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14 Industry Codes of Practice: Emergence and Evolution Jennifer Nash* Since the late 1980s, a number of trade associations in the United States have established codes of management practices with a twofold purpose: to improve members' environmental performance and to demonstrate this improvement to critical public audiences. Trade association codes call on firms to move beyond regulatory minimums and to continually improve their efforts in community involvement, pollution prevention, and product stewardship. Until recently, however, most trade associations had done little to monitor the extent to which members actually were putting codes into practice or to sanction those who failed to implement required practices. Trade associations in the United States are voluntary associations of firms within a single industry (Bradley, 1965~. Securing and maintaining members is an abiding preoccupation for trade associations, which depend on membership support to fund their budgets. Although individual members may want citizens and regulators to view the environmental conduct of their industry favorably, they may not believe that improving their own firm's environmental perfor- mance is in their self-interest (Olson, 1965~. Members who feel pressure to improve their environmental performance may simply quit the trade association. To what extent, then, is it possible for trade associations to regulate the environ- mental conduct of their members? *This chapter has been prepared with support from the U.S. Environmental Protection Agency, Emerging Strategies Division. The views expressed, as well as mistakes and omissions, are the authorIs, not EPAIs. Two students provided valuable research assistance: Anand Patel and Stephanie Okasaki. Thanks to Philip Byer and John Ehrenfeld for helpful comments. 235
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236 INDUSTRY CODES OF PRACTICE This chapter is divided into three parts. The first part explores the question of why certain trade associations in the United States have developed environ- mental codes for their members. The second part considers the effectiveness of trade association codes in improving environmental performance. The third part offers conclusions about the direction in which trade association codes appear to be evolving and where they may be achieving results. In the past, trade associa- tion codes served primarily as defensive measures to improve public opinion and forestall public regulation. Now, however, trade associations are imposing codes on their suppliers and distributors as a condition for doing business. Trade associations are adding measures to observe the environmental practices of their business partners, and to sanction, with a decision to do business elsewhere, those who do not live up to code requirements. CHARACTERISTICS OF TRADE ASSOCIATIONS THAT REGULATE THE ENVIRONMENTAL PERFORMANCE OF THEIR MEMBERS Trade associations are nonprofit organizations of business competitors in a single industry (Bradley, 1965~. In the United States, they have historically served two functions: enhancing the collective welfare of members through lob- bying and legal action and providing direct service to members through educa- tional programs, market information, and group discounts. Trade associations rely on membership support in order to operate. Membership is voluntary. Most trade associations raise their operating revenues from fees and dues assessed on members. Boards of directors, made up of executives from member firms, set policies for the groups. Of the thousands of trade associations that operate at the national level in the United States only about seven have developed codes of environmental man- agement practice, listed in Table 14-1.i In this chapter, discussion focuses pri- marily on codes of practice in the chemical industry, with references to other trade association codes to draw out similarities and differences. The efforts of the National Paint and Coatings Association and the National Association of Chemical Recyclers are not discussed, although they merit attention.2 By taking on the role of environmental regulator of its industry, a trade association runs the risk of alienating member firms. Firms can enjoy many of the collective benefits of membership, such as economic benefits that may result from trade association lobbying activities, without joining. Why, then, have some trade associations imposed environmental codes on their members? Codes have emerged in industries that citizens and government perceive lack self-con- trol, cannot be trusted, or are inherently unsafe. Only in those industries have trade associations taken on the role of regulator of their members' environmental practices. The public's negative perception of the chemical industry drove the Ameri- can Chemistry Council (ACC, formerly known as the Chemical Manufacturers
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JENNIFER NASH 237 TABLE 14-1 Codes of Environmental Management Practice Promulgated by U.S. Trade Associations Trade Association Code Name and Year Established American Chemistry Council (ACC)- formerly Chemical Manufacturers Association (CMA) National Association of Chemical Distributors (NACD) National Association of Chemical Recyclers (NACR) National Paint and Coatings Association (NPCA) American Petroleum Institute (API) American Forest & Paper Association (AF&PA) American Textile Manufacturers Institute (ATMI) Responsible Care, 1989 Responsible Distribution Process (RDP), 1991 Responsible Recycling, 1993 Coatings Care, 1996 Strategies for Today's Environmental Partnership (STEP), 1990 Sustainable Forestry Initiative (SFI), 1994 Environmental, Health and Safety Principles, 1995 Encouraging Environmental Excellence (E3), 1992 Quest for the Best, 1993 Source: Nash (1999). Association) to develop the Responsible Care Program in 1989. Public opinion polling at that time showed that a large portion of the public believed the chem- ical industry had no self-control, did not listen to the public, and did not take responsibility for its operations (Rees,1997~. Before 1970 the chemical industry had been essentially free to manage its environmental impacts as it saw fit. By 1980, after congressional passage of the major environmental statutes, this free- dom was gone; the perception among chemical industry managers was that the industry was run not just regulated by government environmental protection officials (Hoffman, 1995~. A defining event for the chemical industry's public image problem was the 1984 massive chemical release in Bhopal, India, that killed thousands of people. The huge oil spill from the Exxon Valdez oil tanker in March 1989 focused public attention on the hazards of the oil industry. Not only was the reputation of the Exxon company damaged, but the public perception of the entire industry fell significantly, prompting an editorial in an oil industry trade journal to urge firms to adopt a "group approach [toward building public trust] . . . meanfing] more than companies' acting responsibly alone" (Oil & Gas Journal, 1990~. In 1990 the American Petroleum Institute launched its environmental code, Strate- gies for Today' s Environmental Partnerships, in response. Public perception of the forest and paper industry parallels in many respects views about chemicals and petroleum. During the late 1980s and early l990s,
