Parable of the Commons
A cautionary tale of environmental liability
Tips for responsible management of regulatory issues.
Once upon a time – not that long ago actually – there was a duchy called Manufacturing Division, Inc. or MDI that made bronze armaments. MDI was ruled by a duke named Manager, an ambitious subject of King CEO. The king was indebted to members of his court for his position and was constantly under attack by nearby kings who wanted a share of his territory. He therefore pressured his dukes to be certain that revenues were maximized and remitted on a regular basis in order to assure that he had the resources to defend the kingdom and keep the court happy.
The duke was intent on impressing the king with his efficiency, his loyalty, and the revenue he could generate. The armament manufacturing process produced both toxic and hazardous wastes, and it was expensive to properly dispose of them. Manager therefore had trusted servants secretly break out the bottom of some underground storage containers so that some toxic waste seeped into the ground. That reduced the costs of having it hauled away and recycled. A trace of acetone was also included in the water that was sprayed into the air as part of the humidifying system so they would not have to pay to dispose of it. His sorcerers (now known as chemists) assured him that it was only a trace and not dangerous, but it was smelly. He did not set up a process that would monitor the amount of toxic elements in the humidifier water.
Manager treated his serfs as well as did similar dukes, but otherwise paid little attention to them; they were there at his will. The work at MDI was hot and often dangerous, and the processes created strange odors about which the workers and neighbors sometimes complained, but the duke did not take the complaints seriously.
The kingdom was part of a larger empire, and the empire had a legion of bureaucrats and many rules and regulations, including those relating to the maintenance of the commons, generally referred to as environmental laws. Manager was more concerned about immediate profits than about longer term possible effects on the environment however. He was reluctant to spend money that would make it harder to pay the royalties the King expected.
In time, Manager was replaced by new dukes, first Manager II and then Manager III. The culture of the duchy did not change much however. There was still little concern for the commons. Manager III did not know about the broken underground tanks, but he generally treated environmental concerns as an easy place to cut corners and defer maintenance.
There were, however, signs that times were changing. There was a movement throughout the empire to pay more attention to protection of the commons. A new mercantile class was moving into the commons and complaining about the odors created by manufacturing, the noise, and the traffic. The empire even threatened to no longer permit armaments manufacturers to dump hazardous waste material at the jousting bases as they had done for years.
The duke was concerned, but he still thought that the king could protect him from the empire’s bureaucrats, and he did not really believe that the generals would deny him the right to bring his waste material to the jousting base. After all, they needed his bronze weapons. If a problem did arise, someone, somehow, would intervene. MDI was too valuable a duchy to lose.
The empire did follow through on its threat to close the base to dumping, and the king was not able to make them change their minds. Not having followed through on an earlier option to upgrade his facilities and become a licensed disposal site, Manager III was now faced with accumulating barrels of hazardous waste materials and no place to take them. It was illegal to store them more than 90 days according to the empire, but MDI was unable to find anywhere to send them in the area.
The empire regularly sent inspectors on routine inspections of all the duchies. After one such inspection the duke was sent a notice that MDI needed to upgrade its facilities to comply with new empire rules about environmental protection. It would not have taken that much money in the larger scheme of things to do what the inspector required, but the king needed extra revenues right then. His other duchies were not doing well.
Manager III decided to follow what he believed would be the king’s wishes and put off dealing with the notice and the improvements until the next fiscal quarter. The notice was ignored and the violations were not remedied. He did not even ask the kingdom’s counselors to request an extension of time. The king received the extra revenue requested however.
The allegory obviously refers to a real company and a real situation, albeit in a very simple and abbreviated form. This time the story does not have a “happily ever after” ending. About the same time that the official notice of violation was sent, two employees of the company went to the County Department of Health Services (DHS) to complain about the humidifying system which was still using toxic waste water in its spray. They also alleged that there was illegal transportation and dumping of toxic waste materials. One of the employees hoped to receive a reward as a whistleblower as well as make the company change its practices.
DHS had its own concerns because of the lack of response to its Notice of Violation (NOV). When put with the employees’ complaints, enough red flags were raised that DHS took the case to the District Attorney. After considering the situation both politically and legally, the DA’s office obtained and executed a search warrant in conjunction with officials from five other government agencies. Altogether there were around 88 people involved in serving the warrant. Members of the news media who had monitored the police radio showed up as well.
The company had no idea that a warrant was going to be served upon them and was totally unprepared for the event. In fact, the regulatory agencies were themselves uncertain about how to effectuate a search warrant on a defense contractor. There was considerable confusion about what documents to seize, how to preserve this type of evidence, and proper safety procedures. The company management made a decision to assist the regulators, both to assure the safety of those present and to reduce the level of interference in its business activities. Employees even helped photocopy the thousands of pages requested, burning out two photocopy machines in the process.
