Green Requires a Corner Office Champion

"Green" is not a corporate motto for any enterprise anywhere. But it might as well be, considering the avalanche of rules and regulations as well as the resources companies must devote to compliance requirements.

Unless your company is at the front-end of providing services that require it to be the paragon of "green," however, putting environmental issues at the core of corporate operations won't be a goal for the enterprise. In other words, "Green" is not a religion for businesses; it is pursued either purely because of legal and regulatory requirements or because a lot of money is at stake for the business.

Some companies have learned that the benefits of "going green" extend well beyond getting a pat on the back from regulators or an award from suppliers. They've figured out they can make the entire efforts financially beneficial to the enterprise and also develop a favorable and highly positive public image. In other words, they do "good while doing good," as Pasquale Pistorio, the former CEO and president of STMicroelectronics NV (NYSE: STM), used to say.

Pistorio, one of the industry's most ardent champions of environmentally-friendly policies, understood that the greatest force for achieving compliance with environmental laws comes from the corner office. If the senior executives of a corporation are in the driver's seat of the enterprise's "green" initiative, the likelihood of success is typically greater than if this was being done just to fulfill the letters of the law.

Don't underestimate the force of legal requirements, though. Greenpeace and other organizations advocating for better environmental conditions have been around for decades, but only in the last 10 years or so have many enterprises in the electronics and high-tech industry been forced to take the issue much more seriously, as regulators in Europe and elsewhere introduced stricter laws governing the production, usage, and disposal of sensitive products. Regulations like the European Union's Restriction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE) have introduced new acronyms to the industry lexicon and resulted in actions by companies to achieve compliance.

Furthermore, many companies today spend millions to monitor their supply chains and ensure non-compliant products are removed from their operations. They are also spending more time and other resources to compile evidence that would prove efforts are being taken to stay within prescribed legal limits for the use of certain dangerous chemicals. As public pressures have mounted also on companies like Apple Inc. (Nasdaq: AAPL), and many of its rivals, to adopt environmentally-friendly practices, they have similarly increased pressure on their extended supply chains to demonstrate earth-friendly procurement and production practices. As Jay Shimshack of Tulane University noted in a 2007 paper for the US Environmental Protection Agency, regulations and compliance monitoring actions are the primary factors that have forced behavioral changes at companies.

Shimshack, who was an assistant professor at Tufts University in Massachusetts when he wrote the EPA-commissioned paper, identified the following seven factors that he said serve as behavioral reference points for companies involved in the environmental protection process:

1. Regulation, monitoring, and enforcement have historically been, and remain, critical determinants of environmental behavior.
2. Environmental monitoring and enforcement activities generate substantial specific deterrence.
3. Environmental monitoring and enforcement activities generate substantial general deterrence.
4. Environmental monitoring and enforcement activities may generate significant emissions reductions, even for sector/contaminant combinations where compliance is typically high.
5. Enforcement and monitoring responses are heterogeneous across sources.
6. Quantitative databases and statistical methods exist for deterrence measurement.
7. Qualitative survey methods exist for deterrence measurement.

If only the mere enactment of a law was sufficient to eradicate all crimes. Unfortunately, that's not the case, and the business environment is not any different. While companies try to avoid tripping over business regulations, these still happen frequently, with sometimes highly expensive costs to the enterprise. In the high-tech sector, for example, many companies have paid huge fines to regulators because they knowingly or unknowingly violated certain rules. Microsoft Corp. (Nasdaq: MSFT) comes to mind here. The company earlier this year lost an appeal of the $1 billion fine imposed by European Union regulators in 2008 for "failing to comply with an order to share product information with competitors," as the Wall Street Journal noted in a report in June.

Shimshack observed in his report that regulations and compliance monitoring might not be sufficient in achieving long-term environmental goals. He said further:

1. The regulator reputation effect underlying general deterrence tends to decay.
2. There are limits to the "reach" of the reputation effect underlying general deterrence.
3. Deterrence varies across enforcement and monitoring instruments; inspections, intermediate enforcement actions, administrative fines, and criminal actions have different compliance impacts.
4. Sanctions should generally increase for repeat offenders, but important caveats to this rule exist.

This brings me back to the headline of this blog. Any enterprise change initiatives require a champion, whether the desired transformations are related to structural operational realignment (otherwise referred to as reorganization), product development, or going "green." It's always better when that champion is the CEO of the company or has the full endorsement of the top executive.

This applies in the efforts to be compliant and benefit from environmental rules and regulations. It takes some effort to achieve compliance, but lasting benefits that would improve a company's operational efficiency and even generate profits can only be achieved with the full support of the boss. It works even better when he or she is in the driver's seat.