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238 INDUSTRY CODES OF PRACTICE chief executive officers of the largest U.S. forest and paper companies commis- sioned extensive public opinion research to probe public attitudes. The results were dismaying. Many people, about 55 percent of those asked, believed the industry did not practice sustainable forestry. An even larger percentage found the industry was doing a "poor job" in its efforts to protect wildlife, conserve resources, protect air quality, and protect lakes and steams (American Forest & Paper Association [AF&PA],1998~. AF&PA board members, like their counter- parts at ACC, decided that public relations alone would not dissipate these concerns. "Credibility can be enhanced only if we have clear behavioral changes and our message communicates this change," the board members noted (AF&PA, 1998: 10~. Public opinion spurred environmental regulation. In June 1990 the U.S. Fish and Wildlife Service ruled to list the northern spotted owl as a threatened species. This decision eliminated timber harvesting from about 9 million acres of land in the Pacific Northwest, the owls' habitat (Bossong-Martines, l999c). In addition to the Endangered Species Act, the Clean Air Act and Clean Water Act have had a substantial impact on forestry companies. Compliance with federal and state environmental regulations has required significant capital spend- ing. Firms have been required to add secondary treatment plants, control plant emissions, reduce the use of elemental chlorine, and fulfill recycling commit- ments. Environmental spending has accounted for about 14 percent of capital outlays made by the U.S. forest and paper industry since the late 1980s, accord- ing to the U.S. Department of Commerce (Bossong-Martines, l999c). As this discussion suggests, codes have been developed by industries that citizens and government perceive are not capable of responsibly managing the unintended consequences of their practices on their own. The challenge to the textile industry's legitimacy has come from a different source: low-cost textile production in developing countries. The major focus of the American Textiles Manufacturing Institute (ATMI) has been to fight for import quotas, tariffs, and trade agreements favorable to the industry. It has enacted numerous campaigns to build public support for textiles and clothing manufactured in the United States its "crafted with pride in the U.S.A." program, begun in 1983, is its longest sustained promotional effort (Morrissey, 1999~. It launched Encourag- ing Environmental Excellence (E3) in 1992 to publicize the environmental ac- complishments of members. The association hoped to use the program to distin- guish members' products from imports that might be produced under less environmentally responsible conditions. Unlike the codes of the ACC and the AF&PA, however, adoption of E3 is not a requirement for membership in the ATMI. Members may choose whether or not to adopt this code, and about one- third of the trade association's members participate. The firms that take part tend to supply customers such as The Gap, Eddie Bauer, and Levi's, which have established codes of conduct of their own (Islam, 1999~. E3 founders believed that demonstrating environmental responsibility to these customers might help, over time, to strengthen their business relationships with these customers.
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JENNIFER NASH 239 The public's negative perception of the chemicals, petroleum, and forestry industries helps to explain the decision of their trade associations to develop environmental codes of conduct. These codes are specifically designed to im- prove the environmental performance of member firms and to demonstrate this improvement to critical public audiences. But why does the public hold these industries in such low regard, while accepting the risks of other similar manufac- turers? The public's relatively high regard of the pharmaceutical industry is a case in point. Pharmaceuticals are nothing more than chemicals specifically designed for human and other animal intake. The pharmaceutical industry has experienced its share of widely publicized problems arising out of unintended consequences. A 1998 study found that more than 100,000 people die each year in the United States as a result of side effects of drug therapies (Lazarou, 1998~. Yet the public's perception of the pharmaceutical industry has less of the nega- tive quality that characterizes its view of the chemical industry, and much less controversy is associated with the introduction and maintenance of drugs than of chemicals.3 The pharmaceutical industry has no plans to implement an industry code because it would not fulfill a perceived need of its members. Members of the public experience the benefits offered by the pharmaceuti- cal industry firsthand whenever their health improves after taking a prescribed medicine. Unlike the pharmaceutical industry, which markets its products di- rectly to consumers, industries that have developed codes tend to be commodity manufacturers. They sell to other firms that process their product into something else. Chemical products, for example, nearly always require further processing before marketing to end-users. Most chemical products go through several man- ufacturing processes, often undertaken at different firms, before final sale (Rees, 1997~. Similarly, many firms in the oil, wood pulp, and textile industries rarely market their products directly to consumers (Bossong-Martines, l999b, l999c). They rely on intermediaries to manufacture their products into forms that con- sumers buy. Public opinion polling by the chemical manufacturing industry has found that many Americans are aware of the risks, but not the benefits, associat- ed with chemical manufacture, even though chemicals are used in the manufac- ture of hundreds of household products. Polling has shown that many Ameri- cans believe they "would be far better off without the chemical industry at all" (Deavenport, 1993:9~. The same may hold true for other commodity manufac- turing industries that have developed codes. Firms in commodity industries tend to assume a collective identity in the public's mind. The problems of one company color public perception of the industry as a whole. Firms in commodity industries are therefore more likely to develop environmental codes, which are intended to improve the public image of the industry as a whole. This observation does not hold true, however, for the textile industry. Textile firms have adopted E3 not to improve the image of the entire industry, but to stand out from their competitors as environmentally excel-
