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risks is many times higher, safety risks in general are given much more atten-
tion by management and media alike. Safety disasters and health damage can
be prevented if steps are taken to ensure an organisation operates safe systems
of work within a strong health and safety management culture. Incidents are
avoidable, for example in the Ladbroke Grove train crash enquiry Lord Cullen™s
summary noted that there was a ˜lamentable failure™ by Railtrack to respond to
safety warnings before the incident (BBC News, 19 June 2001, reporting on
Lord Cullen™s enquiry ˜Crash report blames lamentable failures™: http://news.
bbc.co.uk/l/hi/uk/396414.stm).


The business context
The UK represents and provides an excellent case study of a highly regulated
regime. In the UK there is a strong safety culture which has led to the country
having the second lowest rate of fatalities at work (per millions of hours worked)
in Europe. There has been important health and safety legislation in the UK for
a long time and this has meant that health and safety risk management has
become embedded in most companies™ internal control systems. The balance of
evidence demonstrates that a health and safety risk management system (HSMS)
is good business management and improves bottom-line profitability wherever
the business operates. This helps to achieve the avoidance of:
Health and safety incidents, or a reduction in the number of incidents and/or
their impact;
Non-compliance convictions, criminal prosecutions and enforcement notices;
Enforcement actions for remedial work;
Civil claims;
Damage to reputation and brand; and
Increases in insurance premiums.
Chapter 16 “ Health and safety in the workplace 371



Stakeholder pressure:
Customers “ demanding safer products;
Employee pride and health and safety;
Strengthened bank lending criteria; and
Removal of cover by insurers and increase in premiums as losses mount “
failure to comply with legislation can invalidate insurance cover.
There are the additional benefits of:
Increased productivity and reduced production resource security;
Business improvement “ injuries and sick leave have long been identified as
major costs for companies, but there is also a growing body of evidence
which shows that effective occupational safety and health management has a
positive impact on a firm™s stock market performance;
Reduced insurance premiums for a reduced claim history and risk profile;
Reduction in the chances of losing competitive advantages;
Increased stakeholder value, as shareholders request improvements from larger
companies, which in turn request higher standards from smaller suppliers;
Improvement in customer and staff morale; and
Meeting increasingly stringent lending criteria.
It is worth mentioning that a company is at risk from health and safety issues
irrespective of its size; indeed, the smaller the company the less time it seems
to devote to implementing health and safety systems and, therefore, the more
likely it is that the company and its directors are found at fault or guilty of neg-
ligence, and a smaller company may not be able to afford the same level of legal
support which a larger company can.
This applies equally to countries. It is sometimes claimed that high health
and safety standards can reduce competitiveness, so that poorer nations ˜can-
not afford™ good health and safety. That has always been a distasteful argument,
however, which is now known to be unsound. Recent studies by the World
Economic Forum and the Lausanne Institute of Management (IMD) show that
the most competitive countries also have the most stringent safety regimes.

Health and safety risks and trends
General overview
All organisations are at risk from health and safety-related impacts upon their
businesses. These impacts can be significant and the direct and indirect costs
to businesses have been assessed as being: 3.8% of the market value of the 500
largest EU and US companies are at risk from these issues. 2.4% of this is inter-
nal risk, reviewed in this chapter, and 1.4% is risk to market value as a result of
risk to the public and customers, reviewed in the next chapter.
The 2.4% risk to value is due to:
Internal health risk at 0.7%;
Internal workforce safety risk accounts for a loss of 0.5%; and
Historical health liabilities risk is an average of 1.2%.
Part C “ Overview of the Social Aspects of Business Risks
372



This risk to organisational value will increase as the amount of legislation, vol-
ume of litigation and level of awards increase. There may also be an increased
level of stringency as the government listens to their stakeholder groups, pri-
marily the trade union movement.
The following risk issues are considered below:
Financial risk;
Operational environmental risks “ direct and indirect;
Legal risks;
Human health and product risks; and
Stakeholder risk, including reputation and brand risk (see also Chapter 9).


