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Columnist
Most European companies are vitally concerned at the board level about environmental health and safety issues. Why aren’t boards of U.S. companies equally as concerned? By George Pilko The issue of environmental health and safety (EHS) governance is big enough to affect a company’s reputation, its competitive position, its share price, and its future, particularly in the chemicals, energy, power, and metals industries. Yet the response I have seen from the boards of many U.S. companies is inadequate and sometimes pitiful. Many still act as if serious global environmental realities and consequences don’t exist or don’t count. The contrast with European companies is particularly striking. In Europe, most companies in heavy industry have made EHS governance a vital aspect of their top level corporate direction and management. They don’t see EHS governance as a compliance or legal millstone but as the way to protect shareholder value — and even as a potential source of competitive advantage. Why the U.S.-European disparity? Preoccupation with Compliance Part of the answer may lie in the compliance-oriented way that EHS management has evolved in the United States. Stringent regulations and stiff penalties have encouraged U.S. corporations to focus on every tree along the trail without regard for the size of the forest, whether the current trail is the best way to get through the forest, or even whether they should turn around and find a meadow instead. By trusting that compliance is the answer to every EHS question, U.S. corporate boards are effectively assuming that government regulators are smart enough to know what their companies need to do to protect shareholder value. By not being involved with environmental issues in a meaningful way, boards effectively abdicate key responsibilities to the whims of regulatory agencies. Board EHS Committees How can I so denigrate the EHS focus of U.S. boards? Don’t I know how many boards have an environmental or public policy committee? Don’t I read the annual reports and notice the comforting OSHA statistics? Don’t I know how many plants are now ISO-certified? Yes, I know this. But what keeps me awake at night is that I know more. First, some major corporate entities do not even have a board committee devoted to EHS or public policy. A Pilko & Associates survey found that while many U.S. and Canadian chemical companies do have a board EHS or public policy committee, not one of the master limited partnerships we surveyed in the energy industry does — and this includes publicly traded, multibillion-dollar companies. Second, take a look at the membership of the board EHS committees: How many of these directors have in-depth understanding of the current best practices for EHS governance in their industry? Third, check the EHS committee meetings. Too often the committee meets only twice a year with the company’s VP of EHS, who makes a presentation about spills, lost time accidents, and compliance records. What’s wrong with this picture? Many U.S. energy and chemical companies are driving across town looking in the rear-view mirror, focusing on lagging indicators like compliance, which serve only as a scorecard of past action. Generally missing from discussions at EHS committees are leading indicators, which include assessments of the EHS policies, procedures, and practices in place to drive future performance. Many companies are now thinking about EHS management systems, and some have moved forward on implementation. In most cases, success has been less than stellar, largely owing to lack of driving interest from the board and senior management. The systems today are often not designed to deal proactively with the risks and liabilities that energy, chemical, metals, and power companies face in the foreseeable future. What EHS committees do – or don’t do Because of the general lack of qualifications and the typically limited information available to them, board EHS committee members in the United States are often not in a position to provide effective governance or engage in meaningful dialogue with line management or staff. Compare a typical board’s EHS committee with its audit committee. Audit committee members must meet demanding criteria and be actively involved with the outside auditor. They must also work within the company and “push back” when appropriate on important issues. In contrast, EHS committee members tend to limit their activities to attending presentations by “insiders.” Worse, committee members are not empowered with the vision they need to act proactively. For example, scientists, environmental groups, politicians, and industrial leaders outside the U.S. are focused on climate change and sustainable development, while many U.S. companies pretend these issues don’t exist or are irrelevant for their business. Reality doesn’t disappear because powerful companies (and nations) don’t like it. American industry will face a daunting future in the global marketplace unless it acts soon to address EHS governance in a serious way. It’s like the old Fram filter ad — “pay me now, or pay me later.” And later costs a lot more. |
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| George
Pilko is co-founder and chairman of Pilko & Associates, an
environmental health and safety (EHS) consulting firm headquartered in
Houston, http://www.pilko.com. The
firm has been advising companies in the energy, chemical, metals, and
power industries on EHS governance and transactions for 25 years. He
can be contacted at george@pilko.com.
A longer version of this article originally appeared in the Second
Quarter 2005 edition of Directors
& Boards. Copyright © 2005 Directors & Boards, P.O. Box 41966 Philadelphia, PA 19101-1966. All rights reserved. Contact the webmaster. < Privacy Notice > |
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