March/April 1992
Environmental regulation may be a fact of life, but that doesn't mean regulatory orders are written in stone. Executives of a West Coast scrap processing firm that successfully negotiated site cleanup requirements with state regulators offer advice on how others can do the same.
BY RALPH MILLER AND NORMAN D. WEBB
Ralph Miller is president of the MMI Group (Portland, Ore.) and its subsidiaries, including General Metals of Tacoma Inc. Norman D. Webb is environmental manager and assistant to the president of the MMI Group.
While scrap recycling plays an important role in preserving world resources and the environment, there are environmental risks to this business. The potential presence of polychlorinated biphenyls, asbestos, and oil in scrap materials; the processing of heavy metals; the possible need for storm water runoff treatment; and the generation of residual wastes in the recycling process are common concerns not only of the industry, but also of legislators, regulators, and the public.
Some scrap plant operators just sit and wait ... and worry about environmental issues, apparently hoping that answers will just be handed to them and that regulators, neighbors, and activist groups will never visit them calling for action. But the visits are inevitable. And with the visits come the prospects of new regulatory requirements.
Scrap recyclers need to accept the fact that environmental standards will continue their escalating stringency and that the remediation of past practices, the development of new management and plant practices, and compliance with present and future environmental regulations are now routine costs of doing business. They do not have to resign themselves to letting the rules fall as they might, however. In fact, those that simply sit and wait for the fatted calf of environmental solutions may end up blindsided by the regulatory bull.
Scrap companies can have a say in how they're regulated. General Metals of Tacoma Inc. (Tacoma, Wash.) recently demonstrated this when it negotiated a site remediation order with the Washington Department of Ecology. It all started in 1986, when the Ecology Department conducted an inspection of the 26-acre scrap metal processing plant. The seemingly innocuous inspection—which centered on collection of a number of soil and water samples for laboratory analysis—resulted in a state-mandated cleanup order.
General Metals didn't take the order lying down. The company spent four years and $1.4 million in consulting, legal, and lab-testing fees to negotiate remediation requirements it could live with. The end result was a court-approved consent decree calling for site remediation and upgrade measures that will cost the scrap processing firm approximately $8.6 million between 1991 and 1995.
The process worked for General Metals because it approached the deal as a business opportunity much like a corporate acquisition, employing substantial capital, sound techniques and skill, and a well-thought-out purpose to negotiate settlements.
Preparing for Negotiations
In business/government negotiations of this type, the government entity often has a strong opening hand and can be unwilling—or unable—to be flexible in the interpretation of its rules and regulations. Nevertheless, many agencies do have discretionary power, which can work in your favor if you're willing to take an active approach. This discretionary power can backfire—exposing your company to increased financial hardships—however, if you allow your emotions overrule good sense or underestimate the agency's control. Therefore, as in any negotiation where large amounts of money and the future of the company might be at stake, careful planning is vital.
The following are some of the most important preparations in the negotiation process.
Set the tone. Negotiating with environmental regulators is as much of a business activity as negotiating the acquisition of a company, and, therefore, should be approached in a business-like manner. The normal functions of planning, execution, and review apply. With so much at stake, now is the time for cool reason instead of emotional reactions.
Get to know the regulators' goals. What does the regulatory agency want? In a word, compliance. But regulators may have other objectives in the negotiation process. For example, they may be seeking creation of a public record that demonstrates to any person, company, or organization that they are doing their jobs properly. Or, they may want to complete negotiations before agency quota deadlines. Or, they may want to keep an operation open because of its importance to resource conservation, while, at the same time, ensuring that the plant is in compliance and serves as an example for other industry members. Understanding the scope of the regulators' intentions is vital to conducting appropriate research and planning.
Establish your goals. Developing a negotiating plan is similar to putting together a business plan, both of which require objective goal-setting. Your strategies should reflect the requirements of the environmental rules as well as the needs of the regulators and your business. They should encompass such matters as the scope of the agreement, the time period allowed for remediation, the cost of remediation, and the technologies to be employed. These can then be broken down into a variety of subgoals covering administrative, technical, and legal details.
