generated returns in the tens of millions of dollars. 71

3. Encourage technological advances that reduce pollution from products and manufacturing processes. Cinergy and AEP are working on technologies that capture carbon as coal is burned and pump it deep into the ground to be stored for thousands of years. 72 3M’s “Pollution Prevention Pays” program is based on the premise that it is too costly for companies to employ add-on technology; instead, they should attempt to eliminate pollution at the source. 73 Pollution prevention, more than pollution control, is related to both better environmental performance and better manufacturing performance, including cost and speed. 74

4. Develop new product formulations. The Chicago Transit Authority and Union Pacific Corporation are replacing traditional wood railroad ties with plastic ties. Other companies are experimenting with making recycled cross- ties of old tires, grocery bags, milk jugs, and Styrofoam

2. Carry out R&D on environmentally safe activities. GM is spending millions to develop hydrogen-powered cars that don’t emit carbon dioxide. GE is doing research on earth- friendly hydrogen and lower-emission locomotives and jet engines. 54

3. Develop and expand environmental cleanup services. Building on the expertise gained in cleaning up its own plants, Du Pont formed a safety and environmental resources division to help industrial customers clean up their toxic wastes. 55 Global Research Technologies LLC is trying to use solvents to grab carbon dioxide out of the air to isolate it for disposal. 56

4. Compensate for environmentally risky projects. AES has a long- standing policy of planting trees to offset its power plants’ carbon emission. 57

5. Make your company accountable to others. Royal Dutch Shell and Bristol-Myers Squibb are trendsetters in green reporting. 58 Danish health care and enzymes company Novo Nordisk purposely asked for feedback from environmentalists, regulators, and other interested bodies from around Europe. Its reputation has been enhanced, its people have learned a lot, and new market opportunities have been identified. 59

6. Make every new product environmentally better than the last. Intel is developing ultra-energy-efficient chips. 60 IBM aims to use recyclable materials, reduce hazardous materials, reduce emissions, and use natural energy and resources in packaging. 61

7. Invest in green businesses. American Electric Power Co. is investing in renewable energy in Chile, as well as retrofitting Bulgarian schools for greater efficiency. 62

Public affairs In the area of public affairs, companies can take a variety of actions:

1. Attempt to gain environmental legitimacy and credibility. The cospon sors of Earth Day included Apple Computer, Hewlett-Packard, and the Chemical Manufacturers Association. McDonald’s has tried to become a corporate environmental “educator.” Ethel M. Chocolates, in public tours of its Las Vegas factory, showcases effective handling of its industrial wastes. 63

2. Try to avoid losses caused by insensitivity to environmental issues. As a result of Exxon’s apparent lack of concern after the Valdez oil spill, 41 percent of Americans polled said they would consider boycotting the company. 64 MacMillan Bloedel lost a big chunk of sales almost overnight when it was targeted publicly as a clear-cutter and chlorine user. 65

3. Collaborate with environmentalists. Executives at Pacific Gas & Electric seek discussions and joint projects with any willing environmental group, and ARCO has prominent environmentalists on its board of directors.

The legal area Actions companies can take in the legal area include the following:

1. Try to avoid confrontation with state or federal pollution control agencies. W. R. Grace faced expensive and time-consuming lawsuits as a result of its toxic dumps. Browning-Ferris, Waste Management Inc., and Louisiana-Pacific were charged with pollution control violations, damaging their reputations.

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196 Part Two Planning: Delivering Strategic Value

3. Differentiate your product via environmental services. ICI takes back and disposes of customers’ waste as a customer service. Disposal is costly, but the service differentiates the firm’s products. Teach customers how to use and dispose of products; for instance, farmers inadvertently abuse pesticides. Make education a part of a firm’s after-sales service.

4. Take advantage of the Net. The EcoMall ( www.ecomall.com/ biz/ ) promotes a number of environmentally oriented firms in 68 product categories. Firms using the Net target green consumers globally, effectively, and efficiently. 85

Accounting Actions companies can take in the accounting area include the following:

1. Collect useful data. The best current reporters of environ- mental information include Dow Europe, Danish Steel Works, BSO/Origin, 3M, and Monsanto. BSO/Origin has begun to explore a system for corporate environmental accounting. 86

2. Make polluters pay. CIBA-GEIGY has a “polluter pays principle” throughout the firm, so managers have the incentive to combat pollution at the sources they can influence. 87

3. Demonstrate that antipollution programs pay off. 3M’s Pollution Prevention Pays program is based on the premise that only if the program pays will there be the motivation to carry it out. Every company needs to be cost-effective in its pollution reduction efforts.

4. Use an advanced waste accounting system. Do this in addition to standard management accounting, which can hinder investment in new technologies. Waste accounting makes sure all costs are identified and better decisions can be made.

5. Adopt full-cost accounting. This approach, called for by Frank Popoff, Dow’s chairman, ensures that the price of a product reflects its full environmental cost. 88

cups. 75 Weyerhaeuser, recognizing the decreasing supply of timber and growing demand, is working to produce high- quality wood on fewer, continuously regenerated acres. 76 Electrolux has developed a sun-powered lawn mower and a chainsaw that runs on vegetable oil. 77 Many companies are developing green pesticides.

5. Eliminate manufacturing wastes. 3M replaced volatile solvents with water- based ones, thereby eliminating the need for costly air pollution control equipment. BPAmoco implemented a similar program.