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240 INDUSTRY CODES OF PRACTICE lent in order to appeal to customers for whom strong environmental performance is a business need. The structure of the chemical, oil, and forestry industries offers a further explanation of the emergence of codes. These industries tend toward an oligop- olistic structure, with a small number of very large firms dominating the industry (Bossong-Martines, 1999a, l999b, l999c). These large firms internalize a large portion of the collective reputation of the industry (Olson, 1965~. Large firms are more visible and therefore held responsible for the behavior of the collective. Also, large firms have sufficient resources to cover the relatively high fixed costs of code development. The chemicals, petroleum, and forestry industries have used codes as defen- sive strategies to protect themselves from external interference in the form of public regulation. These industries have faced particular problems interacting with the public because of the high environmental impacts of their operations, public distrust, and an inability to demonstrate the value of the products they manufacture. Firms in these industries have been painted with the same brush of environmental irresponsibility, no matter what their actual performance. They have used codes in an attempt to develop a new public identity based on the values of responsibility, caring, partnerships, excellence, and sustainability. This discussion suggests several hypotheses concerning the conditions that lead trade associations to develop environmental codes. First, industries adopt voluntary codes only if pressed by public opinion or to meet customer demands for strong environmental performance. Second, commodity industries and in- dustries dominated by a few large firms may be more likely to develop codes than industries that market their products directly to consumers or that are made up of small, heterogeneous organizations. Third, codes function mainly to de- flect regulation rather than reduce environmental impact (Harrison, this volume, Chapter 16~. EFFECTIVENESS OF TRADE ASSOCIATION ENVIRONMENTAL CODES IN IMPROVING ENVIRONMENTAL PERFORMANCE Can trade association codes actually lead to improvements in the environ- mental performance of members? Firms that belong to the trade associations that have developed codes have a common interest in fostering public approval and a favorable regulatory climate for their industry. They may have antagonistic interests when it comes to implementing environmental practices that impose costs on their operations. If rational, self-interested managers know that other members of their group are investing in environmental performance improve- ment, they may not make this investment themselves (Olson, 1965~. Do codes promote improvement or provide shields to hide poor performance? In this section, this question is explored through two approaches: by considering what codes, in theory, require firms to do, and by examining empirical evidence.
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JENNIFER NASH Publish performance results Audit performance (a (a A- Set targets o Establish policy Declare commitment 241 RC SFI RDP E3 Product Sustainability stewardship Regulatory Community Pollution compliance involvement prevention Ambitiousness FIGURE 14-1 Trade association codes vary in the ambitiousness of the objectives they establish and their trustworthiness or reliability as guides for action. (E3=Encouraging Environmental Excellence; RC=Responsible Care; RDP=Responsible Distribution Pro- cess; SFI=Sustainable Forestry Initiative.) Establishing Environmental Objectives for Managers A key mechanism by which trade association codes of practice could change environmental performance is by changing the values of managers. Trade asso- ciation codes could change values by establishing new environmental objectives for member firms. Firms that sign on to the Sustainable Forestry Initiative pledge to "promote habitat diversity" and "practice a land stewardship ethic" (AF&PA, 2002b). Firms that participate in Responsible Care must implement a pollution prevention program that achieves "ongoing reductions in wastes and releases, giving preference first to source reduction, second to recycle/reuse, and third to treatment" (American Chemistry Council, 2002b). These objectives, if taken seriously by managers, could change what they consider important and how they act. The environmental objectives embodied in trade association codes can be visualized as a spectrum, as in Figure 14-1. These objectives range from compli- ance with regulation (a requirement for any organization, whether or not manag- ers have signed on to a trade association code) to sustainable business practices. Regulatory compliance is a minimal level of ambitiousness, while sustainability