Financial risk
All the factors outlined in this section can have a financial bearing upon the
organisation (both directly and indirectly). The risk assessment methodology
measures a company™s exposure to: Health and Safety Executive (HSE) imposed
fines; penalties; increased expenditure on safety measurements and training,
compliance and other prevention measures; legal costs; increased resource costs
and staff time. These factors are combined with a weighting for their sector of
activity, and their risk management activities. The resultant figure is the potential
financial loss the company could experience from health and safety risk. The
average for the top 500 US and EU-based companies is 2.4% of the market value.
The following are some extreme case studies:
The massive loss of shareholder value at Railtrack (98%);
British Energy (outcome still pending but shares fell 30% as a result of prob-
lems instigated by two plant closures);
Jarvis, who lost 40% of their value within a week as a result of safety inci-
dents and the retraction of contracts due to health and safety performance;
The Health and Safety Commission™s ˜name and shame™ policy has resulted
in the following headlines: ˜Car giant fined £300k for tragedy™, 17 June 2003;
˜Death firm fined £135 000™, 10 December 2003. Also, BP has been fined
£1 million for an incident at their Grangemouth site (and has spent a further
£30 million on improvements); and
A company pleaded guilty to manslaughter when an employee fell over eight
metres though a fragile roof. The court heard that inspectors from the HSE
had previously seen the employee working at another company site without
using the correct safety equipment and had spoken to the company about its
safety failings. The company was fined £25 000.
Examples of the financial impact on a company arising from health issues
include the following:
Asbestos:
BOC plc shares closed down 2.5% at 887.5p after it lost its first asbestos case
in the US as the company admitted it was also facing 1200 previously undis-
closed claims from asbestos sufferers (Daily Telegraph, 14 May 2004); and
Chapter 16 “ Health and safety in the workplace 373



Global car giant DaimlerChrysler must pay $20 million (£10.3 million) to a
retired police officer and brake repairer whose right lung was removed
because of cancer caused by asbestos.
Parkinson™s impact: BOC plc shares dropped 7.6% or 68p on 29 October 2003
(Financial Times, 1 November 2003) on fears that the company could be
exposed to tobacco-sized litigation from Parkinson™s sufferers as a result of
using welding equipment;
Workplace cancer: an estimated 32 million people in the European Union
(EU) are exposed to hazardous substances at levels which exceed what is
considered as safe, and the estimated cost of the resultant workplace cancers
costs the EU £46.7 billion a year (Risks, issue number 150, April 2004);
The draft EU law on testing chemicals could impose direct costs on UK
industry of £515 million over 11 years. A cost/benefit analysis suggested that
the legislation will break even if it saved 18 or more occupational cancer
deaths a year. This will reduce the risk of chemical impacts upon people
(Financial Times, 31 March 2004);
In the US it has been estimated that total monetary benefits under the Clean
Air Act from 1970 to 1990 range from $5.6 to $49.4 trillion. The costs of com-
pliance for businesses were estimated at $0.5 trillion. Studies are available at
www.epa.gov/oar/sect812 (Environmental Policy and Politics, 3rd Edition by
Michael Kraft, Pearson Education (2004)); and
An extreme example of how health and safety issues and economics are
interlinked is from the oil and gas sector, when the world™s largest oil plat-
form, owned by Petrobas, sank off the coast of Brazil in April 2001. The eco-
nomic impact of this environmental disaster was an estimated cost of £600
million to Lloyd™s of London, and the currency fell 8% as imports had to rise
to cover the loss of output. There was also substantial loss of life and a large
oil pollution incident.


