Bolstering the board's environmental focus.

Adding environmentalists to the board and establishing environmental committees are two trends that are becoming more prevalent.

Consider the following: You are a board member for a Fortune 500 company. You have been on the board for some time and feel comfortable dealing with complicated and important business issues. However, in the past year the meeting topics have taken a disturbing turn. The six most recent issues, in particular, are helping to keep you awake at night:

* Should the company ask its facility managers in developing countries to comply with U.S. environmental standards, even if it places the operations at a competitive disadvantage? (We use the term environmental to imply safety and health matters as well.) You fear the possibility of a Bhopal-type incident if certain facilities only have to meet the almost nonexistent local standards.

* Should the company buy another company that fits extremely well into the corporate strategy, even if the purchase brings with it known, substantial, but mostly unquantifiable environmental liabilities?

* Does it make sense for the company to simply comply with known rules and regulations or, consistent with the company's "world-class" strategy, should best management practices be adhered to? Is it appropriate to consider cost-benefit trade-offs in making this decision?

* Should the company participate in the U.S. Environmental Protection Agency's voluntary waste and energy reduction programs (e.g., the "33/50" Program) if the subsequent public reaction, should the established goals not be met, result in worse community and investor relations than at present?

* Should the company's environmental goals be independent of the state of the profitability of the business? Should all business units be asked to meet the same goals?

* Should the company discontinue a product line that generates unacceptable quantities of toxic waste and byproducts even though it is one of the company's most profitable lines?

These and similar thought-provoking, largely ethical questions are being raised frequently at the board level of most major U.S. companies. And the answers are not straightforward for even environmentally experienced people, to say nothing of those who have no relevant training or experience upon which to draw. The possible consequences of making the wrong decision can be quite substantial. Not only is it possible to have an incident occur, but the results of the incident can be loss of life, substantial harm to the environment, a significant impact to the company's bottom line and stock price, and possible personal liabilities.

As a consequence of these dilemmas, many companies are bolstering the environmental support provided to boards of directors and chief executive officers. Two particularly interesting trends are appointing environmentalists to the board and establishing environmental committees of the board.

Environmentalists on the Board

This trend has received significant external impetus in the U.S. since the Exxon Valdez incident. As a result of Valdez, many so-called "green investor groups," particularly the Coalition for Environmentally Responsible Economies (CERES), joined together to issue the Valdez (now CERES) Principles.

The investor groups have requested that U.S. companies adopt these Principles to help ensure sound environmental management. One of the Principles asks that companies appoint members of environmental organizations or, at a minimum, environmental experts to company boards. This is, in fact, happening.

A listing of several companies and the environmental experts on their boards is shown in the accompanying exhibit. It is a diverse group of companies and a diverse group of board members. Moreover, more than 50 company executives are also on the boards of national environmental organizations. Union Carbide, for example, has its directors on the boards of the World Wildlife Fund, World Resources Institute, and the Natural Resources Defense Council.

In a report on this trend, The Wall Street Journal observed that "Atlantic Richfield played up Frank Boren as its board's first professional environmentalist, in electing the lawyer, real estate developer, and former president of the Nature Conservancy... 'He is rocking the boat a little bit,' says Hicks Waldron, another Arco outside director. 'I'd rather have someone rock the boat now than have it sink later.'"

Environmental Committees

This trend is also becoming more prevalent in the U.S. As of the middle of 1992 well over one-third of the Fortune 100 companies' boards of directors had either a public policy committee or an environmental, health, and safety committee. Public policy committees are, by far, more prevalent. However, public policy committees typically address environmental policies as one of their principal responsibilities. Companies that have a specifically designated "environmental" committee of the board include Amoco Corp., Atlantic Richfield Co., Dow Chemical Co., Du Pont Co., Occidental Petroleum Co., Union Carbide Corp., and Hoechst Celanese Corp.

The Hoechst Celanese Environmental Health & Safety Excellence Steering Committee is a good example of how the committees work. The steering committee is chartered by the executive board, chaired by the senior executive president of the company's Film and Fibers Group and the vice president of environmental, health, and safety affairs. Members include top management executive representatives ranging from executive vice presidents to plant managers, as well as business-sector and corporate-level executive staff.

The steering committee's role is to advise the executive committee of the board on strategic EH&S issues. The committee recommends and reviews initiatives, catalyzes corporate leadership toward EH&S excellence, acts as the corporate conscience for EH&S issues, and serves as a sounding board for the company's Vision of Excellence |R~ and Responsible Care |R~ Programs.

Some of the more specific charters of the various companies' environmental committees include:

* Review of the company's EH&S policies and procedures;

* Identifying and advising the board on EH&S issues that might affect the operations or reputation of the company;

* Ensuring compliance with applicable laws and regulations;

* Development of the company's EH&S goals and objectives;

* Review of EH&S audits;

* Interfacing with the public on EH&S issues.

Generally, however, each company crafts a committee to meet the specific needs of that company.

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In the U.S. today, more and more is being expected of industry. The expectation of "fail-safe" environmental, health, and safety management is not that unusual among certain sectors of the society. This brings greater pressure to senior executives and board members to have a more substantial understanding of environmental management within the company and to foster an open and balanced approach when making strategic decisions. Placing environmental experts on the board and establishing environmental committees are two initiatives that companies are adopting to meet these challenges.

Lawrence B. Cahill is a Vice President with McLaren/Hart Environmental Engineering Corp. He has over 20 years of environmental experience, including the performance of benchmarking programs for several Fortune 500 companies, and is the co-author of the book, Environmental Audits, now in its sixth edition. Susan P. Engelman is the Vice President for Environmental, Health & Safety Affairs for Hoechst Celanese Corp. responsible for directing corporate-wide EH&S policy matters.