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242 INDUSTRY CODES OF PRACTICE represents the most ambitious environmental objective for firms. All of the trade association codes listed in Table 14-1 call on firms to practice product steward- ship, an environmental objective near the ambitious end of the spectrum. Prod- uct stewardship guidelines call on firms to extend their responsibility for envi- ronmental protection beyond their fencelines and to oversee the environmental practices of their suppliers and customers. How trustworthy are these trade association calls to action? Trustworthi- ness implies that there is consistency between espoused objectives and manag- ers' actions. Codes vary in the degree to which they require specific practices geared toward achieving code objectives. At a minimum, trade associations simply require that managers declare their commitment to code objectives. The textile industry' s Encouraging Environmental Excellence code requires only that members describe how they have "worked with suppliers and customers to ad- dress environmental concerns" (American Textile Manufacturers Institute, 2002~. The chemical distributors' code, in contrast, specifies that members must "work with end-use customers to foster proper use, handling, and disposal of products commensurate with product risk" and "cease doing business with customers whose practices are inconsistent" with the code (National Association of Chem- ical Distributors, [NACD], 1997:8~. The chemical distributors' code calls for actions that are consistent with stated objectives. It is therefore more trust- worthy than the textile industry's code. The trustworthiness, or reliability, of codes to bring forth action consistent with stated objectives is depicted in Figure 14-1. Declaring commitment, establishing policies, setting targets, auditing per- formance, and publishing performance results correspond to higher levels of trustworthiness. Trade associations provide discretion to members to meet code commit- ments in their own way, at their own pace. Importantly, with the exception of the requirement in some codes to achieve regulatory compliance, codes do not set performance standards. For example, ACC's distribution code requires that companies "implement...chemical distribution risk reduction measures that are appropriate to the risk level" (American Chemistry Council, 2002b). Companies use their own judgment about what constitutes an "appropriate" response. Ensuring Performance Through Trade Association Oversight The role of trade associations in monitoring members' code adoption, and sanctioning members that fall behind, has begun to take shape in recent years. This evolution is particularly apparent for codes in the chemical industry, Re- sponsible Care and Responsible Distribution Process. The ACC board of direc- tors voted to require Responsible Care adoption as a condition of membership in 1989. At first there was no deadline for implementation, and individual mem- bers' progress was known only to a consultant hired to tabulate results for the membership as a whole. In 1996 the ACC board set December 31, 1999, as the
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JENNIFER NASH 243 date when all members were expected to have fully implemented all manage- ment practices. The same year the board decided to disclose the names of firms whose Responsible Care programs were lagging to the board's Responsible Care committee. These firms were contacted by board and staff members and urged to do more. Reportedly, some firms resigned under pressure to improve Respon- sible Care performance. ACC's position is that it has not expelled any members. In 1998, the ACC began to require firms to establish at least one performance goal and to publicly report progress toward meeting it (American Chemistry Council, 2002c). In June 2000 the board decided to rank some aspects of mem- bers' code performance on a scale of 1 to 191 (the number of member compa- nies), and distribute this ranking to its membership (Doyle, 2000~. In 1994, ACC introduced the option of management systems verification (MSV) to ensure that a firm has a system in place to meet code requirements, but not to assess the performance of these systems. For example, an MSV for Responsible Care would ensure that a company had a documented plan for re- sponding to chemical transportation incidents. It would not evaluate the effec- tiveness of the plan. ACC has hired a private consultant, Verrico Associates, to conduct all MSVs for members. Verrico assembles a verification team made up of chemical industry managers and selected external stakeholders. ACC re- quires that the team include a community participant. The team interviews com- pany personnel who have been assembled into panels that combine functional areas. For example, a panel of managers from risk assessment, distribution, and sales might be brought together and asked questions concerning the company's product stewardship activities. ACC's protocol for MSV lists the questions each panel is to be asked. The panel responsible for product stewardship activities, for example, is asked, "How does your company assess risk for existing prod- ucts?" and "How do you track the performance of your customers and review it with them?" The verification team also walks around the plant, randomly inter- viewing employees, and talks with facility neighbors, suppliers, and distributors. Verrico Associates prepares a report of "findings and opportunities" identified through the verification. The report is owned by the company, and managers decide with whom they will share it (ACC, 2002a). MSV is discretionary for ACC members. As of July 2000, approximately half of all members had had their Responsible Care programs reviewed. A recent development in the automobile industry may encourage more chemical companies to undergo verifications. In September 1999, Ford and General Mo- tors (GM) announced that they will require all of their first-tier suppliers to be certified to ISO 14001, the international environmental management system de- veloped by the International Organization for Standardization (ISO). ACC staff members have negotiated with automakers to convince them that Responsible Care is at least equivalent to ISO 14001. Ford remains skeptical of ACC's verification procedures. In early negotiations with ACC, Ford is insisting on having an independent third party conduct an ISO audit. As one possible solu-