6. Find alternative uses for wastes. When DuPont halted ocean dumping of acid iron salts, it discovered that the salts could be sold to water treatment plants at a profit. A Queensland sugarcane facility powers production via sugarcane waste. 78

7. Insist that your suppliers have strong environmental performance. Chiquita Banana had a spotty environmental record, but now its plantations are certified by the Rainforest Alliance, and Wal-Mart has named Chiquita its most environmentally conscious supplier. 79 Scott Paper discovered that many of its environmental problems were “imported” through the supply chain. Initially focusing on pulp suppliers, the company sent questionnaires asking for figures on air, water, and land releases, energy consumption, and energy sources. Scott was astonished at the variance. For example, carbon dioxide emissions varied by a factor of 17 among different suppliers. Scott dropped the worst performers and announced that the best performers would in the future receive preference in its purchasing decisions. 80

8. Assemble products with the environment in mind. Make them easy to snap apart, sort, and recycle, and avoid glues and screws.

Marketing Companies can also take action in the marketing area:

1. Cast products in an environment-friendly light. Most Americans believe a company’s environmental reputation influences what they buy. 81 Wal-Mart has made efforts to provide customers with recycled or recyclable products. A Chinese entrepreneur is making underwear out of soybean by-products. 82 Spiegel plans to offer soybean-fiber halter-top dresses in pink and mocha. 83 Other eco-friendly fibers are made from hemp and bamboo, which require little pesticide.

2. Avoid attacks by environmentalists for unsubstantiated or inappropriate claims. When Hefty marketed “biodegradable” garbage bags, that claim was technically true, but it turned out that landfill conditions didn’t allow decomposition to occur. 84 The extensive public backlash affected not only Hefty bags but also other Hefty products. Hefty didn’t lie, but it did exaggerate. Its tactics overshadowed well- intentioned greening actions.

Companies like Toyota use advertising to convey to consumers their efforts to become more environmentally friendly.

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Ethics and Corporate Responsibility Chapter 5 197

environmental movement An environmental philosophy postulating that the unintended negative effects of human eco- nomic activities on the environment are often greater than the benefits, and that nature should be preserved. p. 192

tragedy of the commons The environmental destruction that results as individuals and businesses consume finite resourc- es (the “commons”) to serve their short-term interests without regard for the long-term consequences. p. 191

DISCUSSION QUESTIONS 1. To what extent can and should we rely on government to

solve environmental problems? What are some of govern- ment’s limitations? Take a stand on the role and usefulness of government regulations on business activities.

2. To what extent should managers today be responsible for cleaning up mistakes from years past that have hurt the environment?

3. How would you characterize the environmental movement in western Europe? How does it differ from the U.S. movement? What difference will this make to a multinational company that wants to produce and market goods in many countries?

4. What business opportunities can you see in meeting envi- ronmental challenges? Be specific.

5. You are appointed environmental manager of XYZ Com- pany. Describe some actions you will take to address envi- ronmental challenges. Discuss obstacles you are likely to encounter in the company and how you will manage them.

6. Interview a businessperson about environmental regula- tions and report your findings to the class. How would you characterize his or her attitude? How constructive is his or her attitude?

7. Interview a businessperson about actions he or she has taken that have helped the environment. Report your findings to the class and discuss.

8. Identify and discuss some examples of the tragedy of the commons. How can the tragedies be avoided?

9. Discuss the status of recycling efforts in your community or school, your perspectives on it as a consumer, and what business opportunities could be available.

10. What companies currently come to mind as having the best and worst reputations with respect to the environment? Why do they have these reputations?

11. Choose one product and discuss its environmental impact through its entire life cycle.

12. What are you, your college or university, and your commu- nity doing about the environment? What would you recom- mend doing?

6. Show the overall impact of the pollution reduction program. Companies have an obligation to account for the costs and benefits of their pollution reduction programs. 3M claims half a billion dollars in savings from pollution prevention efforts. 89

Finance In the area of finance, companies can do the following:

1. Gain the respect of the socially responsible investment community. Many investment funds in the United States and Europe take environmental criteria into account. A study by ICF Kaiser concluded that environmental improvements could lead to significant reduction in the perceived risk of a firm, with a possible 5 percent increase in the stock price. 90 Socially responsible rating services and investment funds try to help people invest with a “clean conscience.” 91

2. Recognize true liability. Investment houses often employ environmental analysts who search for companies’ true environmental liability in evaluating their potential performance. Bankers look at environmental risks and environmental market opportunities when evaluating a company’s credit rating. 92 The Securities and Exchange Commission in New York requires some companies to report certain environmental costs. The Swiss Bank Corp. has specialized Environmental Performance Rating Units to include environmental criteria in order to improve the quality of financial analysis. 93

3. Fund and then assist green companies. Ann Winblad of Hummer Winblad Venture Partners was one of the first venture capitalists to coach green entrepreneurs to increase their business skills and chances of success. 94

4. Recognize financial opportunities. Worldwide, one of these great opportunities is water. Water must be purified and delivered reliably to everyone worldwide. Billions of people lack sanitary sewage facilities and have poor access to drinking water. Infrastructures in big cities, including those in the United States, are seriously deteriorating. Supplying clean water to people and companies is a $400 billion-a-year industry—one-third larger than the global pharmaceutical industry. Companies are aggressively pursuing this market. They are betting that water in the 21st century will be like oil in the 20th century. A Bear Stearns analyst called water the best sector for the next century. 95

KEY TERMS carrying capacity The ability of a finite resource to sustain a population. p. 191

conservation An environmental philosophy that seeks to avoid waste, promote the rational and efficient use of natural resources, and maximize long-term yields, especially of renew- able resources. p. 192

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