Stakeholder Satisfaction

Stakeholder Satisfaction: The Key to Understanding ISO 14001

Anton G. Camarota, MBA
President, AESIR International
email: acamarot@du.edu

(Click here for a biography)

I. Introduction

Since the Rio Earth Summit in 1992, the concept of sustainable development has been unfolding throughout the world. Businesses have recognized that there should be a common goal, not a conflict, between economic development and environmental protection, both now and for future generations. Organizations of all types have been, however, struggling to find a set of practical tools to implement strategies supporting this concept. The ISO 14001 standard provides just such a set of tools.

In 1996, the International Organization for Standardization issued the first standard for environmental management systems (EMS), ISO 14001. This standard provides for elements of an effective environmental management system that can be integrated with the other management systems of an organization. The standard is based on the following concepts:

Establishing a strategic position

Defining an environmental policy and committing to a formal environmental management system;

Designing a plan to fulfill the environmental policy;

Developing the human, financial, technical, and other capabilities to achieve the policy initiatives;

Measuring, monitoring, and evaluating environmental performance; and

Reviewing and continually improving its environmental management system.

The true value of the 14001 standard can only be realized when it is used as a set of practical, certifiable tools to implement an environmental strategy. As with any good overall business strategy, the fundamental focus of the environmental strategy needs to be the position of the firm and its products and services vis a vis its stakeholders.

However, environmental strategies require some special considerations not found in traditional strategic planning processes. Effective environmental strategy implementation requires the definition of proactive stakeholder management processes, which support sustainable development and provide for reconciliation of differing and sometimes conflicting stakeholder interests.

II. Stakeholder Concerns and Sustainable Development

Sustainable development, as defined by the World Commission on Environment and Development, is "development that meets the needs of the present without compromising the ability of future generations to meet their needs. Economic growth provides the conditions in which protection of the environment can best be achieved, and environmental protection, in balance with other human goals, is necessary to achieve growth that is sustainable."

The International Institute of Sustainable Development says "for the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders while protecting, sustaining, and enhancing the human and natural resources that will be needed in the future."

It is thus imperative to understand the different groups of stakeholders involved in the environmental management of an organization. A conceptual framework entitled "The Balanced Environmental Scorecard" illustrates five distinct groups of stakeholders that are concerned with how any organization manages its environmental impacts.

The Balanced Environmental Scorecard (BES) has been derived from the work of Kaplan and Norton at the Harvard Business School. It represents a way to integrate stakeholder management, corporate strategy and vision, and environmental management systems. Construction of a BES emphasizes the management of business activities that correlate to external and internal drivers of environmental performance excellence (see Figure 1).

When they express their vision and environmental policy clearly, management can place environmental issues and investments into a strategic context using a BES. This placement is crucial to ensuring the ultimate success of any environmental management system, which is, in turn, determined by how the organization contributes to the sustainable development of the communities and ecosystems that it impacts.

The groups of stakeholders defined in a BES represent the basic driving forces for any organization. Each group poses special challenges for management, but also provides unique opportunities to obtain competitive advantage. The BES also outlines a framework for organizing the activities of the environmental management systems so they focus clearly on stakeholder satisfaction and proactive issues management.

Financial Stakeholders

The parties who have a primary interest in the financial performance of any organization are shareholders, lenders, and insurers. Each of these groups is concerned that the organization provides an adequate financial return on its assets employed, and that it maintains a positive cash flow to service current obligations and to provide adequate dividends. Insurers are concerned that the organization maintains low financial exposure, minimizing the risk or default or bankruptcy.

There are three basic principles that should be applied to managing financial stakeholders:

The organization should focus on growing sales and increasing profitability

The organization should focus on reducing costs and improving productivity

The organization should focus on keeping asset utilization as high as possible

Figure 1.

The Customers

Customers are an essential component of any business, and are especially important in ensuring the ultimate success of any environmental strategy. Customer perceptions of a product or service are shaped not only by its specific environmental attributes, but also by the reputation of the organization as an environmental leader.

Market research has shown that the environmental properties of products and services, while important in the minds of consumers, mean much less than price, quality, convenience, style, and ease of use. Consumers are also wary of "greenwashing" or false claims about environmental performance. Only about 12% of consumers are willing to pay a premium for environmentally benign products, but fully 52% of all consumers basically don’t care about the environment, aren’t willing to pay any premium at all, and won’t go out of their way to buy "green" products. The challenge becomes to develop products with environmental characteristics that matter a lot to a few people, but just a little bit to most others.