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244 INDUSTRY CODES OF PRACTICE lion, Verrico Associates may partner with ISO certification companies for future verifications (Schmitt, 2000~. In response to manufacturers' questions about the environmental practices of distributors, in 1991 the National Association of Chemical Distributors (NACD) launched a program of its own called Responsible Distribution Process (RDP). The system for monitoring and sanctioning established by NACD goes beyond Responsible Care in several respects. For NACD, management systems verification is mandatory, not discretionary. NACD uses third parties rather than industry peers to conduct the verifications. NACD has a history of suspending and terminating memberships for noncompliance, while ACC staff members emphasize that they work with lagging firms to improve their performance. Fi- nally, NACD' s verification system includes an option for review of environmen- tal performance (NACD, 2002b). ACC's review only ensures that a manage- ment practice is in place. Initially NACD required biannual self-assessments from members, the first of which was due on July 1, 1992. The NACD board of directors suspended the memberships of several companies for not meeting this deadline (Morris, 1993), although all of these companies later fulfilled NACD's requirements and re- joined the trade association (Morris, 1995~. In October 1994, NACD began to require companies to mail their environmental policies to Underwriter Laborato- ries, a third-party verifier, to ensure compliance with RDP. The memberships of three companies were terminated in 1995 for refusing to participate (Morris, 1995~. In May 1998, NACD voted to require members to submit to on-site, third-party audits of their management systems by Science Applications Interna- tional Corporation (SAIC). This review went beyond mail-in policy verification by ensuring that code management practices were actually in place. Nine com- panies had memberships terminated for refusing to undergo this on-site review. Although NACD publicly states that it has terminated some firms' memberships, the association refuses to make public the names of these members. The impetus for these requirements came from NACD's membership. Many NACD members were frustrated by the demands placed on them by supplying chemical manufacturers. Contracts signed with ACC members granted manufac- turers free license to audit distributor facilities. Auditing distributors' environ- mental and safety practices is required by Responsible Care. NACD members were encouraged to adopt a unified, third-party auditing protocol to put an end to the logistic problems faced by distributors having to undergo different assess- ment protocols from each one of their suppliers. In addition, NACD chose to form its own auditing protocol, rather than adopt a protocol created by ACC, because many members had suppliers outside of ACC (Morris, 1997~. NACD members are required to undergo verification every 3 years, a cycle that began in January 1999. By April 2000, SAIC had conducted more than 120 verifications. Companies found by SAIC to have deficient management systems are given one year to correct identified problems and pay for an additional rever-
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JENNIFER NASH 245 ification. As of April 2000, SAIC had found that three companies required reverification. Verified companies are granted ownership of SAIC's report. This report usually is not made available to the public. As already noted, management systems verifications ensure that a firm has management practices in place, but do not assess how well those practices are actually working. A group of ACC members has maintained that MSVs do not provide sufficient assurance. These manufacturers have negotiated with NACD to create an additional form of performance verification to be used for distribu- tors that handle particularly hazardous chemicals. The chemical manufacturers that have participated in these negotiations with NACD are Dow Chemical, East- man Chemical, ExxonMobil, FMC Corporation, Shell Chemical, Stepan, and Vulcan Chemical. Negotiations have resulted in a protocol called Site Class Verification (SCV) (NACD, 2002a). NACD staff members explain that ACC members are under pressure to fulfill their product stewardship code, which requires that they ensure that distributors live up to the environmental protection practices of Responsible Care. The SCV process helps manufacturers decide whether a distributor is a suitable business partner. Although an MSV might indicate that a distributor had a documented procedure for unloading hazardous chemicals from trucks, for example, SCV would describe how trucks were actually unloaded at a distributor's facility. The costs of Site Class Verifications are paid by a group of 18 chemical manufacturers. Before establishing or renewing a business relationship, these manufacturers can obtain an SCV report on the distributor's environmental conduct. SCVs, unlike MSVs, are not required by NACD as a condition of membership because not all distributors do business with this group of chemical manufacturers. The programs trade associations are using to monitor and sanction code performance are depicted in Figure 14-2. No U.S. trade association yet requires public disclosure of the results of verifications. Although the textile industry has not established a verification program, planning is underway to put such a pro- gram into place. Empirical Evidence Just as relatively few government-sponsored voluntary programs have been subject to careful evaluation (Mazurek, this volume, Chapter 13; Harrison, this volume, Chapter 16), only a handful of published studies have documented how firms respond to trade association codes. In 1995 a team of researchers explored Responsible Care adoption at 16 mid-sized firms (Howard et al., 2000~. Authors found four general types of responses: drifters, promoters, adopters, and leaders. Drifters were companies that said Responsible Care had little impact on their activities. Changes were limited to documenting existing practices. Promoters, who used Responsible Care mainly to promote a strong environmental reputa- tion to external stakeholders, saw Responsible Care as an adjunct to existing
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246 Mandatory fines Public disclosure Expulsion c' u, Disclosure to peers Peer pressure Introspection INDUSTRY CODES OF PRACTICE ! SFI RDP RC Self- Self-reporting Voluntary monitoring verification by peers Monitoring Mandatory Public review verification by third parties FIGURE 14-2 Trade associations use a range of approaches to monitor code adoption and to sanction laggards. (E3=Encouraging Environmental Excellence; RC=Responsible Care; RDP=Responsible Distribution Process; SFI=Sustainable Forestry Initiative.) Source: Lenox (1999~. environmental programs. It reinforced what they were already doing, but did not cause them to rethink their activities. People in this group spoke of Responsible Care as "formalizing" and "standardizing" what they already did. Adopters were firms that saw Responsible Care as a valuable tool for im- proving their environmental practices. Not only were environmental and com- munications staff handling Responsible Care activities; product managers, de- signers, and marketing staff also were involved. Finally, leaders spoke about Responsible Care being a "whole new way of thinking." They believed that their environment, health, and safety practices were strong prior to Responsible Care, but the initiative offered a way to go further. In these firms, significant resources had been applied to Responsible Care implementation, and senior man- agement took an active role in overseeing it. While noting substantial variation in adoption practices, Howard et al., 2000, also found that a number of practices had been implemented by virtually all of the companies interviewed. The most significant common practice was increased involvement by employees in local community relations. Many interviewees
