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FTSE 350 AVERAGE

0.0%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Gross (Inherent) Risk
Chapter 17 “ Health and safety of stakeholders and customers 409



An issue of increasing importance is that of terrorism, which is also
deemed to be a business continuity threat (see Chapter 8). For example, the
Turkish stock market (the ISE National-100 index) crashed 7.4% and the stock
market closed to prevent further losses after bombs killed 27 people in Istanbul
on 20 November 2003. The UK bank HSBC fell 1.3% as its Turkish headquar-
ters was one of the main targets of these bombs, and British Airways fell 3.1%
after the Turkish bombings, while Lufthansa fell 2.3%; SAS, the Swedish car-
rier, lost 1.5% and Air France-KLM 1.3%.


Case studies
Transport sector
The transport sector has to deal with large numbers of passengers travelling at
speed and often across hazardous terrain as part of their business model so a
safety risk is understandable. There are increasingly important or emerging
issues though like terrorism, sabotage, staff suitability and facilities and vehicle
vandalism. Some transport sector issues are:

Terrorism:
Transport systems and air travel suffer more adversely than most sectors to
terrorist activity, for example the Madrid bombs also had the impact on
British Airways shares losing 8% to 284.5p due to its close contacts with
the Spanish airline Iberia;
Holiday groups also suffer as people are less willing to travel and UK holi-
day firm First Choice also lost 4.2% as a result of the Madrid bombs amid
fears that tourists would steer clear of European holiday destinations.
Online travel agents Lastminute.com suffered a 17.2% fall as a result of the
Turkish bombings, Intercontinental Hotels fell 2.9%, First Choice lost
3.6% on this occasion;
Carnival, the US Caribbean cruise operator, has also been affected by per-
ceptions of risk and fell 7.3% over the week after announcing concerns
about further al-Qaeda activity on its business model (Financial Times, 7
August 2004);
The age of Air Transport™s fleet planes can be over double that of their
rivals. The average age of their planes can be 17 years. The British Medical
Association (BMA) warns that the airline industry is not doing enough to
safeguard passengers™ safety, and that as a general rule staff are not trained
well enough to deal with crisis. It is estimated that 1 in 1400 passengers
requires medical attention on flights; and
Jarvis shares were over 300p in 2003 before poor track maintenance was
blamed for a rail crash in the UK at Potters Bar, an area for which Jarvis
held the contract. This involvement could well have initiated a cascade
effect, which led to the loss of maintenance contracts, loss of reputation
with contract awarding bodies and then a string of profit warnings, with
share value falling below 30p in July of 2004 and as low as 7.39p in July a
year later.
Part C “ Overview of the Social Aspects of Business Risks
410



Food sector
The food sector has had a large number of difficulties with its supply chain and
environmental health issues: for example, BSE/vCJD in cattle and humans; foot
and mouth affecting the UK pig herd; Salmonella, SARS and Asian flu in poul-
try; toxicity from the levels of pesticides in fruit, vegetables and farmed fish;
contamination of tuna and other fish with high levels of mercury and other
heavy metals; and general issues such as the large-scale nitrate pollution of
water, or the overapplication of antibiotics, which is reducing human resist-
ance to infectious diseases. We explore some of the emerging food sector risks
in the extensive case study at the end of this chapter.


Pharmaceutical sector
Pharmaceutical companies have a high-risk high-reward business model
wherein their market premiums help meet the high level of product liability
claims that have been surfacing. Where the products themselves are supposed
to confer health benefits there are added threats to reputation if the products
are deemed to have the perceived opposite or detrimental effects upon the
customer. This is particularly true within the pharmaceutical sector and exam-
ples are:
The BBC reported that GlaxoSmithKline™s anti-depressant Seroxat causes
serious withdrawal symptoms in 85% of users trying to stop using the drug.
Some users had been led to self-harm and even suicide. It was alleged that
GlaxoSmithKline neither warned about these dangers, nor accepted respon-
sibly (BBC, October 2002);
When it was thought that the drug group Merck might be liable for the death
of a man who had been taking its painkiller drug Vioxx it affected the value
of its own shares and those of others in the sector, as Shire Pharmaceutical
and GlaxoSmithKline of the UK fell by 0.9 and 0.8% respectively on hearing
the news (Financial Times, 23 August 2005); and
More worryingly the British Medical Journal reported on the 2 July 2004 that
adverse drug reactions may be killing as many as 10 000 people a year in
Britain and costing the National Health Service more than £400 million
(reported in the Financial Times, ˜Thousands killed by bad drug reactions™,
2 July 2004).


Oil and gas sector
In response to events like Piper Alpha there has been extensive investment in
safety measures to reduce reoccurrence and the UK Offshore Operators™
Association now note that incidents have fallen by 50% since the disaster.
Other specific examples include the following:
BP™s misfortunes have led to an evaporating reputation as a series of mishaps in
BP™s US operations have left many wondering if it was all just green wash; and
Chapter 17 “ Health and safety of stakeholders and customers 411



An explosion kills 15 and injures 170 at a refinery in Texas City; allegations
surface of propane price fixing; corrosion in the Alaskan pipeline causes a
leak and shuts down production in Prudhoe Bay, Alaska; problems with
underwater joints on the Thunder Horse deep-sea drilling project in the Gulf
of Mexico delay production. The August 2006 terrorist alerts at Britain™s air-
ports cost the biggest airport operator, BAA, over £13 million in additional
security costs that month.


