Mission
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Executive Leadership: The Driving Force for Corporate Environmental
Responsibility
By Dennis A. Rondinelli
Academic Citation: Dennis A. Rondinelli, "Executive Leadership: The Driving Force for Corporate Environmental Responsibility," Kravis Leadership Institute Leadership Review, Fall 2001.
About the Author: Dennis A. Rondinelli is the Glaxo Distinguished International Professor of Management
at the Kenan-Flagler Business School, University of North Carolina at Chapel Hill. His
research focuses on international business, multinational corporations, corporate
environmental management, and the public role of the private sector.
Multinational corporations are often portrayed as the world's environmental "bad guys." Widely criticized for despoiling our air, water, and soil, exploiting natural resources, wasting energy, and degrading ecologically sensitive areas, many people believe that multinational corporations (MNCs), in pursuit of ever-increasing profits, seek to avoid regulatory constraints at home and locate in "pollution havens" in poor developing countries to escape monitoring and supervision. But this portrait, like many generalizations, largely distorts the role of MNCs. The characterization of MNCs as environmental criminals, if it were ever totally accurate, is more than 20 years out of date. A sea change has been occurring for more than a decade in the way most North American, European, and Japanese MNCs deal with environmental issues. Although some companies still stubbornly see environmental regulations as a burdensome cost to be avoided or complied with minimally, the vast majority of MNCs from post-industrial economies are addressing their environmental impacts not only by complying with national rules and regulations, but also by voluntarily going beyond regulatory requirements to find innovative ways of reducing their "environmental footprint" internationally. The movement toward proactive corporate environmental management has been driven by extraordinary business executives with the vision and foresight to see the compatibility between environmental protection and corporate well-being. They have used their leadership skills to elicit the support of employees throughout the organization to find innovative and creative ways to reduce their environmental impacts. Proactive corporate environmental management started in the late 1970s and early 1980s with executives in a few pioneering companies like 3M, DuPont, and Dow Chemical. These early pioneers had a different vision of environmental management than many of their colleagues: they saw the business opportunities and benefits of proactive environmental practices, not just the costs of regulatory compliance. As Dow Chemical's CEO Frank Popoff recalled, "we learned that the investments we make in pollution prevention can yield a return. Money spent on 'end-of-pipe' treatment is just another expense." (Footnote 1) By the mid-1990s an increasing number of MNCs began to adopt voluntary codes of environmental conduct, industry-wide practices such as Responsible Care, and international standards of environmental management such as ISO 14001. By 2000, more than 160 major corporations were members and financial supporters of the World Business Council for Sustainable Development, a leading international advocate of corporate environmental responsibility. (Footnote 2) More than 2,500 companies around the world committed themselves to the principles of the International Chamber of Commerce's "Business Charter for Sustainable Development." By March 2001, more than 27,500 organizations (mostly corporate facilities) worldwide and more than 1,400 organizations in the United States had certified their voluntary environmental management systems (EMS) through registered auditors under the International Organization for Standardization's ISO 14001 guidelines. CORPORATE LEADERSHIP ON ENVIRONMENTAL MANAGEMENT Ironically, multinational corporations may become the organizational leaders in spreading innovative environmental management practices internationally during the 21st century. Alcoa, for example, is applying its state-of-the-art corporate environmental management systems to its aluminum extraction and manufacturing operations, business units, and subsidiaries worldwide. The success of Alcoa's, and most other MNC's, proactive environmental practices depends on top management leadership, commitment, and accountability. In progressive companies like Alcoa, the CEO works with managers throughout the organization to set clear environmental policies and verifiable targets, to provide corporate support and assistance, and to recognize and reward individuals and business units achieving excellence. Responding to investor demands to reduce potentially negative environmental impacts, Alcoa executives saw the opportunity in the early 1990s to take a leadership position on environment, health, and safety (EHS) issues within the aluminum industry. Under the guidance of former Chairman and CEO Paul O'Neill (now U.S. Secretary of the Treasury), Alcoa's board of directors declared that an effective management system was essential to sustaining both business and environmental performance improvements. By early 2001, 15 Alcoa locations had been certified to the ISO 14001 guidelines and 50 other facilities around the world were working toward implementation. Alcoa's strategic objective is to have at least 50 percent of its worldwide facilities develop and implement an ISO-14001-type environmental management system by the end of 2002. (Footnote 3) Alcoa disseminates its environmental management practices internationally through a variety of activities: community environmental improvement projects, environmental capital investments, EHS program expenditures, product and process innovations, the installation of environmental management practices in newly acquired or constructed facilities, materials recycling and reuse, and the adoption of international environmental standards of quality management in its worldwide production systems. Corporate headquarters holds business unit managers accountable for meeting Alcoa's EHS standards and provides support and assistance as well as recognition and rewards. Alcoa followed in the footsteps of other pioneering companies. In 1975, 3M implemented a Pollution Prevention Pays (3P) program to reduce waste drastically in its products and manufacturing processes. 