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JENNIFER NASH 247 expressed the view that interacting with the community was the whole purpose of Responsible Care. A second common response was in the area of distribution practices. All of the participating companies said they now require much more of their distributors than they had before Responsible Care. All 16 companies had put in place an audit system to assess their carriers' safety and handling practices. They require distrib- utors to provide them with documentation of their procedures, and in many cases chemical company employees inspected their distributors' facilities. Several of the firms had offered training programs to distributors, and a handful had ceased to use distributors that did not meet criteria under Responsible Care. Responsible Care's impact on toxic emissions was studied by King and Lenox (2000~. These researchers compared toxic releases reported to the U.S. Environmental Protection Agency's Toxics Release Inventory of Responsible Care firms and chemical firms that do not participate in Responsible Care during the period 1990 through 1996. The authors found that firms that participate in Responsible Care reduce their toxic releases no faster than comparable chemical firms that do not participate. They argue that the lack of mechanisms for observ- ing and sanctioning individual firm performance has led to free-riding by low- performing firms. Although some ACC members are improving environmental performance faster than the norm, a large group is lagging behind, slowing progress for the group overall. The authors conclude that the "commons" being protected by Responsible Care is not the "physical commons" (King and Lenox, 2000:713) of a clean and healthful environment. Rather, Responsible Care is intended to protect a "reputational commons" (King and Lenox, 2000:713) that has been weakened by the industry's past environmental practices. Without the threat of sanctions by informed outsiders, opportunism has eroded Responsible Care's effectiveness. It is important to note some of the limitations of the Howard et al. and King and Lenox studies. Both studies report results from the years prior to ACC's recent attempts to improve its oversight of members' Responsible Care progress. Management systems verifications, introduced in 1994, only recently have be- come common practice. King and Lenox's study only observes changes in toxic releases, while Responsible Care addresses many other aspects of environmental performance. King and Lenox do not attempt to assess those aspects of Respon- sible Care that Howard and colleagues identified as particularly robust com- munity participation and oversight of distributors. Yet the studies suggest that ACC board and staff members have more work to do to ensure that Responsible Care functions as a reliable system of industry self-regulation. Studies suggest that firms adopt Responsible Care in their own way, at their own pace, and that results in terms of environmental performance vary substantially. This discussion of the effectiveness of trade association codes in improving environmental performance suggests two hypotheses. First, effectiveness de- pends on the ambitiousness of the objectives that trade associations set, and the
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248 INDUSTRY CODES OF PRACTICE degree to which the code is designed to foster actions that are consistent with these objectives. Second, effectiveness depends on the strength of trade associa- tion monitoring and sanctioning programs (Herb et al., this volume, Chapter 15~. CONCLUSION: WHERE CODES MAY BE ACHIEVING RESULTS Trade associations have developed environmental codes to demonstrate to critical public audiences that members are voluntarily controlling their environ- mental behavior. Empirical studies of Responsible Care suggest that this code- the most highly developed of all U.S. trade association efforts in environmental self-regulation has failed to reliably improve firms' internal management prac- tices. When it comes to how environmental management is practiced within the plant, Responsible Care appears to reinforce existing norms rather than bring about higher standards. Adoption practices appear to vary substantially, depend- ing on managers' preexisting commitments to environmental protection. Trade associations are in a constant battle for membership and must walk a fine line between being inclusive and commanding minimal standards. The mechanisms they have developed for monitoring and sanctioning laggards have been limited. Trade associations are taking steps to strengthen these areas, but their ability to establish authority over members is uncertain. With the exception of Responsible Distribution Process, which requires external verification as a condition of membership, firms choose whether to have their management sys- tems externally verified. About half of ACC's members have had their systems reviewed, and about 36 of AF&PA's membership have taken this step (AF&PA, 2002a). Those who choose management systems verification own the results and need not share them. When managers of a firm know their environmental performance will not be observed, it may be in their rational self-interest to invest less heavily in environmental performance improvement than their competitors (Olson, 1965~. Studies of Responsible Care adoption suggest that some members are using this code to deflect criticism and hide performance, although ACC's recent steps to establish performance goals and improve monitoring may, over time, change this result. Although managers' responses to Responsible Care vary with respect to internal operations, this code has fostered a fairly uniform response in the ways managers interact with external constituencies. Responsible Care has had a strong impact on managers' oversight of their distributors. One manifestation of this impact is the decision by the NACD to develop an environmental code of its own, based on Responsible Care. This code includes programs to observe and sanction members that are considerably stronger than programs of other trade associations. Chemical distributors know that, to fulfill the requirements of Responsible Care, chemical manufacturers will need to review their distributors' environmental practices. To appeal to these suppliers, and establish some con-
