Managing ISO

Market forces may react harshly to companies that claim ISO 9000 registration yet deliver poor quality goods and services. For companies that will also seek registration of their environmental management systems, there is another concern: that troublesome audit findings will attract regulators.

With such high stakes, it is unclear whether U.S. companies will embrace ISO 14001 registration for environmental management systems, which many experts herald as the next great management wave after ISO 9000. And even companies that are not reticent due to liability concerns may hold back on ISO 14001 registration until major customers ask for it, as was the case with quality system registration.

With ISO 14001 registration, purchasers will be assured that a company has a management system to achieve its environmental objectives and targets, and a structure to help it improve the management system through corrective and preventive actions and training.

Registration could also tell the U.S. Environmental Protection Agency about environmental problems and the steps companies have or haven't taken to correct them. As a result, experts predict, many U.S. companies may be unwilling to consider registration if there is even the slightest risk that sensitive audit findings may wind up in the EPA's hands.

"Most companies fear what the EPA can do with this series of voluntary standards, but there are ways that the EPA can put a positive spin on ISO 14001," observes Ira Feldman, former special counsel for the EPA's Office of Compliance and a key delegate to the international committee charged with developing ISO 14001 and related documents.

While ISO 9000 standards are intended to provide assurances that companies have a system in place to control the quality of their products and services, ISO 14001 will provide assurances that companies have a general policy that addresses, among other things, prevention of pollution and compliance with all relevant laws and regulations.

"Companies that commit to ISO 14001 are committing to implementing a superior level of environmental management," says Feldman. "Indirectly, that ought to translate into increased levels of compliance."

Joe Cascio, an IBM attorney who heads the U.S. delegation to the international committee, acknowledges the concerns. Even Big Blue, which estimates it would not have been able to bid on about $3 billion in contracts in recent years had it not attained multiple ISO 9000 registrations, is holding off on ISO 14001 registration until it senses a market demand.

From a legal standpoint, "the fundamental concern, of course, is any time you do an audit, you uncover information and you create a record," explains Cascio. Experts say, however, that a failed audit will not necessarily result in a negative record.

"It's conceivable that the registrar may make comments about the existing management system, comments that might indicate that it's not sufficient, that it's not up to par," says Cascio. "If a company doesn't get registered, you don't create a negative report on that situation. They just don't get registered."

Meanwhile, EPA officials appear to be cognizant of the concerns of U.S. companies and are taking a proactive approach in the development of ISO 14001 and related documents. They say companies seeking ISO 14001 registration will be no more vulnerable to regulators than companies that do nothing. Registration may even increase the likelihood of regulatory compliance.

"We feel that all of the 14000 series standards may be good tools that the agency could use in voluntary programs that we've already implemented," says Mary C. McKiel, special assistant in the EPA's Office of Pollution Prevention and Toxics. She is one of eight agency representatives who participated in the standards-writing process.

ISO 14001, now undergoing final approval by the International Organization for Standardization, may be published as early as July 1996. U.S. officials are even considering adopting a national standard based on the draft. Such a move would ensure that U.S. companies would have the opportunity to be among the first registrants to hold ISO 14001 registration once the final standard is issued.

The EPA probably won't incorporate compliance to ISO 14001 as part of any current or future regulations, says McKiel. But EPA officials already have identified ISO 14001 as a potential tool for use in a pilot test to assist consumers and industry in identifying a systematic approach to environmental compliance issues. The program focuses on compliance and reporting requirements.

"We think [ISO 14001] is going to be a very useful thing," adds McKiel, who recently was elected vice chair of the U.S. delegation. "Even if you take us out of the equation, it's going to be useful to whomever wants to adopt this approach."

Feldman, who is now vice president of Capital Environmental, a consulting firm affiliated with Howrey & Simon law firm, advocates allowing companies that attain ISO 14001 registration and take other proactive measures to obtain preferential treatment from regulators in the form of regulatory flexibility and enforcement discretion. He agrees that even with existing regulations, companies will not face any additional enforcement exposure as a result of ISO 14001 registration.

"The benefits of implementing that kind of comprehensive environmental auditing system is to find problems before they have the chance to become major violations," says Feldman.

At least in the short term, European companies may have the most to gain by seeking third-party registration to ISO 14001. It appears likely that the European Union will recognize the international standard as an acceptable method of demonstrating compliance with its Eco-Management and Audit Scheme regulation, a voluntary program that includes implementation of a formal environmental management system and auditing procedures.