Other case studies
Courts plc were red listed by Greenpeace as their sofas were likely to contain
bio accumulative and toxic chemicals, such as brominated flame regulators,
organotin and endocrine disrupters (January 2004);
HSBC Holdings plc were reported as having had their chief of building secu-
rity at their Argentine headquarters charged with the murder of an unarmed
demonstrator in December 2001 (The Guardian, January 2003);
Scottish & Southern Energy plc were reported by the Environment Agency as
being involved in a pollution offence involving polluting a public drinking
water supply with leaking oil. The total fine amounted to £10 000;
A civil lawsuit in the US could now hold gun dealers accountable for crimes
committed with weapons they sell. This is as a result of the death of a seven-
year-old who was killed by a gun sold to a re-supplier who illegally sold it on
the black market. The victim™s mother claims the gun dealer created a public
danger by ˜recklessly™ selling the gun (Insurance Journal, 21 April 2004); and
The tobacco sector™s health issues are well known (see the next section of this
chapter for a case study), but the safety risk aspects of their products are also
becoming relevant. Tobacco products are alleged to be responsible for nearly
one in four fire deaths in the US, which works out at 800 to 1000 fatalities a
year. Litigation cases have begun and the first has resulted in a $2 million set-
tlement for a lady after the parked vehicle she was in caught fire after a ciga-
rette accidentally fell on the seat of the vehicle (Personal Injury Verdict
Reviews, 22 December 2003).


Risk management
Examples of positive programmes and projects are:
Staffing levels are said to be key to airport security and that airline pressure
to speed up security checks could compromise security;
Virgin Atlantic was held up as a successful case study in the field of passen-
ger safety by BBC1 News, 30 May 2004;
Traffic calming by Wilson Bowden in Ravenstone: David Wilson Homes has
provided £70 000 so that traffic calming can be introduced on roads in the
village (Leicester Mercury, 15 February 2002); and
Noise pollution: Redrow Homes (Midlands) Limited of Flintshire have taken
appropriate risk action to ensure there is no reoccurrence of the fines they
Part C “ Overview of the Social Aspects of Business Risks
412



had to pay in respect of noise pollution. This involves the company warning
subcontractors that they will lose their jobs if there are any further early starts
(Birmingham Evening Mail, 3 March 2003).


Analysis of historical health and safety liability risks
The results of SERM research indicate that:
Historical health liabilities risk is an average of 1.2% of market value of the
500 top EU and US companies; and
This risk exposure has been reduced from 1.9% of market value by good risk
management techniques (the risk reduction/management factor).
The following are some illustrative examples of risks and risk management.


Employees
Through working for the company a member of staff has developed a disease,
disability or impairment as a consequence of the company failing to take action
to reduce the risk of personal injury to the employee.


Public
Negative health consequences are experienced by individuals as a result of
using the company™s product or service. For example, a pharmaceutical com-
pany which failed to conduct adequate tests to ensure safety of their product.
This risk category excludes liabilities which have an environmental
impact (e.g. an impact which extends beyond the company™s site). Such liabili-
ties are covered in environmental incidents (present) or environmental historic
liabilities (past).
It does include, however, liabilities arising from the manufacturing process
which affect the workforce (e.g. asbestosis), and liabilities arising from the com-
pany™s products.
The WHO (World Health Organisation) says prevention is the way to
reduce the historical liabilities of the future, as the true extent of the risks faced
are unknown. For example, the long-term impacts of pollution upon the brains
of children in many parts of Europe, who are suffering more damage from envi-
ronmental risks than previously recognised, are only just being discovered. The
WHO claims lead continues to be a menace: up to 30% of urban children show
high levels of lead in the blood in some places. It says the emphasis should be
on following the precautionary principle, putting safety first. Other threats to
children™s health include methylmercury, dioxins, furans, PCBs, pesticides,
nitrites and nitrates, and benzene. Dr Roberto Bertollini of WHO said:
For too long, policy-makers have retrospectively pleaded, ˜If only we had known earlier
what we know now.™

The following graphs show the historical health liability risk by sector.
Chapter 17 “ Health and safety of stakeholders and customers 413



Health “ Historic Liabilities
16.0%

14.0% TOBACCO

STEEL & OTHER METALS
12.0%
Net (Residual) Risk




CHEMICALS
10.0%
TRANSPORT
8.0% PHARMACEUTICALS &
BIOTECH
6.0%
AEROSPACE & DEFENCE
4.0% SECTORS

FTSE 350 AVERAGE
2.0%

0.0%
0.0% 10.0% 20.0% 30.0% 40.0%
Gross (Inherent) Risk


The same data with tobacco removed shows increased detail for the other sectors.

Health “ Historic Liabilities
4.5%

4.0%
TOBACCO 34% Gross 15% Net
3.5%
CHEMICALS
Net (Residual) Risk




3.0%
TRANSPORT
2.5% PHARMACEUTICALS &
BIOTECH
2.0%
AEROSPACE & DEFENCE
1.5%
SECTORS
1.0%
FTSE 350 AVERAGE
0.5%

0.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Gross (Inherent) Risk




Other examples of issues which affect sectors include the following:

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