There are three basic principles that should be applied to managing customers:

The organization should develop products that are environmentally benign while maintaining competitive cost, function, style, ease of use, and performance;

The organization should minimize the environmental impacts of product use and disposal; and

The organization should educate the customer about the environmental benefits of products.

Internal Stakeholder

The primary internal stakeholders for any organization are the management and the employees. Both of these groups are concerned with the degree of internal environmental excellence that a firm exhibits. The environmental focus of internal stakeholders is on the processes that create value for customers, produce acceptable financial results, and integrate the organization with the communities, public policy-making bodies, and ecosystems with which it interacts. Internal stakeholders not only need to have a say in developing and implementing these processes, but the overall results of their efforts need to be measured and communicated across the organization.

Pollution prevention and process reengineering are the two primary methods used to refine production processes and minimize environmental impacts at the point of generation. The organization needs to know how much of the different types of resources it consumes in order to produce a given unit of product. Resources include energy, capital equipment, information, people, money, raw materials, water, and supplies. Conversely, the organization needs to know how much waste (hazardous, solid, liquid, and gaseous) it emits per unit of production. Only with this complete picture can the organization establish a meaningful baseline of performance.

There are four basic principles that should be applied to managing internal stakeholders:

The organization should reduce the amount of resources consumed in making a given unit of product;

The organization should reduce the amount of wastes generated from making a given unit of product;

The organization should encourage product and process innovation; and

The organization should measure and communicate the results of these efforts.

Communities and Public Policy

The stakeholders in this area are the local and global communities of humans; the local, state, and federal regulatory agencies; and the community of competing firms. These entities are external to the organization, and so pose a special challenge to management. The key question management must answer with regard to these stakeholders is this: Is my organization an environmentally responsible member of the communities in which it operates?

The fundamental effort with this group of stakeholders is to manage the ongoing relationships in an open and appropriate way. With the community of competing firms, the organization can look for opportunities to form joint ventures, share technology, or develop integrated partnerships and teaming arrangements.

There are five basic principles that should be applied to managing community and public policy stakeholders:

The organization should establish an open communications policy as the foundation for trust;

The organization should use a varied array of communication methods, such as fact-finding, mediation, arbitration, participatory planning, focus groups, and strategic alliances;

The organization should establish a proactive and participatory role in the lives of communities and regulatory rule-making activities;

The organization should establish a process for self-audit and disclosure of environmental aspects and impacts; and

The organization should ensure accurate perceptions of environmental risks posed by its activities.

The Biospher

The stakeholders in this arena are all of the sentient beings of the earth, and the natural habitats that provide for their food and shelter. The overriding consideration for managing these stakeholders was succinctly stated by Aldo Leopold in A Sand County Almanac. He said "A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong otherwise."

These stakeholders pose a dually difficult challenge for management. Not only are they external to the organization, but it is also difficult and expensive to measure the environmental impacts the organization may be having upon them, especially if these impacts are removed in time and space from the organization’s day to day operations.

There is also a current lack of scientific agreement on what constitutes a natural variation in ecosystem functioning, and what constitutes man-made interference, especially for low-level or long term changes.

There are, however, four basic principles that should be applied to managing the biosphere:

The organization should use land in a sustainable manner that preserves naturally-occurring ecosystems;

The organization should engender ecosystem integrity, including maintaining biodiversity, preserving habitats, and optimizing flora and fauna health;

The organization should maintain water quality for drinking, recreational, and wildlife use; and

The organization should maintain air quality.

III.    Managing Stakeholders With the Tools of ISO 14001

The 14001 standard is based on six primary sets of activities that integrate the environmental interests of each stakeholder group as well as set the stage for further interaction among the different groups. These six sets of activities are shown in
Figure 2.

Establishing a Strategic Position

The current position of the organization with regard to the environmental interests of stakeholders should be established by performing an initial review. The initial review is essentially a data-gathering exercise that includes identification of the following elements:

applicable legislative and regulatory requirements;

applicable financial requirements;

environmental aspects and impacts of the organization’s current products, services, and activities;

customer perceptions of the environmental characteristics of the organization’s products, activities, and services;

current performance with regard to internal criteria, external standards, codes of practice, and sets of principles and guidelines;

existing environmental management processes, including procurement and contracting;

feedback from investigations of previous incidents of non-compliance;

opportunities for technology sharing, joint ventures, and strategic alliances;

current community perceptions of the organization’s environmental aspects and activities; and

other existing management systems that could either enable or impede environmental performance.

Once this information is gathered and organized, it can be used as inputs to a positional analysis, which will indicate areas of management priority based on stakeholder concerns.

Defining a Vision and a Policy

The key to defining a comprehensive vision of the organization’s environmental commitment is to include the views, perceptions, and requirements of the stakeholders. This can be easily accomplished by using the results of the initial review to determine the guiding principles and values to which the organization should ascribe. Active communication with stakeholders can help to clarify their interests and perceptions.

Top management should then codify their environmental commitment and values in a documented policy. The policy should be relevant to its activities, products, and services, while taking into account the data from stakeholders. Management should then make this documented policy available to all interested stakeholders, thus ensuring an accurate perception of the organization’s commitment to environmental excellence.

Figure 2.

Developing a Plan to Implement the Policy

Once the policy commitments have been established, management then defines the activities necessary to fulfill the policy commitments. This second analysis is an in-depth utilization of the stakeholder information from the initial review. It is based on the fundamental drivers of environmental change that the organization can control and over which it has an influence.

These drivers of change, and their associated environmental impacts, are prioritized according to the stakeholder criteria obtained from the initial review. Management develops a set of objectives, targets, and programs, which serve as milestones against which the performance of the environmental management systems can be measured. Thus stakeholder management is implemented by establishing a measurable set of performance outcomes.

Developing the Capabilities and Support Mechanism

The focus of this set of activities is on how the objectives, targets, and programs become translated into literal reality. Management defines the accountability for specific actions within the environmental management system, and provides the resources to perform these actions

The actions required by the EMS include reporting on its performance to top management, as well as ensuring the interests of specific stakeholder groups are adequately addressed. Management also creates an awareness of the environmental commitments it has made to all personnel in the organization, thus ensuring motivation to achieve stakeholder interests. This awareness is usually coupled with a training program that is related to the prioritized environmental impacts defined in the planning activities. Each person in the organization is required to know their roles and responsibilities in achieving the environmental policy and satisfying stakeholder interests.

An important EMS activity is establishing communication procedures with stakeholders, both internal and external. The communication program ensures that stakeholder requirements and perceptions are actively monitored, and that management is given the opportunity to positively influence perceptions.

When communicating with lenders, insurers, local communities, and activist groups, it can be especially important to ensure that they understand clearly the environmental risks posed by the organization’s activities and products. A central component of this risk communication can be the description of what emergency preparedness and response procedures are in place to identify the potential for and respond to accidents and emergencies.

An important discipline in improving resource productivity and reducing waste intensity is the management of operations using documented procedures and defined process controls. These two elements ensure that a documented performance baseline is defined, clearly described, and revised when processes change. They give management a disciplined, engineering-based approach to controlling its operations and knowing exactly what happens when the organization moves from its defined baseline. Procedures and process controls ensure that internal stakeholders obtain accurate knowledge related to operational performance.

Measuring and Monitoring Performance

This set of activities implements fact-based decision-making. This type of decision process enables management to avoid the trap of making decisions based on inaccurate perceptions of what is going on, which can often worsen the problems the organization it is seeking to solve. The data gathered and reported internally can also often be used directly for regulatory compliance and financial reporting, as the basis for customer education, and for developing environmental labeling background information.

A key activity supporting performance measurement is the establishment of a records management system. If an environmental incident should occur, this system allows management to recreate the data and perform a root cause analysis, again supporting fact-based decision making and accurate communications to stakeholders. Summary reports can be generated from verified records, ensuring the integrity of reporting and communication activities. Effective records management processes can greatly assist management when they define stakeholder strategies by providing a documented historical record of communications with the stakeholders as well as other relevant information.

Another measurement tool is the performance of EMS audits. The audit reports give management an accurate picture of how ell the EMS is fulfilling its function and managing stakeholder interests, and provide an "early warning" system before significant issues arise that could negatively impact stakeholder perceptions and fulfillment of stakeholder requirements.