Legal risks
In this section the legal risks are reviewed, including:
Civil damages;
Criminal penalties;
Enforcement and prohibition notices; and
Other methods of ensuring compliance with health and safety laws.
The legal aspects of health and safety risks are discussed in brief as there is a
wide variety of legislation in different countries (director and officer personal
liabilities, and issues with regards to manslaughter and corporate killing legis-
lation are discussed in Chapter 4). It is sufficient to note here that there will be
an increasing level of national and international health and safety legislation
and litigation. The table below (taken from Corporate Manslaughter and
Homicides in the UK from the website www.corporateaccountability.org/
manslaughter/cases/main.htm) shows how few ongoing manslaughter cases in
the UK there currently are.
Part C “ Overview of the Social Aspects of Business Risks
374




Number of incidents Total number of Number of Number of Number of
(involving at least deaths involved companies company business owners
one death) which have in these incidents convicted directors (i.e. sole traders
resulted in conviction . convicted or partners)
convicted

11 16 5 8 4




Director and officer liability
The average annual pay of Britain™s top bosses is approximately £1.5 million
but the average fine for a workplace safety offence is £12 194 (according to the
magazine Hazards, issue 81, January“March 2003, who argue that small fines
alone are not an adequate deterrent for Britain™s workplace safety criminals.
Most company directors believe a senior director should be responsible for
safety and over half think they should be criminally liable for safety failings
(Risks, issue number 145, 28 February 2004, see www.tuc.org.uk/h_and_s/tuc-
7706-f0.cfm#o4).
However, there are numerous examples of health and safety prosecutions
of directors (from the Centre for Corporate Accountability), some of which are
provided below:
Network Rail, the maintenance firm Balfour Beatty and six senior managers
are to face manslaughter, gross negligence and safety charges over the
Hatfield train crash (Risks, issue number 114, 12 July 2003);
Two people died after being overcome by dichloromethane chemical fumes
which had escaped from the processing area of a paint stripping business.
The business owner, a sole trader, was convicted of manslaughter;
Two directors pleaded guilty to the manslaughter of an 18-year-old labourer
who died in April 2000 when a stack of timber fell on him;
A company, and one of its directors, were found guilty of manslaughter when
an employee was hit by a 20-tonne trailer. The trailer became detached from
a tractor because it was dangerously loaded and the hitch mechanism con-
necting the trailer to the tractor was ˜badly worn™. The sentence was 240
hours™ community service;
Two farmers were found guilty of the manslaughter of a 16-year-old trainee
who died when the JCB potato loader he was operating was hit by a lorry.
Birmingham Crown Court heard that ˜the JCB should not have been under the
control of an untrained 16-year-old with very limited experience ¦™. There
was also evidence that a health and safety inspector had given instructions
that the employee should not drive the JCB until he had received training.
One director was jailed for 15 months while his father received a one-year
suspended sentence;
A director was convicted of the manslaughter of a worker with special needs,
who was crushed to death when he fell from a cage, which was being lifted
on a forklift truck. The director received a 12-month sentence, suspended for
Chapter 16 “ Health and safety in the workplace 375



two years. He was also convicted of two health and safety offences and fined
£10 000;
Two directors were convicted of the manslaughter of two employees who
died when a lorry driver fell asleep at the wheel. The Old Bailey heard that
the lorry driver, and other drivers at the firm, worked very long hours with
the knowledge of the directors. The directors were sentenced to 15 months™
and 12 months™ imprisonment respectively, but both sentences were sus-
pended for two years. The driver of the lorry received a two and a half year
prison sentence for the offence of death by dangerous driving; and
A transport company and its managing director were convicted of the
manslaughter of an employee who was affected by cleaning chemical
residues. The company had not provided preventive equipment, supervision
or adequate training. The sole director of the company at the time of the
death, was sentenced to 12 months™ imprisonment and the company was
fined £15 000.


Stakeholder and reputational risks
This section is a brief overview of the value stakeholders place upon an organ-
isation with regards to health and safety issues. More detail is provided in
Chapter 9.



The SERM stakeholder template
* Academic and research organisations;
* Business partners, suppliers and trade bodies;
* Customers and their representatives;
* Direct action groups and NGOs;
* Employees and their representatives;
* Financial institutions (banking, investor and insurance criteria);
* Governmental organisations;
* Local and regional governmental organisations;
* International governmental organisations;
* Journalists and media organisations;
* Key competitors; and
* Local communities.



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