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Opportunity knocks, and leaders answer.

Conventional wisdom often casts opportunity as the opposite of risk. In reality, risk and opportunity are closely linked partners and must be managed together for an organization to succeed. Nowhere is this more evident than in the issues of corporate environmental management.

In our work helping organizations around the world manage environmental issues, we define three stages along the risk/opportunity continuum. At one end, an organization takes a "reactive" posture, viewing risk management very narrowly -- basically in terms of compliance with today's environmental regulations. A reactive organization also tends to view environmental issues as isolated concerns -- a necessary part of keeping the organization out of trouble but not an integral element of doing business. To a reactive company, "environmental opportunity" is an oxymoron.

As organizations move toward the middle ground, to a more proactive posture, their understanding and management of environmental risk broadens beyond minimizing penalties for noncompliance. Proactive companies begin to see opportunities related to the environment. Often, these opportunities are sporadic -- such as "green" packaging, recycling programs, tie-ins with environmental organizations -- but if well--conceived and executed, they usually benefit the organization.

Organizations at the far "innovative" end of the environmental management spectrum have a comprehensive understanding of potential risks, and assess the costs and benefits as well as methods to control risk. Innovative organizations clearly understand that managing risk creates opportunities. These range from the obvious, such as being able to focus on the marketplace instead of the courthouse, to the less obvious, such as having a wider range of strategic options because of positive perceptions by regulatory agencies, capital markets, and other stakeholders, such as employees, shareholders, the media, suppliers, and the public.

Environmental leaders lie at the innovative end of the risk/opportunity spectrum. In 1991, Booz-Allen surveyed more than 200 senior executives in major corporations to understand their opinions and actions related to corporate environmental management. The survey showed that many companies' environmental programs were driven more by threat (e.g., risk of lawsuits, regulatory sanctions, or adverse publicity) than by opportunity (e.g., competitive advantage, positive consumer response, cost reduction, and profit improvement). However, companies recognized the need to move from reactive to proactive to an innovative posture (we defined these terms on the questionnaire) and indeed stated that they expected their environmental programs to move in this direction within two years.

A small minority of the executives surveyed -- 7% -- said they were "very comfortable" that the environmental risks their company faced were welt understood and that a comprehensive risk management program was in place to deal with them. This "very comfortable" minority shared other attributes as well -- they integrated environmental concerns in all aspects of their business and had a strong appreciation for environmental opportunities.

We called this group of companies "environmental leaders," and did a follow-up study in 1992 of eight large corporations that fit this model which, in addition, had been recognized for environmental excellence by national and international organizations such as the Council on Environmental Quality, World Environment

Center, and Global Environmental Management Initiative (GEMI). Companies participating in the follow-up study were: AT&T, Chevron, The Los Angeles Times, McDonald's, Pacific Gas & Electric Co., 3M, Rohm & Haas, and IBM.

Based on interviews with these environmental leaders, we identified key criteria for better understanding and managing risk and for profiting from opportunities related to the environment. As would be expected from leaders, all of these companies strive to further improve their management of environmental risk. They point to the need for metrics to help them fully understand and quantify their exposure, and for better methods of environmental cost-benefit analysis.

With respect to opportunities, leader companies agree that real opportunities are sustainable -- environmental opportunities that are soundly linked to the company's overall business strategy and superior capabilities. For example, a company whose vision is based on the innovation and manufacture of new products would profit considerably from the development of attractive product substitutes for environmental "problem products." Similarly, such a company would benefit from improved manufacturing processes that eliminate the need for hazardous chemicals, or the development of innovative products that mitigate environmental damage from other substances (like catalytic converters for gasoline engines, or oil-eating enzymes for ocean spills).

By contrast, environmental leaders caution against faddish opportunities that ride the "green train" but aren't sustainable or directly linked to their mission (such as gimmicky rain forest promotions, or recycled products that carry a cost-and-performance penalty). They view these as flawed and ripe for exposure to the critical public, environmental groups, and the media.

To succeed in the future, companies must raise environmental management beyond the limited compliance model of the 1980s to the level of a corporate-wide strategic imperative that takes an expansive view of environmental risk and opportunity. In this context, corporate environmental management should be overseen by the board of directors and managed by senior executives. Only they can ensure that environmental risk and opportunity are managed as an integral part of business operations.

John C. Newman is a Senior Vice President of Booz-Allen & Hamilton. He manages the firm's worldwide environmental consulting business. He has led hundreds of environmental management studies for both industry and government clients, particularly related to the organizational and management challenges of regulation and compliance. In the following article he touches on some highlights of the firm's studies of the characteristics of environmental leaders.
COPYRIGHT 1993 Directors and Boards
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Special Section: Answering the Call for Leadership; Leadership in Environmental Initiatives
Author:Newman, John C.
Publication:Directors & Boards
Date:Sep 22, 1993
Previous Article:Steady improvement, plus breakthroughs.
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