Participation in the program entitles companies to register a site on an EU-authorized list of participating sites and to use an EU-approved statement of participation and logo to publicize its participation. In the absence of a similar incentive, it is questionable whether U.S. companies should begin pursuing ISO 14001 registration, according to Joel Charm, another U.S. delegate who worked closely on ISO 14001.

"Very few companies are going to rush to third-party registration," explains Charm. "I think that the ISO 14001 specification standard will serve as a model, but in terms of third-party registration, that's going to emerge only over time in the United States, and it will only be if the marketplace and the customer really want that from a U.S. business."

U.S. companies may find that becoming compliant with the standard will make good business sense, says Christopher Bell, an attorney in the Environmental Practice Group of the Washington, DC, law firm Sidley and Austin.

"Most companies should have environmental management systems because they will be more likely to identify and meet their obligations," says Bell.

In addition to the United States, delegates from more than 40 countries, including Canada and Mexico, are participating in developing ISO 14001. The development of ISO 14001 is consistent with an overall trend in business to focus on management systems, according to George Connell, international chairman of the standards-writing committee. In the future, he says, companies may be given the choice of complying with national environmental requirements or the international standard.

"I'm sure they will find it much simpler over time to cope with what could otherwise be seen as technical barriers to trade if they become part of the worldwide harmonized approach," he says.

Since the new standard may have implications for regulatory compliance, many experts predict it has the potential to eclipse quality system registration in the years to come in terms of sheer market appeal.

A recent survey of ISO 9000 registrars in the United States found mixed interest in ISO 14001 registration, at least for the time being. The survey, conducted by industry newsletter "Quality Systems Update," reveals that 66 percent of respondents believe that fewer than half of their registered clients are currently interested in ISO 14001 registration. The respondents accounted for approximately 83 percent of the 7,000 ISO 9000 registration certificates in the United States at the time of the survey.

The firms were divided about whether they could foresee any circumstance in which the findings of an ISO 14001 audit might be made public. But there was an overwhelming consensus that any regulatory violations that turned up should be brought to the attention of company management.

Some foreign governments are considering accepting third-party registration as an optional way of demonstrating compliance with environmental permitting requirements. And in some cases, purchasers may look to third-party registration as one indication of a supplier's commitment to environmental excellence.

In fact, major purchasers may seize upon ISO 14001 registration as a way of minimizing their own liability for suppliers' environmental woes. But make no mistake; the degree that the ISO 14001 document focuses on environmental performance has been one of the most contentious issues during the standard's two years of development.

Europeans seeking to have the document approved by the European Union as acceptable for meeting EMAS requirements strongly lobbied for the incorporation of performance-oriented requirements. But the United States and other delegations won approval for a more conservative approach to continual improvement based on a belief that ISO is not the appropriate forum for such work. The United States has maintained that the management system standard should focus on a framework that allows companies to identify, manage and meet performance objectives.

As with the ISO 9000 phenomenon, there is a danger that companies will fall prey to bad advice with respect to implementation issues.

"One of my major concerns . . . is basically the possibility that companies of all sizes will buy services they don't need from third parties," says Bell.

In fact, many companies probably already have elements of an environmental management system in place, he says.

"The thing that companies, especially the small to medium-sized companies, ought to be doing is taking a close look at their existing programs and policies," explains Bell. "Most companies have some kind of training program and policies in place.

"My recommendation to most companies is work from the inside out. Figure out all of the systems that you have in place, not just the environmental ones. Then see how you can take full advantage of your existing systems."

The biggest problem for small to medium-sized companies will probably be lack of information.

"Despite the ability for anybody to use the standard, it still takes a certain amount of effort and focus," notes Cascio.

Companies already registered to ISO 9000 should have an easier time making the transition. The reason? ISO 14001 shares common management system principles with ISO 9001, one of three standards used for quality system registration purposes.

It seems that companies will have the option of undergoing a single third-party audit to register both their quality system and environmental management system at the same time. Companies that already have attained ISO 9000 registration should strive to integrate their quality management system with their environmental management system, says Charm.

"The last thing a company should do is create parallel management systems that do not integrate one with the other," says Charm. "Companies that are ISO 9000 certified and are also subscribers to other voluntary programs, such as Responsible Care in the chemical industry, should be looking to a totally integrated approach."

About the author . . .

Paul Scicchitano is senior editor of "Quality Systems Update," a monthly newsletter and information service by Irwin Professional Publishing devoted to ISO 9000 and ISO 14000 issues. He also is a contributing editor to Quality Digest. For more information, write to 11150 Main Street, Suite 403, Fairfax, VA 22030-5066; telephone (703) 591-9008; fax (703) 591-0971; or e-mail isoeditor@aol.com