How do you know if your goals are on target? One way is to obtain copies of relevant settlements that the agency has negotiated in the past and compare them to your situation. This is particularly important if the agency strives to insert standard requirements in all orders, as some agencies do. Another key to evaluating your goals is to consult other scrap firms and the Institute of Scrap Recycling Industries (Washington, D.C.). These sources can also be helpful in developing creative, site-specific strategies, which are often essential for achieving a settlement satisfactory to both the agency and your business.
Understand the process. Many business executives are inexperienced in dealing with large and powerful government agencies. Too often, top managers lack sufficient knowledge of the rules and the regulatory process and send—or lead—their bargaining team into negotiations bellowing and snorting in a manner that disrupts the process and could lead to a unilateral agency order with more severe requirements than the one they could have negotiated.
If you're to avoid fatal errors during the negotiating process, therefore, you must put aside emotional reactions to the perceived unfairness of the situation and learn how the agency functions. For example, it is important to realize that you won't be the only one with legal representation; state regulatory agencies will likely be represented by an experienced environmental attorney from the state attorney general's office, while attorneys from the U.S. Department of Justice frequently represent the Environmental Protection Agency (EPA) and other federal agencies.
Another key point to remember about the process is that there is usually a time limit set for the negotiating process. The limit may be stated in the agency's original complaint or order, but it might simply be buried in applicable regulations on the books.
Organize your team. Your goals and the scope of your case will determine the specific composition of your negotiating team, but it should generally consist of management, technical, and legal representatives. On the management side, your team should include your environmental affairs manager (who must be well-grounded in all aspects of the agency's order), an operations manager (who can help determine if operating practices can be modified without serious disruption), and a top executive to make final decisions.
Although you may have technical and legal experts on staff, you'll probably want to hire outside professionals to help fill out your team. When selecting technical and legal advisors, look for individuals with a solid background in the technical issues in your case, as well as a good understanding of environmental affairs in general. The consultants you hire should also have significant experience working with the agency you're negotiating with, since this increases their chances of knowing members of the agency's team and understanding its decision-making process. This kind of experience also provides them with knowledge of, and access to, documents and files that may be important to your case.
Get to know the other team. Call the agency to learn who will be on its negotiating team. While you may know a few of the players from previous dealings with the agency, others—such as legal, technical, and administrative professionals—will likely be new to you. Learn as much as you can about their experience and areas of expertise by talking to industry associations, individuals, and other companies in the area that have dealt with them.
Chances are, the agency negotiators will not make the final judgements on key points in the negotiation, but will make recommendations to superiors. Thus, included in this step is finding out who in the agency will have the ultimate say-so. The more you know your opponents, the better you'll be able to anticipate their actions.
Getting to the Heart of Matters
While good preparation is vital to getting you to the bargaining table, enduring the negotiation process—and getting the best possible results from it—require attention to another set of guidelines.
Set up meetings. Negotiation meetings are usually held at the agency's offices; however, alternate locations may be necessary to accommodate the schedule of one or more of the participants or to be close to the site or to resources that may be of assistance in the case.
Educate the agency's team. While you'll likely be providing industry and site information throughout negotiations as part of normal, professional interaction, circumstances may dictate the need for special in-depth data on a particular business, technical, or legal matter. In such cases, it may be helpful to prepare reports such as an overview of how the scrap recycling industry operates, a summary of the economics of your plant, or a breakdown of the economic impact, technical merit, or legality of a proposed requirement. These reports should be circulated to the agency's negotiation team as well as to others in decision-making positions prior to meetings.
Develop win-win scenarios. Environmental compliance involves many alternatives, each of which carries its own implementation cost, impact on operations, and impact on the environment. The best alternative, a win-win situation—one that is good for both the agency and your business—can be developed by careful management review of the merits and expenses of the various alternatives. Novel technology, because it offers less certain results, should be avoided.