Reviewing and Improving the Systems

In order to close the EMS loop, management reviews the EMS performance at predefined intervals. These reviews look at the internal strengths and weaknesses of the EMS, as well as the opportunities and threats resulting from the changing perceptions and requirements of its external stakeholders. This review can result in a complete revision of the original set of stakeholder data based on what information the EMS has generated. The fundamental concept underlying this exercise is that it re-establishes the strategic position of the firm, and sets the stage for possible revision of the policy, development of new plans, and movement around the circle of continual improvement. The review is the essence of proactive stakeholder management, as it requires a redefinition of stakeholder requirements and perceptions at regular intervals.

IV.    Putting It All Together – The Monsanto Case Study Example

The Monsanto Corporation is one of the world’s largest producers of chemicals and pesticides for agricultural and home use. Recently, the CEO, Robert B. Shapiro, stated the company has realized the sustainable development is the fundamental business strategy for the coming years. His company is busy inventing new businesses around this strategy, because he realizes that this is the only way to ensure the continuance of company operations in the long run. He realizes that unsustainable use of finite resources, generation of huge amounts of waste due to inefficient production processes, and general disregard of the limits of the biosphere are paradigms no longer suited to modern day business operations.

Monsanto is developing a new series of genetically engineered crops that produce proteins specifically designed to repel insect pests. The company realized that less than 5% of its pesticides were reaching their intended target, and most of what was being produced during the manufacturing and distribution processes was wasted. The company chose to use this life-cycle thinking and replace the production of goods with the production of information, in the form of genetically coded plants that would produce pest repellent chemicals as part of the natural growing process.

Monsanto has implemented seven sustainability teams to develop methods, processes, and systems that integrate sustainable development into the operations of the company. Three teams are working internally to develop tools and methodologies to assess, measure, and provide direction for internal management. Three teams are looking externally to identify sustainability needs that Monsanto might address. The seventh team is developing communications materials and training programs for stakeholders.

The first of the internal teams, the Full-Cost Accounting Team, is developing a methodology to account for the total cost of making and using a product during the product’s life cycle, including the true environmental costs associated with producing, using, recycling, and disposing of it. The results of this team’s efforts will be used to report to financial stakeholders.

The second internal team, the Index Team, is developing criteria by which business units can measure whether or not they are moving towards sustainability. Business units will be able to track the sustainability of individual products and of entire businesses. These measures are applied to a wide variety of stakeholders, including financial, customers, internal management and employees, regulators, communities, and the biosphere itself.

The third internal team is the Eco-Efficiency Team. This team is mapping the business processes of the company’s operations and determining process efficiency with respect to the environment. The team looks at what inputs are consumed, what value is produced, and what outputs are generated in all business units. The focus of this team is to optimize the processes and balance the inputs, outs, and value produced to satisfy regulatory, community, ecological, and customer interests while lowering operational costs. Thus this team’s efforts positively impact each group of internal and external stakeholders.

The first external team, the New Business/New Products Team, examines what will be valued in a marketplace that is increasingly selecting products and services that support sustainability. The team balances customer needs and biospheric integrity, imagining how Monsanto’s technologies could meet human needs while sustaining and even repairing the ecosystems it impacts.

The second external team, the Water Team, is looking at global water needs and defining what can be done to provide solutions that ensure the integrity of water supplies for human consumption. This team looks to balance community and biospheric interests.

The third external team, the global Hunger Team, is studying how Monsanto might develop and deliver technologies to alleviate world hunger. This team’s efforts have been a core goal of the company for a number of years. Monsanto has been studying how it might use its agricultural skills to meet people’s nutritional needs in developing countries, thus integrating customer, community, and public policy stakeholder interests.

The final team, the Communication and Education Team, is developing and presenting training to Monsanto’s 29,000 employees worldwide. This training is focused on instilling environmental awareness and ensuring a common perspective among all employees and managers, and draws on the results of the other team’s efforts. The training focuses on what sustainability means, how each employee can play a role, and how they can take their knowledge to key audiences outside the company. Thus the interests of employees, managers, communities and special interest groups, and customers have all been addressed by this team’s efforts.

V.    Conclusion

Stakeholder management is a central activity within any environmental strategy. Increasingly, business leaders around the world are recognizing the importance of developing an environmental strategy that supports sustainable development and integrates stakeholder issues, concerns, and requirements.

The ISO 14001 standard for environmental management systems offers a set of practical and certifiable tools to implement stakeholder management processes, and to ensure stakeholder satisfaction. As business moves into the Information Age, this set of tools will emerge as the dominant management technology supporting a sustainable global economy.