An EMS provides some shelter against a threat of prosecution.

Environmental management systems (EMS) are an essential tool for Corporate Canada, and as a recent Ontario court ruling has shown, the lack of an effective EMS can have severe repercussions for senior management.

A properly designed EMS provides a framework of processes to help an organization manage its environmental agenda and document its environmental performance in response to constantly changing laws and regulations, social, economic and competitive pressures and environmental risks.

The main components of an EMS are:

* the establishment of environmental objectives

* the identification of regulatory compliance requirements 

* regular monitoring and assessment to ensure compliance

* established lines of authority and responsibility for environmental issues

* documentation of actions and decision, comprehensive staff training and environmental awareness

An EMS makes sure that there are checks, verifications, documentation and response plans for environmental issues throughout a corporate structure. An effective EMS provides key stakeholders, such as shareholders, lenders, employees, customers and insurers, with evidence of sound environmental performance. It also assists directors and officers in establishing a due diligence defence against action by regulatory agencies.

The importance of establishing due diligence has become a serious issue for directors and officers, as it has become obvious that the responsibility for a company's environmental misdeeds rests squarely on their shoulders.

The recent Bata case demonstrates that the courts will impose serious fines and penalties on officers and directors who do not comply with environmental legislation, and will even go so far as prohibiting corporations from indemnifying the directors against these fines.

On Feb. 7 1992 the president of Bata Industries Ltd. (Bata) and the vice-president/general manager responsible for operations were convicted by the Ontario courts of various environmental offences. The charges were laid on Aug. 1 1989 by an Environmental Ministry officer under the Ontario Water Resources Act for discharging liquid industrial waste into the ground and under the Environmental Protection Act for discharging industrial waste into the environment.

The president and the vice-president/general manager were fined $12,000 each, and the company itself received fines and penalties totalling $120,000 on April 6 1992.

In addition, Bata was prohibited from indemnifying the officers. Bata did have an environmental policy. But it did not have an effective EMS which ensured the policy was being upheld and senior management were being alerted to situations of non-compliance.

The court concluded that the president was aware of the drum storage hazard over a six-month period and that he did not take any steps to rectify it. The vice-president had rejected a $58,000 quote to remove the drums and later accepted a $28,000 bid without inquiring into the price difference.

The chairman and CEO, who was originally charged but not convicted, was the director with the least personal contact with the plant.

The court found that the chairman was aware of his environmental responsibilities and had issued a comprehensive technical advisory circular (TAC) dealing with industrial safety measures and environmental concerns.

In this TAC all Bata companies were exhorted to work in co-operation with their local authorities to identify problems and carry out precautionary measures.

The court held that the chairman was entitled to rely upon the pollution-prevention system which had been put in place in accordance with the TAC, unless he became aware that the system was defective.

It should be noted that the sentencing aspects of this decision, including the amount of the fines and the court's prohibition against Bata's indemnifying the directors, is under appeal, but the guilty verdict itself is not.

In the Bata case, the court posed the following questions in assessing whether or not a director exercised all reasonable care:

* Did the board of directors establish a pollution-prevention system? Was there supervision or inspection? Was there improvement in business methods? Did they exhort those they controlled?

Did each director ensure that:

* corporate officers had been instructed to set up a system, sufficient within the terms and practices of its industry, for ensuring compliance with environmental laws?

* officers reported back periodically to the board of directors on the operation of the system?

* officers were instructed to report any substantial non-compliance to the board in a timely manner?

The court also set out the following principles regarding director responsibility:

* The directors are responsible for reviewing the environmental compliance reports provided by the officers of the company, but are justified in placing reasonable reliance on reports provided to them by corporate officers, consultants, counsel or other informed parties.

* The directors should substantiate that the officers are promptly addressing environmental concerns brought to their attention by government agencies or other concerned parties including shareholders.

* The directors should be aware of the standards of their industry and other industries which deal with similar environmental pollutants or risks.

* The directors should immediately and personally react when they receive notice that the system has failed.

These responsibilities and questions are addressed directly by an effective EMS. As the Bata case clearly demonstrates, it is simply not enough to have an environmental policy, but an effective EMS must be in place to ensure that the integrity of the policy is upheld.

Corporate Canada is now acknowledging that an effective EMS is an essential management tool and the cornerstone to supplying the stakeholders with evidence of environmental concern while providing directors and officers with some shelter against prosecution and conviction of environmental misdeeds.

Jennifer Henstock is an environmental specialist with KPMG Environmental Services Inc., which is owned by Peat Marwick Thorne and Peat Marwick Stevenson & Kellogg.