The director as environmental steward.

• Author: Greeno, J. Ladd
• Position: Leadership in Environmental Initiatives

Here are five key questions directors can ask themselves and management about the company's environmental stance.

Environmental issues now routinely play a role in the board of directors' stewardship of a company's overall well-being. The reasons are well known. The public, the government, and the media all hold corporate environmental performance to the highest standards. Manufacturing and process facilities must meet increasingly stringent regulatory standards for emissions, hazardous materials, and process safety management. Superfund and natural resource damage assessment legislation are significantly enlarging corporate liability for past environmental problems and new incidents. Overall environmental costs are also taking an increasing share of company revenues -- from 2% to 8% of sales, depending on the industry.

At the same time, regulatory amendments and court decisions have broadened directors' liability for environmental mismanagement in civil and criminal cases. The erosion of the "safe harbor" doctrine, which once protected directors who were not fully informed of a company's environmental management shortcomings, has led many to take a far stronger interest in how their companies handle environmental matters.

Few directors today need to be convinced that boards should be talking routinely about environmental issues. They are taking environmental concerns seriously not only because of compliance and liability concerns but because companies that understand strategic environmental issues stand to gain significant competitive advantage in the future. According to a recent survey of Fortune 500 companies by the Investor Responsibility Research Center, almost half of the 201 respondents now have board-level committees responsible for environmental affairs. As significant is a new readiness, especially in the chemical industries, for line managers with environmental, health, and safety responsibilities to be seen as strong candidates for senior management positions.

Still, for many directors, uncertainties remain about the right way to oversee corporate environmental performance.

Environmental responsibilities grow out of traditional board functions. In its statutory and fiduciary role, for example, the board oversees the corporation's responsible compliance with the spirit and letter of the law on environmental, health, and safety matters. In its evaluative role, the board judges corporate and management performance on behalf of the stakeholders and with respect to all of the corporation's environmental, health, and safety exposures -- and, increasingly, competitive opportunities created by environmental issues. In its advice and counsel role, the board guides management on environmental affairs through board committees or in discussions by the board as a whole. Lastly, in its crisis resolution role, the board takes action when a crisis threatens the corporation's wellbeing. With environmental matters, this role is only likely when senior management has not made the company's environmental performance a key business concern.

In practical terms, directors fill the environmental stewardship role when they:

* Understand the company's stance on key environmental management issues.

* Understand the environmental risks and liabilities inherent in the company's activities.

* Understand the company's environmental performance goals and measurements.

* Ask senior management the right questions when the environmental position isn't clear or actions and goals seem mismatched.

* Support senior management's plans and actions for effective environmental management and for finding competitive advantage in strategic environmental issues.

The first four responsibilities all grow out of reporting and discussion links between the board and senior management. The last works best when these links provide genuine assurance to board members that the company's environmental stance is appropriate and effective.

Understanding the Profile

Every company presents a different environmental profile, shaped by the regulatory framework for its processes and products, the age, history, and condition of its facilities, the responsiveness of its management and operations culture to change, and many other factors. Our experience with environmental management issues at many companies has shown, however, that businesses share certain patterns and themes as they address environmental concerns.

A three-stage framework, summarized here, helps to characterize a company's environmental practice, management, and performance:

Problemsolving -- covers companies focusing on immediate and near-term environmental problems and issues. Management's primary reason for taking action on environmental issues is to avoid burdensome costs. No top management statement on corporate...