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A guide to enhanced compliance planning.

New and far-reaching environmental regulations require a much stronger integration of compliance plans with the overall strategic business plan.

As environmental programs have continued to grow in scope and complexity, the need to integrate strategic environmental planning into business planning has become abundantly clear. This point is reinforced by the most recent major environmental program change, the Clean Air Act Amendments of 1990 (CAAA). As the U.S. Environmental Protection Agency (EPA) and individual states develop and implement new regulations over the next few years in response to the CAAA, businesses will realize that environmental compliance can be as integral as tax planning to the financial success of an enterprise.

The specific details of the Clean Air Act and the new regulations, many of which have not yet been promulgated, will challenge the tax codes in complexity and convolution. Regulations, including operating practices, limits, and standards, are being developed and implemented as part of an ambitious schedule that extends through the end of the decade.

Although the CAAA are perhaps best known for the 700 pages of detailed technical changes to the Act, they also contain several far-reaching regulatory policy shifts. The combination of these changes has moved compliance with environmental legislation from the tactical decisionmaking arena into the realm of strategic business planning. Compliance decisions are no longer a matter of operational or single-plant financial impact. Today, they have long-term corporate consequences and will affect the company's ability to compete in the marketplace.

For companies that have major operations affected by the Clean Air Act, it is essential that directors and senior management be involved in establishing goals, objectives, and planning criteria for complying with the Act and take an active role in integrating compliance into strategic business planning. Following are guidelines that should be used in developing these goals and objectives:

1. Although the Clean Air Act has many complicated and interdependent requirements, don't begin compliance planning with the paradigm that the issues are too complex to be fully understood by the company's senior management or your board. On the contrary, insist that each step and element of the compliance strategy be flow-charted or illustrated in a straightforward manner that enables everyone to understand the measures being taken. If you allow compliance planning to develop as part of a complicated series of legal and technical tactical issues, then there is good probability that your company will not be able to adequately integrate the strategy into strategic business planning in any manageable format.

2. Don't assume that compliance approaches must entail only "high-tech" solutions. In many cases, seemingly mundane actions such as improved housekeeping, feedstock substitution, improved maintenance, and other common-sense approaches can accomplish significant reductions of emissions, especially when taken together.

3. Don't fall into the trap of allowing the company to think of the Clean Air Act as a legal or technical issue. As a result of flexibility built into the amended Act, compliance is a business issue with many financial, legal, and technical dimensions, and it requires an all-inclusive strategy. Decisions made over the next two years to meet Clean Air Act requirements can impact the financial viability of business decisions 10 years from now.

Effort to Educate

4. Good public relations will be critical far any company, especially if someone requests a public hearing regarding an operating permit. Such hearings can be extremely time-consuming and expensive. Plants with a history of public concern or opposition will be most likely to encounter such hearings. Because the issues are complex, and the basis for some of the regulations are difficult to comprehend, strongly contested operating permit hearings will provide ample media material. Companies should initiate planning today for public education programs regarding their plants. Don't overlook developing a good in-house education program for employees in conjunction with employee training on Clean Air Act compliance issues.

5. Integrate all environmental and health-related programs into a single plan. Develop compliance strategies that result in comprehensive benefits to the environment, worker health, and corporate business objectives. When developing compliance monitoring programs, do so in a way that satisfies the needs of all the appropriate federal, state, and local enforcement agencies. Such an approach will minimize the number of future changes required and will enable the company to integrate such programs into corporate planning.

6. Obtain an independent assessment of your compliance strategy when it is initially developed. Thereafter, conduct an annual or other periodic review to ensure that your approach remains aligned with other business factors. Perpetuation of old pollution control paradigms could result in missing significant cost savings or place your company at a significant business disadvantage. Outside directors, in particular, may face new liabilities regarding compliance and fiduciary responsibilities. Review your compliance strategy periodically against changing business conditions and upcoming regulatory changes.

Accountability

7. Ensure that every compliance requirement is linked with individual accountabilities. There are numerous new operating, monitoring, reporting, recordkeeping, and emission requirements. It is essential that all employees understand their responsibilities with respect to complying with the Clean Air Act, whether their job is in operations, maintenance, or corporate finance.

