Europe's green standards get tougher: global CEOs need to respond more quickly

Chief Executive, The, August-Sept, 2005 by William E. Mitchell

In less than a year, there will be a seismic shift on the continental shelves of Europe that affects electrical and electronics companies everywhere. We know it's coming, yet many affected companies seem to be responding slowly.

European Union directives requiring producers of electric and electronic products to remove lead and five other hazardous substances from their products will trigger the event. Companies whose products are in compliance by July 1, 2006, will ensure a secure position in Europe and will likely see improved growth opportunities at the expense of competitors who fail to comply on time.

Known as the Restriction of Hazardous Substances, the laudable directives are intended to protect Europe's citizenry against the dangerous substances potentially leaching into water supplies when aging and discarded components are put into landfills. The directives also cover mercury, cadmium and hexavalent, as well as limiting polybrominated biphenyls and polybrominated diphenyl ethers (flame retardants).

These regulations will affect most, if not all, manufacturers regardless of where their production facilities are located. Many thousands of devices will experience changes in materials and/or manufacturing specifications. This will not just impact players in consumer and commercial electronics, but will also have far-reaching ramifications for makers of household appliances, information technology and telecom equipment, lighting equipment, toys, leisure and sports equipment and medical devices.

Environmental compliance should not be seen as another procedure-filled regulatory exercise that only adds costs to a company's P & L. This should be viewed as an opportunity for manufacturers and suppliers to demonstrate leadership in addressing green compliancy.

But surveys we have conducted have revealed that a full one-third of manufacturers asked have no plan in place for European compliance. Moreover, only 3 percent had the necessary manufacturing processes and systems in place. And when asked what are the biggest challenges regarding environmental compliance, one-third said it was management's lack of understanding.

[ILLUSTRATION OMITTED]

To be sure, responsibility does not fall entirely on manufacturers. While the EU issued the directives in 2003, there are still definitional aspects that have to be finalized and must be translated by a number of member nations into law, creating confusion and ambiguity. Still, the absence of clarity should not discourage companies from aggressively seeking information from existing experts in the market to help develop and implement green initiatives and compliance strategies.

How can you make sure your company is maximizing the opportunities? The responsibility for environmental compliance should not be exclusively relegated to individuals in design and purchasing. It's paramount that you, as CEO, maintain a level of engagement in this complex transition that correlates with your level of involvement in any important strategic initiative. It is vital to assign and empower an accountable, cross-functional compliance team.

Knowledge is the key. There are a variety of information sources offering voluminous data. Some of the larger component manufacturers even publish status reports, frequently via the Internet. But with millions of components and hundreds of suppliers, sorting through myriad information sources is tedious. Many clients look to Arrow and other supply chain experts to lead them through this transition and simplify the process.

The costs of not responding could be steep. In addition to fines, companies risk having products withheld or withdrawn from Europe, which could damage their brands. Though the EU is in the forefront of the environmental timetable, several other industrial nations, including China, South Korea, Japan, Australia and Canada, are lining up. And some 20 states within the U.S. are considering some form of environmental legislation potentially impacting the industry. There doesn't seem to be any turning back.

William E. Mitchell is president and CEO of Arrow Electronics, Melville, N.Y., a $10.6 billion distributor of electronic and computer products.