Corporate Compliance With Environmental Regulation: Striking A Balance

Roger Strelow

Roger Strelow is Vice President, Environmental Programs, General Electric Company.

My subject is the corporate compliance system. It is hard to think of this as separable fromgovernment and the public, but I will focus on the corporate end, highlighting what is working, what isn't working, and why.

First, I would like to preview a theme which must be appreciated in this area. I would like to suggest adoption of an alternative driving force, if you will — one that I think experience has simply shown must be more of a factor than even moral suasion. In almost every facet of life, especially as life becomes more complicated and "civilized," we have learned that balance is a theme we must acknowledge.

Any one of us can look at any one goal, such as protecting the environment, defending the country, keeping the public healthy, building decent roads. But it is impossible to optimize any one objective without seriously impairing one or more of the many others. At the conclusion of my remarks, I will try to return to this suggestion.

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What is working in the corporate compliance system? One element that has improved is the public consciousness. More sophisticated companies — including top management of many smaller companies — are giving much more attention to and aremore knowledgeable about environmental problems and needs. This is due, in part, to the fact that environmental issues are so much more in the news.

A significant development in 1988 was that, for the first time, "environment" was a major presidential election issue. I think it is fair to say that in no prior election, even in the early 1970s when the environment was very much an issue generally, was this a factor that influenced people's choice of a presidential candidate. This time it was, and I venture to say it will continue to be so. So even if it doesn't immediately affect their companies, the CEOs of the world are much more attuned to environmental concerns.

Further, the generation now reaching the level of CEO rose to this level through the system at a time when corporate environmental regulation was first expanding and developing. Years back, when my CEO was head of a major division of the company, he had to negotiate with the Governor and the Environmental Commissioner in New York State the clean-up agreement for PCBs in the Hudson River. He comes with that kind of background. More and more CEOs are coming through this system. Environmental management concerns are so pervasive that corporate officers these days have had more of the kind of experience that, for example, my CEO has had.

Environmental issues also are receiving top management's attention because environmental regulation affects fundamental business transactions in an unprecedented way. We are all aware of the enormous influence that environmental regulation has on the ability to transfer industrial, or even quasi-industrial property. And the way our economy is [20 ELR 10530] shifting, the many transactions involving businesses and pieces of property are bringing this issue to the fore. Of course, clean-up costs — the enormous amounts of money being spent in Superfund and RCRA to clean up old contamination — certainly elicit attention.

Another development is that of greater professionalism within and attention to what I will call "environmental management." We have often had good engineers, good chemists, good lawyers in corporate environmental work. But only in recent years have we begun to see the development of a holistic approach to environmental management — an approach that incorporates the range of what people like myself in various companies have to do, day in and day out — everything from developing internal auditing or compliance checking systems to data management systems. Until recently, there simply has not been any sense of a "field" of environmental management. The only time corporate environmental managers used to meet was in the context of lobbying or commenting on regulations: Washington-directed. None of it was directed at the question of how, in fact, we do our jobs 90 percent of the time.

I took one step, which was to organize the Corporate Environmental Health and Safety Manager's Roundtable. The Roundtable consists of senior environmental managers from about twelve companies who meet regularly to compare notes on how we do our jobs. Among other things, we have developed an advanced software program for more efficient compliance with some of the SARA Title 13 requirements, particularly the 313 reports. And we have just begun to scratch the surface.

I also serve on the board of the Environmental Law Institute (ELI). Frank Friedman from Occidental Petroleum, who has long been one of the few serious writers on the subject of corporate environmental management, and I have worked with ELI to launch an environmental management program. We are beginning to see a recognition of environmental management as a "profession," if you will. We have a long way to go, but we are moving in the right direction.

Something else that is working well, ironically, is happening outside the regulatory system. Several environmentally protective actions are affecting the corporate community from outside the regulatory process.

First, knowledgeable companies must take very seriously the threat of toxic tort liability. They must be concerned about the amount of exposure, the amount of chemical releases that are occurring, even if they are not regulated.

Second are public and community concerns such as those that have been driven by Section 313 of the amended Superfund law, which requires the annual July 1 reports of total chemical releases. Predictably, this has caused an elevated consciousness on the part of the public, particularly concerning fugitive air releases. By itself, without regulations or further government action, this greater public awareness is creating tremendous pressure for companies to commit themselves to rigorously reduce the levels of releases into the environment, whether or not there is any particular evidence that they are harmful in the actual quantities to which the public is being exposed.

Third, the need to be able to effect property transactions, to buy and sell businesses and individual factory sites, is forcing business to take clean-up actions that might not be entirely required by the regulatory system.

What is not working? Plenty. I share the general sense of pessimism that I hear among other members of the environmental management community: the sense that for all the money, for all the attention, we can't say the environmental protection system is working well.

One problem that affects industry as well as government is a major shortage of the kind of skilled human resources we need to begin to comply with the enormously vast and complex regulations that now exist.

