Proactive Environmental Management: Avoiding the Toxic Trap

A BANK. FORECLOSED on a loan and took control of a small piece of real estate. The .property was later found to be contaminated with hazardous wastes and, after a long-drawn-out court case, the bank was held liable for half a million dollars.

  • The manager of a large manufacturing conglomerate's subsidiary was notified by the head engineer that a hazardous waste containment system needed to be replaced. Faced with pressure from corporate headquarters to reduce operating costs, the manager postponed the investment. Subsequent monitoring by the local regulatory authority revealed serious releases of hazardous wastes. Fines, legal fees, and site cleanup cost the company much more than if the manager had invested in the containment system in the first place.
  • A Fortune 500 corporation recently tested soil and groundwater around one of its overseas facilities and found high traces of toxic materials migrating from the site. Fortunately, the company was able to arrest the spread of the pollutants before a major drinking water source was seriously contaminated.

The newspapers are riddled with stories of environmental disasters like the Exxon oil spill, the gas leak in Bhopal, and the nuclear reactor meltdown at Three Mile Island. Yet, despite media attention and regulatory programs designed to curb environmental problems, literally hundreds of events like those listed above occur each day. To the companies facing such problems, the costs can be devastating. Environmental problems can ruin a firm's public image, cost millions of dollars, and strain relationships with suppliers, vendors, and customers. These outcomes can significantly affect competitive advantage. In the case of the Exxon oil spill disaster, for example, cleanup costs, management distractions, and negative customer relations will undoubtedly hinder Exxon's performance for years.

To avoid potentially debilitating problems, corporate managers must begin to consider environmental management a critical component for sustaining competitive advantage. Whereas many corporations approach environmental problems with band-aid solutions, sustaining long-term profitability often requires investing resources in preventive management programs. Failure to make such investments may leave a company at a distinct disadvantage relative to competitors with greater foresight.

Our analysis of environmental management programs at companies in a range of industries found five distinct stages of development. At the lower end of the developmental continuum .are companies that either have no environmental programs or have programs so constrained by budgets and reporting relationships that they are virtually impotent.

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References

1. See, for example, "The Impact of Environmental Regulations on Business Transactions, 1988. Real Property Transfers and Mergers and Acquisitions" (New York: Practicing Law Institute, 1988).

2. See F.B. Friedman, "Practical Guide to Environmental Management" (Washington, DC: Environmental Law Institute Monograph Series, July 1988).

3. For a good introduction to the environmental auditing process, see:

L. Harrison, "Environmental Auditing Handbook" (New York: McGraw-Hill, 1984); or

T. Truit et al., "Environmental Audit Handbook—Basic Principles for Environmental Compliance Auditing," 2d ed. (New York: Executive Enterprises Publications Company, 1983).

4. For a good discussion of managing environmental information, see Friedman (July 1988).

Acknowledgments

The views presented in this article do not necessarily reflect those of the organizations with which the authors are affiliated.

1 Comment On: Proactive Environmental Management: Avoiding the Toxic Trap

  • Alan Clark | August 29, 2010

    It makes me sick how large corporations worry more about what these disasters do to their bottom lines rather than the damage that has been done to the environment.

    We are leaving far too big a footprint behind with no consideration for the future.

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