3M sought to eliminate pollution through product reformulation, process modifications, equipment redesign, and recycling and reuse of waste materials. Since the program was initiated, it has supported more than 4,700 projects within 3M, preventing more than 807,000 tons of pollution and generating savings of more than $827 million in reduced material, energy, and regulatory costs. Under the leadership of CEO, Livio D. DeSimone -- who became an international corporate leader in promoting pollution prevention -- 3M adopted life cycle analysis in which it submits all of its products to a systematic assessment of environmental impacts and finds ways of reducing or eliminating harmful outputs. Dow Chemical Company's CEO and Chairman, Frank Popoff accelerated the movement toward proactive corporate environmental management during the 1980s and 1990s. Under Popoff's leadership Dow adopted --and pushed other chemical companies to accept -- the industry's Responsible Care principles. Responsible Care requires companies to demonstrate continuous annual improvements in air, land, and water emissions. They are held accountable for codes of community awareness and emergency response, process safety, pollution prevention, distribution, employee health and safety, and product stewardship (responsibility for products throughout their life cycle). Dow also created a Waste Reduction Always Pays (WRAP) program that encouraged employees throughout the corporation to submit and pursue innovative ideas for reducing or eliminating waste from the company's products and production processes. Dow eliminated discharges from its chlorinated solvents plants, developed full-cost environmental accounting systems, and insisted that every plant that it built around the world have not only the best operating technology but the best environmental technology available. Edgar S. Woolard's leadership at DuPont during the 1980s and early 1990s also spurred the adoption of a "zero, waste, zero emissions, zero safety incidents" policy. (Footnote 4) Woolard challenged DuPont's managers and employees to innovate in ways that resulted in cutting the corporation's toxic releases by 74 percent between 1987 and 1997, reducing its landfill waste by half, and lowering its annual waste treatment costs by 80 percent. (Footnote 5) Attempting to lighten its "environmental footprint," DuPont produced a new line of biodegradable herbicides for farmers that reduced by 100-fold the amount of herbicides needed per acre and used bioengineering to produce products from renewable materials rather than fossil fuels. It introduced a new polyester, for example, made from cornstarch rather than oil. CEO Ray Anderson's transformation into environmental advocate in the mid- 1990s, led Interface -- an international manufacturer of carpets and floor coverings -- to seek to become one of the first truly environmentally sustainable corporations in the world. (Footnote 6) Anderson persuaded his managers and employees to develop and implement closed-loop manufacturing processes, materials recycling and reuse programs, and new product designs that would create zero waste and consume zero oil. Anderson introduced in the United States the manufacturing and distribution of carpet modules, an idea originally developed in Great Britain. The modules allow users to replace portions of worn carpet instead of taking up the entire floor covering, extending the life of less-used modules, and reducing the amount of carpet that must be disposed of at the end of its life. Under Anderson's leadership Interface also created the "Evergreen Lease," through which Interface leases instead of sells carpet to customers. Interface arranges for all maintenance services and takes back the carpet for recycling and reuse at the end of the lease. This tradition of executive leadership in multinational corporations on environmental issues continued during the 1990s and into the 21st century. George Weyerhaeuser led the movement for reforestation and resource conservation at his forest products firm. Charles Coker pledged to take back Sonoco paper and packaging products from its customers for recycling and reuse. (Footnote 7) Michael Dell at Dell Computers and Eckhard Pfeiffer at Compaq set their corporations on the road to redesigning their computers with longer life cycles, lower energy use, and recyclable materials. Sir John Browne, Group Chief Executive of BP-Amoco, led a movement that was supported strongly by his employees, to make the worldwide energy company a leader among environmentally-sensitive corporations. Browne pledged in 1997 to reduce his corporation's greenhouse gas emissions by 10 percent from a 1990 baseline by 2010, during a period when BP-Amoco was growing and expected to continue to grow rapidly. The company established a sophisticated internal cap-and-trade market system for reducing greenhouse gases among its business units. By 2000, it succeeded in achieving a 5 percent reduction and aimed to achieve another 5 percent reduction by 2003 or 2004, several years ahead of schedule. With a steady growth rate, BP-Amoco will, in effect, cut its greenhouse gas emissions in real terms by nearly 40 percent more than it would have produced if the company had not adopted its environmental policies. In addition BP- Amoco drastically reduced its water usage. Seeing the opportunities for more environmentally friendly energy sources, Browne promoted changes in the corporation's product portfolio, increasing substantially its emphasis on natural gas, solar power, and clean fuel. By the end of 2000, it introduced clean fuel options in 40 cities around the world. BP, Daimler-Chrysler, First Bus, Transport for London, and the Energy Saving Trust worked together to introduce hydrogen fuel cell buses to London and other European cities. It also initiated large solar energy projects to bring electricity to rural areas in the Philippines and to cities in Spain. WHAT MOTIVATES