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JENNIFER NASH 249 trot over the review process, distributors have initiated their own program. The NACD example suggests that, as the motivation for developing and maintaining an environmental code shifts from defensive public relations to an appeal to customers, code requirements also may shift. As codes are used increasingly in business transactions, trade association programs for monitoring and sanctioning members' performance may become more common and effective. This discussion suggests that some aspects of environmental performance may be more amenable to private regulation than others. An industry's manage- ment of the environmental practices of its suppliers, distributors, and customers may pose fewer conflicts than its management of its own members. Trade asso- ciations appear to be fostering a system of what could be called lead industry regulation, rather than industry self-regulation. Under a system of lead industry regulation, large firms that internalize a large portion of the collective reputation of the industry, such as members of ACC, establish environmental management practices for the industries and firms that do business with them, such as those represented by NACD. Ford and GM's decision to require their suppliers to become certified to ISO 14001 is a further example of lead industry environmen- tal regulation. A direct and effective sanction is simply to discontinue a business relation- ship. Through its distribution and product stewardship codes, ACC members have used this sanction effectively, and NACD has responded with a code of practice that complements Responsible Care. NACD's sanctioning authority over its own membership is substantially greater than ACC' s. Its members have learned that environmental performance is a component of their business suc- cess, and they may believe they benefit from an environmental code that clarifies customer expectations and reduces transaction costs. Although in the past trade association codes served primarily as defensive measures to improve public opinion and forestall public regulation, codes are now assuming a role in business. Trade associations are adding measures to observe the environmental practices of their business partners, and to sanction, with a decision to do business elsewhere, those who do not live up to their codes. This observation leads to a final hypothesis: Environmental codes may be most effective when large, publicly recognized businesses enforce them on their trad- ing partners. Will stronger monitoring and sanctioning programs lead to better environ- mental results? Lead industry regulation may repeat the problems of the public environmental regulatory system: inefficiency, rigidity, and limitations in scope. Empirical studies of the effectiveness of codes such as Responsible Distribution Process, which incorporate the elements of monitoring and sanctioning still miss- ing from Responsible Care, are needed to assess the role of these efforts in environmental protection. In undertaking this research, it will be important to compare the environ- mental performance of firms participating in trade association codes with similar
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250 INDUSTRY CODES OF PRACTICE firms that do not (King and Lenox, 2000~. Through such comparisons it may be possible to understand the features of codes that do the most to foster perfor- mance improvement: ambitious and trustworthy objectives, or stringent sanc- tioning and monitoring. An additional research strategy would be to take advan- tage of the "natural experiment" (Coglianese and Nash, 2001) of customer mandates for code adoption. Customers of ACC members, for example, are expected to adopt management systems that achieve the objectives of Responsi- ble Care. Researchers could ask whether firms that distribute the products of ACC members achieve higher levels of environmental protection than those that distribute the products of non-ACC firms. Such studies might be helpful to environmental regulators as they consider the role of trade association codes in public policy. Trade associations that require their trading partners to implement code practices are assuming the role of environmental regulators of their supply chain. The success or failure of their attempts to use codes to achieve higher levels of environmental protection could provide valuable lessons to public-sec- tor regulators. Trade association codes of environmental management practice are prolifer- ating and growing stronger. Research has only begun to test the potential of these codes as tools in environmental protection. Understanding the role of trade association codes will become increasingly important as more organizations re- quire code adoption as a condition of business. NOTES 1 These environmental codes were identified in a 1999 survey of trade associations (Nash, 1999). Since that time, several trade associations, such as the National Association of Metal Finish- ers, American Furniture Manufacturers Association, and American Portland Cement Alliance, have shown interest in code development and have begun to launch programs. Other trade associations, such as the Steel Manufacturers Association, have established guiding environmental principles. 2 For a fuller discussion of the codes listed in Table 14-1, see Nash (1999). 3 Additional factors may explain the public's relatively positive view of the pharmaceutical industry despite the risks its products pose. For example, exposure to the risks of pharmaceuticals is voluntary (Slovic, 1987), while exposure to the byproducts of chemical manufacturing is rarely a matter of choice. REFERENCES American Chemistry Council 2002a Management Systems Verification. [Online]. Available: http://www.americanchemistry.com/ [Accessed February 14, 2002]. 2002b Responsible Care General Information. [Online]. Available: http://www.americanchemist~y.com [Accessed February 14, 2002]. 2002c Responsible Care Performance Goals. [Online]. [Available: http://www.americanchemistry.com/ rcperformance [Accessed February 14, 2002].
