Environmental Protection

Product Stewardship Part 1

Adding governance to your stewardship strategy


The following is the first part in a two-part series that examines the subject of product stewardship. This issue is taking on a whole new significance in light of emerging global regulations based on the precautionary principle and management's push to develop new products in expanded markets. What are the dynamics in play and what strategies are appropriate for a global marketplace? While there is no generally accepted definition for product stewardship, a common theme runs through most descriptions of this concept: whoever designs, produces, sells, or uses a product has a shared responsibility for minimizing the product's harmful impacts throughout all stages of its life-cycle. Implicit in this concept is that stakeholders along the life-cycle have a voice, and that the greatest responsibility lies with whoever has the best ability to affect possible harmful impacts of the product.

The unfortunate real world application of the latter point is that any individual or group can sue the company with the deepest pockets along the product's life-cycle. That view may reflect the most extreme cynicism, but there is also a very real and legitimate matter of business ethics involved with product stewardship. Even if a company is shielded by regulations or case law, there remain fundamental business questions of what is fair, sensible, and consistent with company values and culture.

Most definitions narrowly focus on environmental concerns, but safety and health issues should be fair game in a robust product stewardship strategy, especially if there are concerns that fall outside the domain of government product safety regulations e.g., the Federal Drug Administration (FDA), the Occupational Health and Safety Administration (OSHA), the Department of Transportation (DOT), and the Consumer Product Safety Commission (CPSC) in the United States. Indeed, these "unregulated areas" can cause the greatest concern because companies may not assign clear lines of responsibility and/or oversight is split among groups that may rarely communicate with one another. In addition, services should be included since these can also have significant environmental, health, and safety impacts.

Why is this important now?
Product stewardship concepts have been around for decades, so why should it demand greater attention now? There are six reasons:

Global Regulations -- Global markets also have brought on expanded product and service regulations: the European Union's RoHS (Restriction of Hazardous Substances) and REACH (Registration, Evaluation, and Authorization of Chemicals) are obvious examples. Companies need to be in-sync with regulations on the horizon wherever they plan to market.

The Precautionary Principle -- Michael Crichton, author of State of Fear, in outlining his personal views on environmental issues, contends that, "the precautionary principle cannot be spoken of in terms that are too harsh."1 Some may claim that Crichton's outlook pretty much reflects the current view of U.S. industry and government. But, global market forces are not necessarily following current United States thinking on product stewardship. The precautionary principle applies.

Bottom of the Pyramid -- This concept has been popularized by C.K. Prahalad, the University of Michigan professor who teaches business administration, corporate strategy, and international business. This idea is being embraced by companies who now view the developing world and lower income earners as a vast new marketing territory.2 In essence, consumer needs in poor countries can be serviced profitably by the private sector, and important public purposes can be managed at the same time. But this territory may be strewn with potential political and public relations' landmines if not done properly.

Expanded Markets -- Inspired by companies such as BP (which originally stood for British Petroleum and now stands for the company's marketing program "Beyond Petroleum") and GE (which is now promoting its Ecoinnovation initiative), businesses are ready to use whatever green advantage they may have to leverage new markets. Stuart Hart's recent book, Capitalism at the Crossroads, and Business Roundtable's "S.E.E. Change" initiative are just two examples of this type of thinking. Again, this territory is strewn with potential political and public relations' landmines if not done properly.

SOX -- The Sarbanes-Oxley Act of 2002 places a much greater burden on companies to uncover and disclose potential material issues. Major miscalculations on product stewardship could fall into this category (see the next item).

Expanded liability -- Building the regulatory-required environmental infrastructure cost industry billions, but in the grand scheme of things it did not have a material impact (i.e., in the Securities and Exchange Commission and financial reporting sense) for most companies when spread out over a period of 30 years. Product stewardship issues are another matter -- asbestos is the most glaring example. Plant emissions or landfill contamination issues are mostly local or regional, but product safety issues can literally spread to the far corners of the Earth and create a nearly limitless plaintiff base.

Product Stewardship Tools and Limitations
For environmental concerns, life-cycle assessment (LCA) has been the preferred tool for several decades. Many companies use the Society of Environmental Toxicology and Chemistry (SETAC) model or follow the ISO 1404 standard for LCA. Both are general guidelines since it is impossible to codify all the potential impacts and assumptions. Some companies jumped on these concepts to justify eco-labeling or to prove that their products were greener than those of the competition (e.g., the paper or plastic question we get at the checkout counter). Since the assumptions can dramatically affect the outcomes, both environmentalists and competitors have cried foul in cases where the input variables, assumptions, and methodologies were clearly biased.

Risk assessment methods for safety and health concerns follow, in principle, the same logic as LCA (namely, examining the issues at each step of the product's creation, use, and ultimate fate in the environment.) There are numerous other product evaluation terms that focus on specific aspects or vary somewhat in approach, but all of these assessment and analysis tools share a common thread: professional judgment when evaluating sometimes limited or suspect data. Therein remains the major issue with LCA: The process can easily be manipulated, narrowly focused, and/or rationalized away if unfavorable results are obtained.

Indeed, the problems affecting LCA are not that much different than the underlying issue surrounding the criticism of the U.S. Environmental Protection Agency (EPA), OSHA, FDA, CPSC, and local public health regulations today: The battle over "junk science" versus "sound science." That may seem like a leap in logic, so some historical perspective is essential.

In the early 1970s, public concern and outrage over environmental degradation led to a series of laws that EPA was to implement based on what was necessary to protect human health and the environment without regard to factors such as cost or even feasibility. By the end of the decade, the political climate shifted to include risk-based considerations such as cost-benefit. By the 1980s, the concept of dose-response and other methods were used to assess hazard. Court challenges arose, and soon, mountains of information were required to "prove" that a risk assessment was valid. During the Reagan administration, regulations were required to undergo a Regulatory Impact Analysis and review by the Office of Management and Budget.

By the end of the 1980s, the name of the game was data, and since scientific studies are seldom conclusive, even more data. Several public controversies (e.g., the 1989 Alar scare over the use of pesticide on apples) fueled the notion that unsound science (a.k.a., junk science) was being use by irresponsible activists. By the early 1990s, both sides of any regulatory debate were using claims of scientific uncertainty to their advantage. A turning point was the 1993 decision by the U.S. Supreme Court allowing product manufacturers to exclude evidence that did not meet certain standards for scientific certainty (Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993)). A second key event was the 2001 Data Quality Act, which aimed to ensure the accuracy of government-disseminated information.

Both Daubert and the Data Quality Act shifted the debate from a weight-of-evidence approach used by most scientists in reaching a conclusion to a piece-by-piece examination of scientific evidence. The Bush administration and U.S. industry have embraced this shift under the banner of "sound science." After all, who can argue with sound science? The impact has been profound, but with unintended (or possibly intended) consequences.3

Dr. David Brown, a leading public health toxicologist and colleague, explains: "It is now possible to oppose needed regulation or public health action without even projecting an image of anti-environment or health. By focusing on scientific uncertainty or controversy, one can delay action and do it under the banner of acting responsibly. Even if no uncertainty exists, one can fund scientific studies, which, through the creative selection assumptions and parameters, will likely result in contrasting results or, as a minimum, delays until 'all the results are in.'

This debate over scientific certainty is at the heart of climate change politics. The conclusive results may be decades away, and so the Bush administration has taken little action. Waiting until scientific certainty, however, has led to tragic results in cases such as lead in gasoline, aspirin labeling for Reye's syndrome, mercury preservatives in sequenced infant vaccinations, and cancer from benzidine, vinyl chloride monomer, and dioxin; and, of course, tobacco and asbestos.

These tragic outcomes have been the genesis of extreme public responses in the form of demanding stricter regulations, or in the form of public avoidance behaviors such as skipping vaccinations or refusing to buy certain products because of exaggerated fears. There are consequences of our actions that society hands out based on perceived wrongs. While some are late coming, they will come."4

Eliminating all scientific certainty may seem like a responsible thing for companies to pursue, but as Merck & Co. Inc. found out in an August 2005 jury verdict over VIOXX®, waiting for the last bit of conclusive data can backfire. Much of the $229 million in punitive damages was awarded because the jury felt the company should have disclosed the drug's risks (of which management was well aware) earlier. Merck's shares closed down nearly 8 percent the day of the verdict. Now that is what I call material.

VIOXX is a drug product safety issue, but it has direct implications on product stewardship. U.S.-based companies should not be lulled into believing that "sound science" dictates the regulatory process globally for products and services; the precautionary principle rules in much of the world. Even in the U.S. courtroom, sound science is no guarantee if plaintiffs' attorneys play hardball and know how to work a jury. Indeed, by the time it gets to trial, there is already alleged evidence of harm and, at that stage, emotions and access to deep pockets may trump science.

References

  1. Michael Crichton, State of Fear, HarperCollins Publishers, New York, NY, 2004, page 571.
  2. C.K. Prahalad, The Fortune at the Bottom of the Pyramid, Wharton School Publishing, Upper Saddle River, NJ, 2005.
  3. For an excellent analysis of this subject, see David Michaels and Celeste Monforton, "Manufacturing Uncertainty: Contested Science and the Protection of the Public's Health and Environment," American Journal of Public Health, Supplement 1, 2005, Vol. 95, No. S1, Pages S39-48.
  4. Personal communication with Dr. Brown, 9/23/05.

This article originally appeared in the 11/01/2005 issue of Environmental Protection.

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