Kardell’s traditional response to environmental concerns

Kardell’s traditional response to environmental concerns was reactive. The company took its cues from the regulatory climate. That is, the provincial environment ministry would apply control orders on the plant as new limits on emissions of various compounds came into effect, and Kardell would then comply with these orders. In raising his concerns in 1985, Jack pointed out that the Ministry of Environment, responding to the serious nature of concerns raised by the sonox issue, was considering internal proposals from its staff that additional research be done into the sources and implications of sonox. Given the early stage of work in this area, Jack could offer no indication of when, if ever, the Ministry would enact new regulations to do with sonox. He argued, however, that the ground rules might change, as they had with previous compounds, and that Kardell should give some thought to the worst-case scenario of how the sonox issue could turn out down the road.
Kardell’s CEO was sympathetic to the concerns raised by Jack, a valued employee of the company who had proved himself in the past by identifying many cost-efficiency measures. The CEO felt obliged, however, to match Jack’s concerns about sonox against the substantial cost of refitting the plant. TheCEO felt there simply was not enough data upon which to base such an important decision, and he was wary of any external force that attempted to influence the company’s affairs. The CEO told Jack, ‘We simply can’t let these ‘greens’ tell us how to run our business.”

While the CEO did not feel it would be appropriate for Kardell to adopt the recommendations in Jack’s report, the CEO did take the step of presenting the report to the board of directors, for discussion in the fall of 1985.
Kardell’s board of directors represented a cross-section of interest groups. Everyone on the board felt a responsibility toward the shareholders, but, in addition, some members of the board also paid special attention to community and labor concerns. The board was composed of the CEO and president of the firm, along with several “outside” directors: two local businesspeople from Riverside, a representative of the paperworkers’ union at the plant, a mutual fund manager whose firm held a large block of Kardell shares on behalf of the fund’s investors, an economist, a Riverside city councillor, and the corporation’s legal counsel. Each member of the board spoke to Jack’s report from his or her perspective. The Riverside representatives—the city councillor and the two businesspeople— wanted assurances that the community was not in any danger. But they also said, in the absence of any firm proof of danger, that they were satisfied Kardell probably was not a source of harmful emissions.
The lawyer pointed out that legally Kardell was in the clear: it was properly observing all existing regulations on emission levels; in any case, there was no clear indication that the Kardell mill was the only source of sonox emissions into the Cherokee River. While acknowledging the health concerns that had recently arisen over sonox, the lawyer thought it prudent to wait for the government to establish an acceptable limit for sonox emissions. Besides, the lawyer added, while liability actions had been initiated against two or three other mills producing sonox, these claims had been denied through successful defense actions in court on the grounds of lack of clear evidence of a significant health hazard.
The labor representative expressed concern about any compound that might affect the health of Kardell employees living in the area. But the labor official also had to think about the short-term consideration of job loss at the plant and the fact that, with the plant shut down, there were few other employment opportunities in the area to fill the gap. The board representatives from Riverside pointed out that, obviously, the local economy would be severely affected by the shutdown to refit the plant. And the mutual fund manager agreed with the CEO that, at least in the short term, Kardell’s profitability and share price would suffer from a decision to undertake a costly overhaul of the facility.

The Decision
After much debate, the board decided to defer consideration of Jack’s proposals pending the results of government research into this issue. It also asked Jack to continue monitoring the regulatory climate so that the plant would always be in basic compliance with provincial emission standards.
During the next two years, Jack presented similar warnings to the board regarding sonox and continued to meet with the same response. As a precautionary measure, he kept copies of his reports in his own files so there could never be any question of the timing or substance of his warnings to the board. During this same period, an above-average incidence of miscarriages, birth defects, and respiratory ailments was reported in the Riverside area.

Questions
What was wrong with the quality of the board of directors’ debate?