The corporation hired environmental consultants, land use consultants, insurance consultants, attorneys with varying specialties, and even a public relations firm – all at substantial cost. The PR consultants tried to defuse the community’s outcry, but there were constant adverse (and often untrue) stories in the press about groundwater contamination, air pollution, and deliberate spraying of toxic substances. Then the information about the broken bottoms of the storage sumps came out. The neighbors vowed that the company would not be allowed to operate in that location ever again.
Results of the investigations showed that the situation was not as bad as alleged and that there had not been contamination of the aquifer. However, there were illegally-stored barrels of hazardous waste because the company had found no place to take them once they lost access to the military base. There were also technical violations of codes because the company had tried to save money or defer maintenance. And there were the sumps with the bottoms broken out – even though the current management claimed not to know about them.
Because environmental law has so many strict liability statutes, there was a definite concern and interest in insulating individuals, particularly the officers of the parent corporation, from regulatory and criminal sanctions. Strict liability criminal statutes can result in prosecution of almost anyone involved in the production process or with authority to assure compliance with the law, even if no actual damage is found. The investigators chose not to focus on the entry-level people who actually assembled the products, however. They concentrated on the management level of the division.
The parent corporation settled first. As a condition of probation, they agreed to pay a fine of $300,000 and clean up the facilities – at a cost of millions of dollars. Two of the division managers finally were sentenced to jail terms. The constant blaming and infighting made it impossible for the real work of the company to get done. Lawsuits by neighbors took thousands of dollars and more than ten years to settle. The corporation finally decided to close the division.
Could things have turned out differently? Without question. If the company had been proactive about environmental issues and workplace safety, the humidifying system would have been fixed long before. Better management controls would have shown that toxic waste was leaking from the sumps. If there had been more concern shown for employees, two of them likely would not have gone to the authorities. If the manager had responded to the notice of violation, even with a request for an extension of time, there probably would not have been a search warrant. There still would have been fines to pay and deferred maintenance to take care of, but the company could have been saved, and people’s lives would not have been ruined. The story need not have ended this way.
The following suggestions are offered to help you make sure that you do not find yourself in a similar story.
- First and foremost, develop a corporate culture that places a positive value on good environmental management rather than one that encourages exploitation for short-term gain. A proactive approach will avoid numerous problems later.
- Set standards for behavior relating to the environment, safety, and health that are higher than the minimum required by law or regulation. People do not always perform at their best. If your only goal is minimal compliance, and the inspector happens to come on a day the performance levels are “off,” you could be in violation.
- Educate every manager as to what strict liability and vicarious liability mean in terms of his or her own accountability and that of the company. Emphasize that there is potential liability regardless of intent or even participation in the activity.
- Be sensitive to, and become involved with, the community in which the company is located. Neighbors have a stake in your company’s actions regardless of who was there first. Even if you do nothing wrong yourself, you may still need their support in dealing with environmental problems created either by your company’s prior management or that of a previous company at the site. The occupant in possession of the property has an initial responsibility to assure environmental compliance; ultimate responsibility may not be determined until much later.
- Establish procedures for re-evaluating decisions made, and processes created, on a regular basis. Things change over time. If no review procedures exist, a serious non-compliance issue may develop without anyone even being aware of it.
- Assign responsibility for environmentally-related decisions. The concept of “corporate collectivity” invites a lack of acceptance of responsibility.
- Reward behavior that helps assure compliance, and be sure that your compensation system does not discourage compliance in order to meet an “all-or-nothing” financial goal. Conversely, use negative sanctions for behavior that does not comply with regulations. One organization successfully uses a ticket system. Supervisors issue tickets for non-compliance. These are totaled at the end of the year and result in a deduction from the individual or team bonus. That amount is then placed back in the pool to be distributed to others.
- Establish some form of environmental scanning program that will keep you abreast of what is happening in the environmental arena. Invest in your employees and give them a stake in the company. Provide training so that they understand the company’s goals and values relating to the environment.
- Create an in-house procedure for the resolution of all grievances, and be sure that all employees know about it and feel safe in using it. With “whistle-blower” legislation and the reward system it provides, it is critical to be proactive. Walk the grounds. Find out what is happening at all levels of the company, and deal with problems immediately.
- Develop a contingency plan, not only for environmental emergencies but for dealing with any regulatory agency from an adverse position.
- Finally, NEVER ignore a notification from a regulatory agency – especially if it concerns health or safety issues! Respond immediately, even if you cannot comply. Ask for additional time if you have to do so. If you do not respond, the regulatory agency is left with virtually no option but to act.