When presenting proposals to the agency, you need to provide a clear picture of the costs and benefits of each alternative. Since agency representatives have to deal with myriad industries and, therefore, cannot be expected to appreciate the fine points of your operation, your commitment to outlining the potential effects of alternative solutions is essential to getting arriving at a win-win scenario. After all, no one knows your business and site better than you do.
The biggest keys to achieving a win-win solution are joint technical competency and a healthy dose of mutual respect and trust.
Just say no. There are times when, despite your every attempt to find a way to accommodate the agency, to do so could seriously—even fatally—injure your business. In such a situation, the best business decision may be to dig in your heels and say no.
If the agency's proposed time allowed for site remediation is too short, for instance, and would cause the company to fail in its efforts, it's probably best to say so from the get-go. Back up your assertion with supporting data and provide an alternative, such as a longer remediation period or a less costly cleanup plan. Point out to the agency representatives that the issue has boiled down to a basic business decision and then ask them to tell you which route they want you to take, making sure you're prepared for either alternative.
If the agency insists on a plan that would ruin your company, you must be prepared to either go through the proper (and often less costly) site closure procedure or appeal the decision through available legal channels.
Above all, if you must say no, be sure you mean no and understand its implications.
Provide for change. Change is the only constant in life. Make sure the negotiation proposals reflect this fact by allowing either party to make reasonable changes in the event of new findings. For example, if the proposed cleanup will be based on future sampling and analyses, be certain to provide for the possibility that the laboratory results may indicate that no cleanup is necessary. Furthermore, if the agency is in the process of revising or creating compliance standards, provide for the possibility that the new standards may raise or lower values listed in the proposal.
Keep employees informed. Brief your entire work force—from office assistants to equipment operators—about your efforts and progress throughout the negotiation process. Written memorandums and meetings not only keep employees abreast of the issues management is dealing with, but also can help alleviate any of their fears about working at a site slated for cleanup. It's particularly important to address employees' concerns about potentially hazardous constituents on company property to avoid inaccurate human health risk assessments and litigation.
Prepare for public meetings. The proposal that you negotiate will likely require hearing at a public meeting, which could wind up as a standing-room-only event—or there may be no one there but agency representatives and your negotiation team. In either event, you must be prepared for uninformed questions from concerned neighbors and be on your best behavior.
Solicit support from interest groups. Individual citizens are not the only ones who will have a chance to hear and comment on the proposal. Once both sides have developed a mutually agreeable proposal, the agency will make the document available to other agencies, a wide range of special interest groups, and the public at large, all of which have the opportunity to comment on it. The more key groups that back your plan, the better its chances of being adopted.
Whether you seek the support of these organizations through press releases or personal meetings with their representatives, you should clearly articulate the plan's costs and benefits, as well as your company's role in the community and the recycling industry at large.
Remember, it's all on the record. Everything written to or by the agency, with the exception of trade secrets, becomes part of the public record, which, under freedom of information laws, is available to anyone—you, your competitors, government agencies, newspaper reporters, environmental activists, and other interested parties—for study. While the EPA requires individuals to submit a written request to view public documents, some states simply require people to make an appointment to see public files and other states allow interested individuals to inspect the public record at any time during normal business hours.
Keep in mind throughout the negotiation process, therefore, the fact that all of your communications are subject to public knowledge. Choose your words carefully and conduct yourself in a business-like manner or your transgressions may come back to haunt you. Do what you say you will do. Meet all your deadlines. Document all agreements. Although these are simple good-business practices, they take on greater importance when applied to actions that go on your public record.
Committing Yourself to Action
Fear of the unknown can aggravate a problem, especially if that anxiety results in inaction. Environmental compliance is manageable, but only if you're willing to do something about it. Regulatory agencies want solutions ... you must decide whether you'll help determine what they are.
As the late American author Elbert Hubbard wrote, "Parties who want milk should not seat themselves on a stool in the middle of a field in hopes that the cow will back up to them." •
Environmental regulation may be a fact of life, but that doesn't mean regulatory orders are written in stone. Executives of a West Coast scrap processing firm that successfully negotiated site cleanup requirements with state regulators offer advice on how others can do the same.