A lot of this is happening because, as never before in its history, American industry is facing tremendous competitive pressures. We live in a global economy. In almost every industry one can think of, we are not just competing with other American companies; we compete as well with the Japanese, with the Europeans, and so on. American industries have found enormous competitive advantages overseas — either lower wage rates or greater productivity. Some of these things we can hope to compensate for or even excel in. We are seeing enormous productivity gains in American industry, for example. But in terms of manpower, there are across-the-board pressures to hold employment levels down to whatever extent it can possibly be avoided.

The environmental area is not singled out, but it feels the pressure just as others do. Of course, government faces these pressures in light of the federal budget situation.

Another facet of the system that I don't think is working well is the lack of reasonable certainty of enforcement, which makes regulation less than credible. To a large extent, the regulated community simply does not have the sense that if something is not done according to the letter of the law, enforcement will follow. Although the U.S. EPA has made improvements in recent years — which I think have not been adequately acknowledged — it is still the case that enforcement is not as rigorous as it should be. When enforcement isn't credible, I don't think that means people in the corporate community deliberately fail to do things that they know are required. It simply fosters a mindset of doubt as to whether or not the government really cares about the regulations it enacts.

There is also a sense that enforcement, when carried out, is somewhat inequitable: that the larger, more visible firms are singled out on issues where there is legitimate room to debate whether the particular activity is or is not an issue of compliance, whereas a vast number of smaller companies simply get away with violations. It is understandable, in some ways, that the government finds it easier to focus on large companies. But such disparities do not send the corporate world, and the business world in general, the signal that government is entirely behind its own regulatory system.

Another problem I see is the bewildering complexity of present regulations. We simply must find ways to simplify. As long as the regulations are as complex and detailed as they are, no matter how hard we try, the job of compliance will remain inherently difficult.

The reasonableness of what is enforced, when there is enforcement, also raises serious issues that further undermine the credibility of the system. If the system lacks credibility, we can cast all the moral judgments we want about compliance. But as a practical reality, when people see inequities and lack of enforcement, it must affect the way in which they perform — whether they spend sixteen hours a day on the job in order to get it done or just the regular eight or ten.

What about the reasonableness of the rules? First of all, notwithstanding the fact that we know there are many blatant, incontestable violations, time and again we in the large companies face enforcement actions involving highly strained interpretations of the rules.

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There always has been a problem with EPA. One of the greatest tragic flaws of the environmental business has been what we might call a variation on the old adage that the perfect is the enemy of the good. Time and again, EPA has not been willing to adopt a rule or set of requirements upon which there exists a large consensus. There is a sense that we must go beyond consensus: if there are another two percentage points of control to be achieved, we must reach that point despite the cost curve argument. So the credibility of enforcement is undermined again, in another way, because so many people feel that EPA simply goes too far.

General Electric, for example, is a company with a long history with PCB's. Within the company there is a feeling that we ought not to be making and using PCBs any more. But numbers at the parts per trillion don't seem to be rationally justified by the facts and the available evidence. That tends to undermine our dedication to the clean-up effort.

Turning from some of these deficiencies to the question of what we should do about them: I don't have good answers for many of the issues raised, but I would like to suggest a few.

First, I believe one of the most pervasive credibility problems with the current regulatory approach lies in what I call "regulatory science." It has to do with the factors that go into the risk assessment models that are used: how we extrapolate animal tests for carcinogenicity to humans — high-dose animal exposures to very low-dose human exposures; assuming that people really live seventy years of their life on the edge of a contaminated landfill site and eat dirt every morning, and so forth.

With respect to risk assessment, I conclude reluctantly that it is probably better to do it than not, even if it is an imperfect science. I also agree that, in an area of vast uncertainty, as environmental protection always will be, regulation must and should be precautionary, a "better safe than sorry" approach. But it is one thing to tilt in that direction and another to run all the way out to the far reaches. Because people have been uncertain, fearful of what might happen if they didn't regulate, what we have had over the years in the regulatory agencies is one type of conservatism heaped on another multiplied by another. As a result, we face extraordinarily tight standards for many substances which are not rationally justified.

It would be enormously helpful to the establishment of a broader consensus among industry, environmentalists, and the regulatory agencies in this critical area to convene a blue-ribbon group of scientists from outside EPA and business — the best academics and other scientists we can find — to undertake a thorough review of the kinds of assumptions and ingredients used in the process of regulatory science. I am willing to say that, if the best scientists we can find look at the issues and tell us that EPA is right, I would have a hard time arguing as vociferously against the system as I feel able to do now. Similarly, if the results were to come out more in the direction of the arguments that industry has been making, as I think they would, I think that the environmental community would have a much harder time arguing that the regulations must be more stringent. If the results were to favor the environmentalists — i.e., EPA isn't tough enough, it would tend to quiet both EPA and industry. We would at least have reached a result about which we could say, however reluctantly, "If the best scientists we can find say that is the way we ought to do it, let's rally around and do it."

Everybody in the system would benefit by this sort of major, objective review of regulatory science. It would help to produce the general consensus we need. In many other areas of environmental regulation there is already a fairly good consensus. There are debates, but through some of the fundamental blocking and tackling of environmental enforcement and writing regulations, over the years there has grown to be more and more of a consensus. In this area of regulatory science, however, I think we are still missing it by a wide mark. And as long as we have highly disparate views among those who are involved in the regulatory equation, regulation simply isn't going to work well. Whether we like it or not, whoever is at fault is irrelevant. It just won't work well until we have produced something better.

Simplification of the rules is another major imperative. We would see much more voluntary compliance if we simplified the complicated and nearly incomprehensible system of regulations. One way to achieve that is through an approach that William Ruckelshaus has advanced — to step back from the welter of environmental laws and try to develop an organic act that would set basic restrictions. If we could enunciate fundamental and basic rules, first, from the Congress and then from EPA, I think the system would work better.

One of the questions EPA often raises is that of the enforceability of a particular regulation. I heard this all the time when I was at EPA. I would want to regulate a certain way, and the enforcement people would tell me that it wasn't, quote, enforceable. What that meant was that they wanted the rules written in great detail to avoid exercise of discretion. This was to avoid an open question: that one might have to present rational arguments about why something was or was not a violation. EPA wants the process to be automatic, so that no one can question the regulatory actions.

I don't blame EPA, from their standpoint. There is a legitimate interest in establishing black letter laws. But I think we have let the tail wag the dog, so to speak. Regulations should be rational and achieve a reasonable balance between specificity and flexibility. In everything we do, we try to achieve a balance between certainty and flexibility. At present, I think the scales are tipped to one side.

As another aspect of regulatory reform, we should concentrate on what is feasible. I would much rather see a system where we sacrifice a little of the marginal gains in the end in order to set rules that, because they are not so controversial, not so much on the far edges of possible feasibility, are simpler, more basic, and much harder to contest.

The doubt surrounding the rules at the fringes is one of the factors undermining the current system. One of the consequences of having rules that so often press the outer fringes is that regulators recognize this, and the discretion sought to be avoided is applied. It is common that a company will have a permit whose requirements it can't meet, regardless of their best efforts. The enforcement personnel understand that. They realize the impossibility of total compliance and opt out of enforcement for every little violation. Within its own context, that is perfectly reasonable. But then environmental groups, equally reasonably, take that permit literally. We have now a virtual institution of massive citizen suits in this area.

What I would rather see is backing off the permit requirements in a few areas where they press beyond what people reasonably can be expected to do — drawing a line that is feasible, and then absolutely holding to it. In this way we can develop an ethic that we don't have in this country now: that in the environmental arena, as in the tax area or any other, the law is the law, and there is no deviation. But we can't do that without some adjustment of the rules themselves.

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I believe we would accomplish more environmental protection than we are seeing at present if we took this course. Now, we have rules that look good on paper that simply aren't being enforced and can't possibly be enforced. So whatever protection we are now receiving is somewhat illusory.

Finally, let's return to the question of balance. As I said at the outset, the moral dimension is an important aspect of anything we do. Environmental regulation never will be or can be, or even should be, entirely a matter of rational science. Public views and needs, much of which are morally driven, will affect our actions. But the ultimate equation should include more of a sense of balance than a purely moral approach. It should include a recognition that if we go too far in achieving one good, we will destroy the system.

If you think about it, in other major areas of health protection, people have not suggested that the ultimate, "nth" degree of total health protection should be the only consideration, admitting of no balance.

One of the best examples of this is auto safety. When I was at the U.S. Department of Health, Education and Welfare, we conducted an across-the-board analysis of what single step the federal government could take to save the most lives in this country. There were two answers. One was to abolish smoking. The other was to make the automobile safer.

We could, in fact, make automobiles much safer. We could build automobiles that can not run over 30 or 40 miles an hour. We could mandate huge bumpers. We could all drive things that look more like tanks than your typical sleek automobile. But people don't seriously suggest such things. We realize we need to achieve a balance. People want a little pep in their automobile. They want good-looking automobiles. They don't want big, ugly looking bumpers. If we think about it in purely rational terms, we probably should err more in the direction of safety and less in the direction of indulging our fantasies and desires for a swift automobile. But, the fact is, that is the public judgment, and we don't seriously question that judgment.

I am not suggesting turning back the clock on the environment. But when we have an issue like the smog and ozone problems in Los Angeles, if we say, "We are going to meet the ozone standard in Los Angeles come what may; we don't care about the consequences," then we wind up with truly drastic measures which it has always been clear would have to be instituted. Despite the recent Los Angeles area attempts, I still think that inorder to reach our goals we would ultimately have to curtail drastically automobile traffic.

So, I suggest the notion that we need a balance. Many of the counterbalancing factors are not entirely economic. There are lifestyle factors and others that we must recognize. Certainly, from a business standpoint, in such an incredibly competitive arena, where every little bit of cost detracts from competitive ability, the counterbalancing factors cannot be ignored. Every time we increase the price of making a product or providing a service without a compelling reason for doing so, we are jeopardizing American jobs and the balance of trade. These are interrelated, and we need to recognize that, as in any other aspect of our lives, we have to take a number of competing goals and ask, how do we best balance them? We can not say that any one goal is sacred and unquestionable.