Environmental Leadership Program: ELP News: Summer 2002-Focus On Sustainability and Business by Jacob Park

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newsletter Summer 2002

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ELP News:

Focus On: Sustainability and Business

Making the Accountability Connection by Jacob Park

Thirty years ago, businesses considered environmental concerns only when regulators fined a company for doing something illegal. Hooker Chemicals obviously did not think that dumping its toxic waste was a bottom-line financial issue until an outraged housewife named Lois Gibbs decided that the company had to be held accountable for chemicals it had disposed of at Love Canal, New York.

Over the past three decades, however, there has been an important change in the way most companies approach environmental and social issues related to their operations. To discount this simply as sophisticated "greenwashing" misses one of the most important policy and business trends in the past 30 years.

Many companies have learned that good environmental stewardship makes good business sense. As Ben Packard observes in his essay in this issue, "innovative businesses are seeking ways to deepen their commitment to environmental and social responsibility." At the same time, much more needs to be done and much more is expected from the private sector to build a sustainable global economy. Even before the demise of Enron, WorldCom and ___ (you fill in the blank), there was a growing split between Middle America and Corporate America. As Bodhi Burgess notes, there has been "little incentive in the current business climate to move toward financial honesty, much less social responsibility."

The obvious next step is to ask how we can begin to develop those incentives through policies.

Should the Securities & Exchange Commission (SEC) be empowered to force greater corporate transparency in corporate governance and environmental liabilities, as Steve Adams proposes? Or, should we focus our attention on international trade agreements and the role of the World Trade Organization, as Paul Phifer suggests?

And how might we create incentive structures, if Liza Grandia is correct in noting that the problem of corporate irresponsibility has less to do with individuals and more to do with the way our political and economic institutions operate as a system?

When Federal Reserve Bank chairman Alan Greenspan recently referred to the demise of Enron, WorldCom, and other companies as examples of "infectious greed," he described how the design of stock option plans at these companies allowed business executives to profit at the expense of company employees, shareholders, and society at large.

Although one should never underestimate individual greed, would Enron be in the same financial condition if the salary of Ken Lay, the former chairman of the company, had been based not just on the company's stock price, but also factored in the social and environmental impacts of its business activities? How different would most Fortune 500 companies behave if the compensation of chief executive officers depended on community contributions in addition to stock performance?

Though many people may not realize it, the idea that the goals of private business enterprises are separate and distinct from wider societal interests is a relatively new one. For much of the nineteenth century, private corporations were chartered only for specific purposes (e.g. to build a bridge) and for a limited time period.

Many governmental agencies like the SEC and the U.S. Environmental Protection Agency came about in different moments of American history when the private interests of corporations and the market economy were judged to have failed the public interest. Government policy-makers increased financial reporting and transparency requirements in the 1930s and more tightly regulated environmental impacts in the 1970s in order to remedy failures in market institutions.

While we may disagree on how to regulate a certain company or industry, it is important to keep in mind that corporate responsibility and accountability are only as good as the public institutions that provide the necessary oversight, such as the EPA, SEC, and the Food & Drug Administration (FDA). The fact that the FDA has been without a commissioner since President Bush took office is an important corporate responsibility concern, even if it is not treated as such. Why does our society and media give so much attention to the entrepreneurs who lead small start-up companies compared to the FDA commissioner, who regulates almost a quarter of the nation's economy and makes life and death decisions about which drugs will be available to patients?

In the end, corporate responsibility may have less to do with what we want or desire from the business sector and more to do with what kind of democratic governance and public accountability we want in our society. These are the issues that are being fought out in Congress today. Environmentalists should take a keen interest in their outcome.

Jacob Park is a research scholar in the Harrison Program on the Future Global Agenda at the University of Maryland, and a senior research consultant for corporate governance and socially responsible investment at the London-based fund management company Friends Ivory & Sime. This fall, he will become an assistant professor in the business and economics department at Green Mountain College in Vermont. With assistance from the ELP Activity Fund, Jacob recently co-edited a new book entitled The Ecology of the New Economy: Sustainable Transformation of Global Information, Communications and Electronics Industries.

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