- The Responsible Corporate Officer Doctrine: One More Reason for a Corporate Environmental Policy (and this time, it's personal)
- September 29, 2003 | Author: Jason J. Kelroy
- Law Firm: Vorys, Sater, Seymour and Pease LLP - Columbus Office
Today, corporate officers are being held to a much higher standard of personal responsibility for the actions of their companies. By now, everyone has seen the news footage of Worldcom, Tyco and Enron executives being taken away in handcuffs. But that was for financial misdeeds. You are responsible for your company's safety and environmental programs; you would have nothing to do with financial scandals. Surely, that could never happen to you. Or could it?
The Responsible Corporate Officer Doctrine
The concept of the Responsible Corporate Officer Doctrine arose from a pair of U.S. Supreme Court cases that held corporate officers personally liable for their corporation's violations of the Federal Food, Drug and Cosmetic Act.1 In those cases, the U.S. Supreme Court found that corporate officials could have a duty to seek out and fix violations when they occur, as well as a duty to prevent violations from occurring in the first place.2
Based on this duty, the U.S. Supreme Court held that corporate officers may be personally liable for a company's violations -- even if the individuals are unaware of the actual violations. The determining factor is whether or not the individuals have the "responsibility and authority to either prevent in the first instance, or promptly to correct, the violation complained of, and... failed to do so."3
Since those original Supreme Court decisions, environmental regulators and prosecutors have often tried to extend the Responsible Corporate Officer Doctrine to the environmental arena. While the Supreme Court has not expressly extended the Doctrine to any environmental violation, some federal lower courts and state courts have latched on to the Doctrine in the environmental context. Admittedly, attempts to extend the Responsible Corporate Officer Doctrine have met with only limited success, but any success should make a corporate officer with environmental responsibilities sit up and take notice. For example, the Sixth Circuit, of which Ohio is a part, is one of the federal circuits which has suggested that actual knowledge of environmental violations may not be required to hold a corporate officer personally responsible.
In one recent case, Arthur Sumner was convicted of "knowingly" storing and disposing of hazardous waste in violation of the Resource and Conservation Recovery Act.4 Sumner was the vice-president in charge of manufacturing at Kelley Technical Coatings, Inc., and his duties included overseeing environmental compliance. As part of his corporate duties, Sumner oversaw the storage and disposal of wastes resulting from the company's industrial paint manufacturing. The case against Sumner was initiated after authorities discovered illegally stored and unpermitted drums, some of which were rusty and leaking onto the ground. In an attempt to deal with this waste, Sumner hired a hazardous waste disposal company to come on-site and drain the drums. Sumner then authorized the residual rain water that had collected in the drums to be poured off onto the ground. In upholding Sumner's conviction, the Sixth Circuit rejected Sumner's claims that he had not "knowingly" violated the law because he did not know that the material in question was regulated waste that required a permit.
If this threat of criminal liability is not enough to get your full attention, the potential consequences will. While Sumner's company was fined $225,000, Sumner, himself, was sentenced to 21-months imprisonment and a fine of $5,000.5 In another case, which the U.S. Supreme Court recently refused to review, Randall Hansen, the executive vice-president and acting CEO of an industrial plant operating company was sentenced to almost four years in prison, a fine of $20,000 and two years of supervised release.6 This sentence was upheld even though government prosecutors never proved Hansen had actual knowledge of his company's environmental violations. The only "smoking gun" connecting Hansen to the alleged violations was the fact that he received regular reports about the facility's operations and environmental problems.7
And, just last year, the Indiana Supreme Court relied upon the Responsible Corporate Officer Doctrine to impose personal civil liability on a corporate officer in the amount of $3,175,000.8
While these may seem like extreme examples, such incidents of personal accountability are becoming more and more frequent. As such, the potential threat of criminal and civil penalties on upper management for environmental violations is a strong argument in favor of establishing a corporate environmental policy.
Corporate environmental policies are nothing new. In fact, one study concluded that among Standard & Poor's 500 largest companies, as many as 98% have adopted a corporate environmental policy.9 What about your company? If your company does not have a corporate environmental policy, does it need one? If your company already has a corporate environmental policy, is it sufficient? Is it being fully implemented? Your careful consideration and analysis of these questions can help keep your company out of trouble -- and it could help keep you out of prison.
Why Have A Corporate Environmental Policy?
Corporate environmental policy statements are assuming an increasingly important role in business. Most major corporations, and a rapidly increasing number of smaller companies, have developed corporate environmental policies. The enactment of, and compliance with, a corporate environmental policy statement can serve many functions, including:
- Ensuring continued compliance with environmental laws and regulations;
- Guiding employees in the environmental aspects of their day-to-day activities;
- Reducing the potential liabilities of corporations and their managers by demonstrating that the company and its executives have sought to ensure compliance with the law;
- Encouraging and allowing companies to incorporate environmental considerations into business planning decisions; and
- Demonstrating to customers, neighbors, and investors the company's commitment to the environment.
Corporate environmental policies are voluntary documents. As such, there is no required content or mandatory guidelines for corporations to follow. There are, however, several internationally recognized voluntary initiatives, such as the ISO (International Organization for Standardization) 14001 series,10 which provide guidelines for companies seeking certification. Predictably, given the voluntary nature of corporate environmental policies, such policies vary considerably. Corporate environmental policies include everything from generic environmental "feel good" statements to detailed compliance programs. Over 200 examples of environmental policy statements can be found in Corporate Environmental Policies by John W. Graham and Wendy C. Havlick.11 Most are too long to print here.