ENVIRONMENTALLY-PROGRESSIVE LEADERSHIP? Much of the progress in adopting proactive environmental management in large corporations has come from the commitment and persistence of top leaders to a new way of thinking. In all corporations that succeed in implementing innovative environmental practices, the necessary initiative, support, and cooperation must come from all levels of the organization. But the vision, direction, and continuing drive must come from top executive leaders. Edgar Woolard noted the importance of leadership when he declared, "as DuPont's chief executive, I am also DuPont's chief environmentalist." (Footnote 8) A complex set of forces drive corporate executives to promote voluntary environmental management. Business for Social Responsibility points out that public demands for enforcement of regulations and for increased disclosure by investors, regulators, and public interest groups have played a strong role in increasing corporate executives' sensitivity to their social responsibilities. (Footnote 9) Corporate leaders with vision saw that if they merely denied their companies' negative environmental impacts or complied minimally with environmental regulations that more drastic government constraints would be imposed on them. "We cannot sit around and wait for events to drive us," DuPont's Woolard argued. "We, along with other manufacturers, must develop a corporate agenda for environmental leadership for the next decade." He insisted that "industry needs to maintain the same high environmental performance standards regardless of the country of operation. The actions of any one company will continue to reflect on industry as a whole." (Footnote 10) While the leaders of environmentally-progressive companies usually have a broad and sincere sense of social responsibility, they are not primarily social reformers but hard-nosed businessmen. Their success in promoting environmental responsibility derives from an ability to sell their ideas on sound business principles. Enlightened corporate leaders can calculate the immediate and direct business benefits from proactive environmental management in the form of lower costs, less risks and liabilities, and more efficient operations. (Footnote 11) Ray Anderson, for example, notes in his autobiography that QUEST -a total quality management program aimed at reducing and eliminating waste at Interface -- "is measured in hard dollars and, as I said, we've taken 40 percent or $67 million, out of our costs in three-and-a-half years, on our way to a rate of more than $40 million per year ...and that much or more again when we actually reach zero waste." (Footnote 12) Progressive corporate leaders also perceive longer-term returns from promoting sustainable development, including stronger competitive advantage, preservation of crucial resources and raw materials, favorable corporate image, and opportunities for new product development. Livio DeSemone noted that 3M was moving "beyond an era of compliance with environmental regulations toward one focused on sustainable development [because] we are convinced that, in the future, the most environmentally responsible companies also will be the most competitive companies." (Footnote 13) And as Interface's Ray Anderson declared, "I believe that in the 21st Century, the most resource- efficient companies will win!" Moreover, these and other corporate leaders recognize that the benefits of a strong reputation for corporate citizenship can include greater access to capital, reduced operating costs, improved financial performance, and enhanced brand image. (Footnote 14) Socially- responsible environmental practices may also lead to stronger sales and customer loyalty, increased productivity and quality, an enhanced ability to attract and retain employees and, in some cases, to reduced regulatory oversight or more favorable treatment by regulatory agencies. Dow's Popoff perhaps stated his position most bluntly. "I am not an evangelist preaching some social cause;" he pointed out, "this is hard, cold economics. Pay now or pay a whole lot more later. Do it today or have it done unto you tomorrow. If we were not shooting for pollution prevention, I would have a hard sell. But everybody knows that that will be part of the next generation of environmental initiatives." (Footnote 15) Many of the early leaders saw challenges to their corporate behavior by governments and environmental interest groups as a threat to their company's growth or survival. DuPont's Edgar Woolard noted that the challenge facing DuPont was not how to comply with the latest government regulation but "that our continued existence as a leading manufacturer requires that we excel in environmental performance and that we enjoy the non-objection - indeed, even the support - of the people and governments in the societies where we operate." (Footnote 16) These progressive corporate leaders accepted the fact that public and shareholder expectations of corporations to deal with complex social and economic issues in the communities where they operate was increasing dramatically. (Footnote 17) BP-Amoco's John Browne argues that "investors are likely to respect companies which acknowledge the reality of [environmental] challenges, and set out to confront them, rather than those who pretend the challenges don't exist." (Footnote 18) Alcoa's Paul O'Neill, emphasized that Alcoa's "growth and success have their roots in the fundamental values of the organization. It is these values - respect for our people, their safety, health and for the environment - that Alcoa instills as the foundation of its acquisitions and partnerships." Progressive corporate leaders advocate proactive environmental practices because they see clearly the linkages between good environmental management and the overall quality of their operations, opportunities for reducing costs, and the necessity of satisfying customers. Alcoa's environmental management practices, for example, grew out of its CEO's focus on total quality management. When he became chairman and CEO of Alcoa in the late 1980s, Paul O'Neill took over a company that had already grown to the largest aluminum producer in the world. But it faced worldwide