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JENNIFER NASH 251 American Forest & Paper Association 1998 Sustainable Forestry for Tomorrow's World: 1998 Progress Report on the American Forest & Paper Association's Sustainable Forestry Initiative (SFI) Program. Washing- ton, DC. 2002a AF&PA Member Companies and Licensees That Have Completed or Committed to SFI Third Party Certification. [Online]. Available: http://www.afandpa.org/forestry/ sfi_frame.html [Accessed February 14, 2002]. 2002b SFI Program: A Bold Approach to Sustainable Forest Management. [Online]. Avail- able: http://www.afandpa.org/forestry/sfi_frame.html [Accessed February 14, 2002]. American Textile Manufacturers Institute 2002 E3: Encouraging EnvironmentalExcellence. [Online]. Available: http://www.atmi.org/ programs/e3.asp [Accessed February 14, 2002]. Bossong-Martines, E.M. 1999a Chemicals: Basic. Standard & Poor's Industry Surveys 167(2). l999b Oil & gas: Production & marketing. Standard & Poor's Industry Surveys 167(10). l999c Paper & forest products. Standard & Poor's Industry Surveys 167(15). Bradley, J.F. 1965 The Role of Trade Associations and Professional Business Societies. University Park: Pennsylvania State University Press. Coglianese, C., and J. Nash 2001 Toward a management-based environmental policy? Pp. 222-234 in Regulating from the Inside: Can Environmental Management Systems Achieve Policy Goals? C. Coglianese and J. Nash, eds. Washington, DC: Resources for the Future Press. Deavenport, E.W. 1993 Taking the Fear Out of Chemicals. Speech to National Association of Chemical Dis- tributors Annual Meeting, Laguna Niguel, CA, Dec. 1, 1993. Chemical Manufacturers Association, Arlington, VA. Doyle, D. 2000 Perspectives on Industry Environmental Codes. Presentation at U.S. Environmental Pro- tections Agency workshop, Industry Environmental Codes of Conduct: What Do They Mean for Public Policy? Washington, DC, June 15. Hoffman, A.J. 1995 The Environmental Transformation of American Industry: An Institutional Account of Organizational Evolution in the Chemical and Petroleum Industries (1960-1993). Doc- toral dissertation, Department of Civil and Environmental Engineering and Sloan School of Management, Massachusetts Institute of Technology, Cambridge, MA. Howard, J., J. Nash, and J. Ehrenfeld 2000 Standard or smokescreen? Implementation of a voluntary environmental code. Califor- nia Management Review 42(2):63-82. Islam, M. 1999 Assessing the Role of Self-Governance in Promoting Environmental Responsibility: A Case Study of the Encouraging Environmental Excellence Program at the American Textile Manufacturers Institute. Master's thesis, Technology and Policy Program at the Massachusetts Institute of Technology, Cambridge, MA. King, A., and M. Lenox 2000 Prospects for industry self-regulation without sanctions: A study of responsible care in the chemical industry. The Academy of Management Journal 43(4):698-716. Lazarou, J. 1998 Incidence of adverse drug reactions in hospitalized patients. Journal of the American Medical Association 279(15): 1200- 1205.
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252 Nash. J. INDUSTRY CODES OF PRACTICE Lenox, M. 1999 Industry Self-Regulation for Environmental Performance. Presentation to 1999 Green- ing of Industry Conference, Self-Regulation Workshop, Chapel Hill, NC, November 16. Morris, G.D.L. 1993 Responsible Care: Distributors get on board. Chemical Week, July 7/July 14, p. 45. 1995 Deadlines keep members on their toes; pursuing external verification. Chemical Week, July 5/July 12, p. 60. 1997 Associations confront verification realities. Chemical Week, January 1/January 8, p. 51. Morrissey, J.A. 1999 Making It Happen: The First 50 Years of ATMI. Washington, DC: American Textile Manufacturers Institute. 1999 The Emergence of Trade Associations as Agents of Environmental Improvement. Report prepared for U.S. Environmental Protection Agency Emerging Strategies Division. Cam- bridge, MA: Massachusetts Institute of Technology. National Association of Chemical Distributors 1997 The National Association of Chemical Distributors: The Responsible Distribution Pro- cess. Arlington, VA: National Association of Chemical Distributors. 2002a Comparison of National Association of Chemical Distributors' MSV and SCV. [On- line]. Available: http://www.nacd.com/rdp/msvscv.htm [Accessed February 19, 2002]. 2002b Responsible Distribution Process. [Online]. Available: http://www.nacd.com/rdp/ default.htm [Accessed February 19, 2002]. Oil & Gas Journal 1990 Get off environmental sidelines. Oil & Gas Journal 88(1). Olson, M. 1965 The Logic of Collective Action: Public Goods and the Theory of Groups. Cambridge, MA: Harvard University Press. Rees, J. 1997 Development of communitarian regulation in the chemical industry. Law and Policy 19(4):477-528. Schmitt, B. 2000 Fans root for MSVs, others stay on sidelines. Chemical Week, July 5/July 12, p. 49. Slovic, P. 1987 Perception of risk. Science 236(17):280-285.
Representative terms from entire chapter: