Harvard/Georgetown University Study on EPA Self-Audit Policy

One of our readers made the comment that a recent Harvard/Georgetown University study on EPA’s Self-audit Policy shows that it may not be good for all companies. 

Below is a brief summary of the Harvard/Georgetown findings from the reader’s website:

“Our results … demonstrate that Audit Policy participants with clean past compliance records improved their environmental performance by reducing their accidental releases of toxic chemicals to the environment.  We also find that regulators rewarded these effective self-policers with an inspection holiday.  By contrast, bad apple self-disclosers did not improve their performance compared with similar non-disclosing firms.  We find no evidence that regulators altered their scrutiny over these ineffective self-policers.

… it turns out that regulators are quite adept at … sorting the good apples from the bad.  We found that regulators had accurately parsed these two groups of self-disclosers, rewarding the former but not the latter with inspection holidays.

… self-disclosing firms on average reduce the number of abnormal events resulting in toxic chemicals being released to the environment.”

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My comments on this study are as follows:

The study is flawed in its basic premise. It presupposes that a company undertakes the self audit because it expects an “inspection holiday” AND improved performance. Quite the contrary – the MAIN focus and reason for a company to go the self-audit route with EPA is to secure substantial penalty waiver and avert possible criminal sanction in the face of uncovered environmental violations. The subsequent improvement in environmental performance is a natural byproduct and bonus as a result of the remedial action following the self  disclosure.

The study also finds out that “self disclosing firms on average reduce the number of abnormal events”. Well – the reason is very simple. They have few is because they perform audits! They discover small problems before they become major abnormal events. Nothing new here. That’s why people do environmental audits.

As to the “inspection holiday” – you do not need a Harvard study to discover that a regulatory agency carries out more inspections on the bad apples. It is common sense and it happens in the real world. Agencies generally do not waste their limited resources on good apples. Why would they?  They can get a much larger return by going after the dirty companies. Again, nothing new here.

 

On the advice of legal counsel?

The Director of a big box store called me the other day and asked me an interesting question: “When customers return merchandise to my store, do my staff at the customer service counter have to determine immediately if the merchandise is a hazardous waste?”

His legal counsel told him that he has to! He wanted another opinion.

Here is what I told him. NO! It is unreasonable to expect the customer service to determine if the return merchandise is a hazardous waste immediately. The store has several options when it receives a returned merchandise. It can put it back in stock for future sale. It can return the goods to the manufacturer. It can donate the merchandise to charity. Or it can dispose of the returned goods as regular garbage or hazardous wastes – depending on the characterization.

The store needs to makes the hazardous waste determination only at the time when it decides to dispose of the goods. This is commonly referred to as the “point of generation”.  Any time before that “point of generation”, the returned merchandise is not a RCRA “solid waste” and therefore it cannot be a hazardous waste.

So the store can take a reasonable amount of time to determine the final fate of the returned merchandise before it needs to characterize the merchandise as waste. The store can take the returned merchandise back into a store room and make the determination properly. The customer service personnel should not have to make the hazardous waste determination immediately upon receipt of the merchandise becasue it may not even be a waste at all. It should mark the merchandise as “pending determination”.

For the reasons stated above, I disagree with the store’s legal counsel.  

Is the legal counsel’s advice similar to the advice of the fire insurance underwriter who wants his client to operate its facility under 5 feet of water so that it would never catch fire?

Working with your attorneys

As an environmental professional, due diligence should be an important part of your activities. Due diligence inevitably involves legal liability issues. You will need to work with your attorneys on this. Attorneys can be your best friend or your worst enemy – depending on the approach you take with them. 

Do not let anyone tell you that because you are not an attorney, you cannot talk intelligently about environmental liabilities. You do not need a degree from Harvard Law School to understand that falsifying records under the Clean Water Act is a crime – big liability there! You also don’t have to be an auto mechanic or mechanical engineer to drive a one-ton SUV. 

As in the case of hiring consultants, don’t hire big law firms to work on small legal cases. If you do, you will end up paying $200 per hour for some young lawyer to learn on the job under the supervision of a $400 per hour law partner. In most big corporations, it is the in-house counsel who chooses which outside law firm to retain. But that does not mean you should cede your role and responsibilities entirely and turn your case over to your legal team. You should work very closely with the legal team since you are the environmental manager and you know all the underlying facts about the case. Insist that you be involved in the discussions of strategies. Remember – you not only know the technical issues, you also know the folks at the agency.  Since legal strategies inevitably involve relationships between your company (represented by you) and the agency, it makes good management sense that you be involved in the discussions. If you don’t insist, you will be relegated to a mere “technician” – a “janitor in a suit” in the eyes of your legal counsel. 

The best way to ensure a meaningful role within your legal team is to develop a professional rapport with your in-house counsel. You do that by keeping your company attorney up-to-date on pending environmental issues at your plants. Don’t call your attorney only when you have a big legal problem. Invite the attorney to visit your plant before problems arise. 

Allow me to relay a funny but sad story during my previous life with a multi-national corporation. I attended a meeting at a large law firm with several of my vice presidents. This was one of those law firms with inter-floor spiral staircases, marble flooring, mahogany panels and corridors that resemble a fine arts museum – all paid for by their clients. One of the VPs made the mistake of asking a law partner a simple environmental question. The law partner jumped on it right away and said:”Let us do some legal research on it and we will get back to you”. A month later we received an invoice from the law firm for 14 hours of “legal research” (at $300 per hour). I was horrified and faxed a short paragraph to the law partner requesting that he send us the results of his “legal research” and cease work on any further research. Not only did we not get the “research” results, we received an additional invoice for $75 (minimum charge unit of 15 minutes) for reading my fax.

A true story.