competition in an industry that had become mature in the United States. During the 1980s, Alcoa had tried unsuccessfully to diversify into a broader range of engineered materials -- including laminates, polymers, ceramics, composites and other non-aluminum items -- and its financial performance suffered. O'Neill was brought in to revitalize Alcoa. He took two immediate actions. First, he brought Alcoa back to its basic business -aluminum products - and sold off many of the others that Alcoa had acquired. Second, believing that Alcoa's future depended on producing real value for customers, he launched an extensive campaign to develop and implement a total quality management strategy. (Footnote 19) O'Neill quickly established a Quality Task Force to produce a TQM strategy and began benchmarking leading companies in quality management. As quickly as the Quality Task Force developed recommendations, an Operating Committee implemented TQM training programs for all employees and managers throughout the corporation. Within a year after the Task Force began its work, Alcoa was successfully implementing a comprehensive TQM system. When the TQM process was in place, O'Neill drastically reorganized Alcoa's corporate structure. He cut two levels of executive bureaucracy, decentralized authority to the business unit level, and gave business unit presidents substantial authority and discretion to deliver value to customers. O'Neill restructured Alcoa into a more agile, decentralized operation focused on customers and business units, "not Pittsburgh, not the vice presidents who service them, not the chairman - but business units." (Footnote 20) After the reorganization, business unit presidents reported directly to the CEO. Alcoa's quality values and vision clearly drove subsequent improvements in EHS management. From the early 1990s, O'Neill focused first on improving employee safety. He believed that safety is "the most important leading indicator of how good a company is or could be. If you look at companies that really care about safety, you find that their safety performance is unexplainable if you believe that accidents are inevitable. My own belief is that if you think about it hard enough, you don't have to have any accidents at all." Environmental management functions were integrated at Alcoa and the CEO drove a campaign for eliminating workplace incidents. Strong corporate leaders have also been sensitive to the need to motivate, inspire, empower, and reward their employees to achieve continuous environmental improvements. Sir John Browne noted that at BP-Amoco "we learned that for a company like ours-indeed, for any international company with a large number of highly skilled employees-top management can no longer expect to make policy in a vacuum. When we accepted that, on the evidence, global warming was a true problem, we did so in part because many of our own employees had told us that we couldn't go on living in denial." Browne acknowledged that his employees, their families, and their children "in particular, believed we were part of that problem. Our staff found it intolerable that we seemed to be on the wrong side of a fundamental issue." (Footnote 21) Ray Anderson's leadership on proactive environmental management at Interface was motivated by the desire to provide "our people and our company a higher cause and long range reason for being." He points out that " ... when compensation is sufficient and growth opportunity is satisfied, people want to work for a company that makes a difference, that serves a higher cause." (Footnote 22) All of the executives who led their companies to new environmental goals also recognized the need to decentralize authority and empower and reward employees in order to bring all levels of the organization into the movement. "You must empower your organization," Popoff emphasized. "At base, this is highly individual and personal. Your people will need a great amount of help and support." He insisted that "the key to keeping such an organization viable and vigorous is to give it enough central direction and challenge, and then liberate to meet the challenge. ...Otherwise you create a top- down initiative and people wait for things to be done." (Footnote 23) All of the leading companies in environmental management provide awards and incentives for employees to generate ideas and to implement programs innovatively. Corporate leaders go to great lengths to celebrate publicly employees' initiatives in continually improving environmental performance. CONCLUSIONS The sea-change that is occurring in environmental management among MNCs is driven by a complex set of external and internal forces, but requires leaders with a deep understanding of the fundamental compatibility between environmental and social responsibility and the growth and survival of their companies. They articulate a vision that links proactive environmental management with the quality of their products, the performance of their manufacturing and distribution processes, the ability to reduce costs. and the opportunities to develop new products and businesses in order to remain competitive in global markets. Effective leaders like Popoff, DeSimone, Woolard, Anderson, Browne and many other CEOs of multinational corporations succeed in implementing their vision by translating it into a clear corporate mission and specific programs that make sense by sound business principles. They achieve their environmental goals by motivating and empowering and by rewarding their employees for identifying problems, finding innovative solutions, and pursuing ideas that ensure continuous environmental improvements. These socially responsible leaders extend their best corporate practices throughout the organization and to their entire supply chains - vendors, contractors, distributors, customers, and affiliates. They are driven by the vision of opportunity, summarized best perhaps by Ray Anderson: "To do well by doing good and to make a difference by example - on a global scale-by making a difference in the corner where we live and work and inviting others to take a look and join in." (Footnote 24) References:
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