To illustrate this fact, consider the case where a piece of pollution control equipment fails to operate and, as a result, an emission limit is exceeded by the plant. Under certain circumstances, exceeding the limit could be classified as an emergency, due to equipment failure, and no violation would be issued. However, if the failure was attributable to poor maintenance, and the poor maintenance was attributable to inadequate maintenance training, planning, or resources (including maintenance budgets), the company would be liable for the violation and individual liability could be extended up through senior management and possibly the board itself. Ensuring that the Clean Air Act requirements are well defined and clearly communicated in position descriptions and accountabilities will not only result in reducing or eliminating violations but will serve to protect the corporation and management from unintended liability.

8. Enhance your business planning process so that along with the business plan each year, your board receives an accounting that demonstrates that necessary resources for compliance have been identified and funding requested. This may necessitate additional budget breakouts for board review and approval.

9. Establish a strong reporting and corrective action system. A responsible corporate official must certify each year that each plant complies with all the applicable regulatory requirements. Making such certifications without a sound mechanism to identify and report any problems opens the company and individual managers to liabilities under the Act.

Strategy-Neutral

10. Review performance goals of your management team to ensure that compliance planning and ongoing compliance are consistent with corporate objectives and business planning. If your company has more than one facility subject to the Clean Air Act, there can be significant business advantages to developing a corporate compliance strategy that encompasses all facilities, rather than the traditional plant-by-plant approach.

For example, it may be more cost-effective to make major emission reductions by installing new pollution control equipment at Plant A, by modifying the manufacturing process at Plant B, by reducing production at Plants C and D, and by making no changes at Plant E. However, this could increase maintenance and capital costs for Plants A and B, increase marginal unit costs at Plants C and D, while leaving Plant E unaffected. In order to develop a successful strategy, the performance goals of your five plant managers, and other members of your management team, must be strategy-neutral.

11. Consider portable performance goals for your managers to ensure a uniform compliance planning horizon. If your company's performance goals and bonus system for plant management staff are based solely on short-term (e.g., annual) production costs, you may be missing out on significant cost savings as well as setting the stage for future compliance problems. If you rotate plant managers frequently, the problem is further exacerbated.

A plant manager whose performance is measured against annual unit production or maintenance costs, and whose bonus is measured against the same criteria, has little incentive to invest in improvements that will not produce savings or other benefits for several years. However, this longer view will be essential to the company as a whole for long-term compliance cost reductions, since good performance of low-polluting facilities will be critical to a corporate compliance strategy. As a means of addressing this potential conflict, companies should consider having portable performance goals. Under such a system, a plant manager who supports an increased maintenance program during his or her tenure might retain a performance goal related to plant performance for several years after their rotation or promotion, even though they were no longer part of plant management. Their continuing stake in the performance of the plant also should serve to foster a broader sense of corporate responsibility.

Improved Decisionmaking

Changes in the Clean Air Act have given rise to increased liability for corporate officers and directors, both with respect to compliance with environmental requirements and with regard to incorporating improved decisionmaking on compliance issues as they impact the company's business plans.

Government regulation always creates winners and losers. Corporations, senior management, and outside directors have more to lose under the Clean Air Act, as well as more to gain, depending on how well they understand the opportunities and pitfalls emanating from the Act. Senior managers and boards must become involved in overseeing the development of corporate compliance strategies and in ensuring that support systems such as accountabilities, performance goals, and business planning processes are properly established to enhance the decisionmaking process.

Douglas L. Bensinger is Principal Environmental Engineer in the Cary, N.C., office of Midwest Research Institute (MRI), an independent, not-for-profit research and technological services organization. He specializes in environmental regulation and strategic environmental planning. Bruce A. Boomer is head of the Environmental Management Section in MRI's Kansas City, Mo., headquarter offices. His areas of expertise include permitting and regulatory compliance and evaluation of control technologies.
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Title Annotation:Leadership in Environmental Initiatives
Author:Bensinger, Douglas L.; Boomer, Bruce A.
Publication:Directors & Boards
Date:Sep 22, 1993
Words:1646
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