Above and beyond

A surprising number of companies are finding it makes business sense to go beyond government regulations.

When shoppers check out the salmon on sale at their local Costco, the wholesale giant would like them to know that the fish is free of Malachite Green. That may help reassure consumers. Although the United States has set limits on the amount of the fungicide in imported fish, it doesn't always test for it.

So after inspectors in Europe discovered Chilean salmon with traces of Malachite Green (also used as a fabric dye), Costco began testing on this side of the Atlantic. The company has yet to find anything that would exceed US allowances. It just prefers to err on the side of safety.

"In our code of ethics as a company, the very first thing is 'We'll obey the law,' " says Jeff Lyons, vice president for fresh foods for Costco, in Issaquah, Wash. "If nobody's checking, that doesn't matter. Once you're informed, you need to act."

Action has meant pushing its suppliers in Chile to set up new testing protocols.

The firm's experience, some experts say, reflects a gradual move toward businesses setting environmental standards around the world. Taking a self-regulatory approach - alone or in groups - some firms have begun to wrestle with issues that governments and other bodies have been slow to address.

"A lot of consumer-oriented companies are likely to really be concerned to make sure that they have a reputation for integrity," says Virginia Haufler, a professor of government and politics at the University of Maryland, in College Park. "And that may mean that they do things that aren't necessarily forced upon them by government."

Historically, corporate behavior around the world has been something of a free-for-all. More recently, some international groups have set standards, but they're voluntary. That's why actions from individual companies are helping to set higher standards than current laws require, some experts say.

Going the extra mile

A surprising number of companies are going the extra mile. For example: Of 89 large US firms - all from the Standard & Poor's 500 - involved in manufacturing or "extractive" industries, nearly 60 percent adhered to an internal standard more stringent than those of the countries where they operated, according to a study published in the journal Management Science in 2000.

The survey also found that firms that took a harder line had notably higher market valuations than those willing to exploit regulatory loopholes.

On the other hand, all the firms surveyed ran operations abroad - typically in countries with environmental laws weaker than those of the United States.

"You can't always guess what their motives are, but we definitely have a movement among most responsible companies to try to maximize the greatest positive good that they can do, as well as stay competitive and make a profit," says O.C. Ferrell, codirector of the Center for Business Ethics and Social Issues at Colorado State University.

When price and quality are perceived to be equal, consumers increasingly opt for the products of com- panies they perceive as highly ethical, says Mr. Ferrell. Employees at such firms tend to be more loyal.

"Shareholders and investors are now looking at these issues [too]," he adds. "Reputation and ethics are components of the value of a stock."

Better behavior can pay in other ways. US facilities accepted for membership in a program launched by the Environmental Protection Agency in 2000 earn a looser leash from the agency where their US operations are concerned. Currently, 309 facilities, run by about 180 firms, belong to the EPA's National Environmental Performance Track program. Companies include Johnson & Johnson, International Paper, Pfizer, 3M, and Motorola.

Measurable improvement

The number of applications for the program has increased steadily, says Dan Fiorino, the program's director. To qualify, a facility needs a working environmental- management system and to demonstrate "measurable improvement" toward environmental goals. It must also report regularly to its host community. In turn, Performance Track members become a low priority for inspections.

"It's more of a shared regulatory approach, where the EPA's still there and asking [firms] to do certain things, but we think that, given their qualifications and accomplishments, we don't need to exercise the same close degree of oversight," says Mr. Fiorino.

Broadly speaking, at least some degree of official oversight of corporations will continue to be needed, some experts say. Forays into self-regulation by Internet companies (on consumer privacy), the alcohol industry (on marketing to youths), and the brokerage industry (on disclosure) have met with mixed results in the past few years.

And overseas operations ratchet up the potential for abuses. Whether firms that pass muster with the EPA in the US, for example, project their good citizenship abroad remains an open question.

"I know that a number of companies have a policy that in their overseas operations they will follow US environmental and occupational standards," Fiorino says. "Some have a policy that they'll follow either the home country or the US, whichever is more stringent," he adds. "[But] I don't know if anybody's really tested it."

Voluntary standards

What international standards do exist are voluntary. A set of principles set up by the Organization for Economic Cooperation and Development, comes closest to a single comprehensive agreement, says Professor Haufler, who specializes in multinational corporate activities.

She notes that the declaration has been strengthened in the past couple of years by OECD member nations, with some oversight and monitoring added. "But it isn't like national law," backed by police and a judiciary, she adds.

Other standards apply. For example, guidelines endorsed by the International Organization for Standardization, a nongovernmental group based in Geneva, aim to keep terminology, specifications, and environmental-management practices consistent worldwide. They have long been observed by many industries. But certification remains voluntary.

Economics does push companies to maintain similar standards around the globe.

"In general, it pays a company not to have totally different facilities in different places in the world," Haufler says. "That may mean that when a company sets up a new factory in a country that doesn't have very high environmental standards, it's not necessarily going to design a low-standards factory. And that's a way of exporting environmental standards, simply by design.

"There's also evidence on the other side," she cautions. The maquiladora factories that produce goods for US firms from just across the US-Mexico border haven't always been the cleanest-operating facilities, she notes. "It's not clear to me that we're exporting higher standards in that case."

Others are more pointed in their criticism. "Big, mainstream firms are not cleaning up their act" for altruistic reasons, says Paul Hawken, author of "The Ecology of Commerce" and a proponent of what he calls natural capitalism, an eco-friendly style of global commerce.

"After Bhopal [site of the 1984 Union Carbide chemical leak in India that killed thousands], many companies decided that lower standards [in foreign countries] did not really work for them from a legal liability point of view," he says. "I think that most of the cleaning up has to do with consumer pressure and potential liability [and] very little to do with proactive concerns."

Pressure by consumers, investors, and activists has indeed become more focused in recent years. Toys, athletic wear, and textiles are industries that are coming under the most pressure on environment and labor issues.

Pressure to be better

Industries may be responding to that pressure. In Britain, the International Council of Toy Industries recently established the first industrywide workplace code of conduct for toy manufacturers. It will start conducting audits this month to ensure compliance with the standard.

"You do see a number of examples of a group of companies getting together to establish standards for labor or the environment or both together," says Haufler. One bugaboo: subcontractors abroad numbering in the thousands.

"It's a very complex undertaking to think that you could enforce some kind of voluntary standard across that many subcontractors," she adds. "But a lot of companies are committing to do that. There's a lot of evidence that they fail a lot of times, but there's also evidence that they've made a genuine effort."

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