How Can A Corporate Environmental Policy Protect You?
The determination of what should be in a corporate environmental policy depends on the company for which it is being adopted. A chemical manufacturer will have different needs from an egg farm, for example. Despite this variance, an almost universal aspect of all corporate environmental policies is the assignment of responsibility for the company's environmental affairs. Companies assign this responsibility in a variety of ways. Generally, however, the overall direction of environmental affairs rests with one or more corporate officers or directors. No matter how the corporate environmental responsibility is distributed, the designation of the responsible officer(s) may prove to be significant if there is ever an attempt to rely on the Responsible Corporate Officer Doctrine.
The most obvious way a written environmental policy might limit exposure of a company and its responsible officials is by including specific measures to prevent environmental violations, and to assure that those violations that do occur are promptly detected and remedied. Moreover, to the extent a future violation may occur, a corporate environmental policy statement will help demonstrate to prosecutors that, despite the violation, the corporation and its officers are taking steps to correct the problem.
While extremely simple, another way to limit the potential personal exposure of a company's corporate officials is to include a statement in the policy that all employees are responsible for obeying environmental laws and regulations and carrying out corporate policies. Such a statement, if factually supported, may help demonstrate that the company and its executives have sought to ensure compliance with the law.
Words, Alone, Are Not Enough...
Of course, rhetoric alone is insufficient to protect responsible officers from potential liability. A corporate environmental policy should also specify strategies and objectives to ensure that the company will do more than express its good intentions. As such, before a successful corporate environmental policy can be developed, a company must fully understand its current operations. This requires a comprehensive review and assessment of the laws, regulations, administrative orders or other conditions that affect the company. Only after such a thorough review is completed, should a company craft and implement an environmental policy.
Even more important than the actual policy statements that are chosen, a company's written directives must be fully implemented, supported and followed. Every successful corporate environmental policy is accompanied by reliable compliance monitoring through, for example, periodic reviews of the company's compliance with environmental regulations and internal procedures. While the risks of conducting such environmental audits are reduced by Ohio's environmental audit privilege and immunity law,12 companies and their officers must be prepared to correct any potential violations that are discovered if an assessment is performed. Failure to correct identified problems could subject both the company and its officers to prosecution for "knowingly" violating the law.
If an environmental review or audit reveals that your company is complying with internal company procedures but not with state and federal laws, you will need to strengthen your company's policies. If, on the other hand, your company is complying with state and federal laws but not with internal procedures, you should investigate whether your company's internal procedures are unworkable or whether better methods can be devised for compliance.
But, Still... Choose Your Words Carefully.
Developing a corporate environmental policy statement is not without risk. A poorly worded policy statement could set a new, and perhaps higher, standard against which conduct will be measured. As such, it is extremely important that you and your company fully consider the impact of all promises or statements made in a corporate environmental policy. While your company's corporate environmental policy should be drafted to ensure that it is consistent with applicable statutory and regulatory requirements, it should be viewed as equally important that it not create additional standards of liability. In other words, be careful not to over-promise.
For example, imagine that your company makes an explicit commitment to using the highest standard of care in the industry to protect your workers and the environment. Failure to adopt the latest and greatest technology and protective measures could lead to liability if an action results in employee injuries or pollution, regardless of whether any laws were broken. Similarly, disregarding a corporate environmental policy could establish a basis for civil or criminal liability or -- at the very least -- could constitute aggravating circumstances that may increase the level of enforcement activity and penalties. Thus, as emphasized above, it is imperative that any corporate environmental policy be fully implemented, supported, and followed.
Given the unique needs and characteristics that exist from industry to industry and from company to company, it is not feasible to craft an exhaustive list of key elements for an environmental policy statement that will work for all companies. If you are interested in developing, reviewing or revising a corporate environmental policy for your company, your legal representatives and environmental consultants should be able to provide you with the necessary support and guidance.
Remember, a corporate environmental policy will not keep you out of prison; actions must back up words. Educating employees about your policy, careful implementation and diligent monitoring of potential problems are what truly makes for a "responsible" corporate official.
1 See U.S. v. Dotterweich, 320 U.S. 277 (1943); U.S. v. Park, 421 U.S. 658 (1975).
2 See Park, 421 U.S. at 672.
3 Id. at 673-74.
4 See U.S. v. Kelley Technical Coatings, Inc. and Arthur Sumner, 157 F.3d 432, 435 (6th Cir. 1998).
5 See id.
6 See U.S. v. Hansen, 262 F.3d 1217 (11th Cir. 2001), cert. denied 122 S. Ct. 2326 (2002).
7 See id. at 1238.
8 See Indiana Department of Environmental Management v. RLG, Inc., 755 N.E.2d 556 (Ind. 2001).
9 See Kuehn, Access to Justice, 4 Wash. U. J.L. & Pol'y. 33, 112 (2000), citing Investor Responsibility Research Center, Corporate Environmental Profiles Directory 1998 (Executive Summary), 62-63 (1998).
10 ISO 14001, ENVIRONMENTAL MANAGEMENT SYSTEMS, Specification with Guidance for Use (Int'l Org. for Standardization, Draft Int'l Standard 1995), § 4.1.
11 See Graham & Havlick, Corporate Environmental Policies, ISBN 0-8108-3574-6, Scarecrow Press, Inc. (1999).
12 See R.C. § 3745.72.