This article was originally published by the author, David Forbes, JagwaForbes Group Pty, Ltd, Perth, Austrailia www.jagwaforbes.com.au. While written primarily for an Australian audience, it has similar application for business organizations in other countries.
The dynamics of an economic downturn often determine the degree of actual safety discipline applications in an organization. Operating costs savings, temptation to short cut, and unwitting failure to understand risk management principles can conspire to impose a cost penalty that far exceeds the notional short-term budget gains. The dangers are concealed when:
- The organization strips cost out by a simple percentage rule
- Decision makers place essential safety functions at risk without realizing the extent of executive [board member] and organizational exposure to regulatory and civil liability
- Personality instead of functionality and value influences the payroll reduction process
- There is no contingency plan to protect essential safety functions to ensure they comply with current regulatory standards
- New safety regulations and risk management trends are no longer fast tracked into the organizational decision process
Australia is reputedly a world leader in work environment safety regulation, and there are few stronger examples of justifiable regulatory provisions and enforcement than commercial aviation and resources exploration, notably mining. As the world continues to be concerned with energy supply to meet future demand, the economic downturn is weakening safety disciplines in many countries.
In November 2008 the Chinese state news agency XINHUA reported seven managers and supervisors were arrested for not upholding workplace safety practices which led to the death of eleven workers. The agency said the arrests followed an accident in October 2008 when a construction company had been using a goods [cargo] container to lift men working on the site. The workers had previously complained about this; and earlier this year the local government issued an order to the company to stop the practice; which was reportedly ignored. The deaths occurred when the cable holding the container broke. Twelve other workers were injured.
We know from history that downturns are dangerous for the safety of workers in the mining industry; and for passengers and crew in aviation. This article serves as a cautionary note, encouraging decision makers to apply vigilance so that the proverbial ‘baby’ [protection] is not ‘thrown out with the bathwater’ [layoffs]. Compliance performance is just as sure an essential today as any form of insurance to protect organization personnel, assets and viability.
At a time when traditional tax revenues affect government budgets at all levels – federal, state and city – we can expect no leniency when faced with safety violation penalties. Quite the opposite, there is a revenue opportunity, similar to the treatment of drivers exceeding speed limits, for budget shortfalls to be addressed through more aggressive safety enforcement activity.Across sectors we are seeing a gradual upward creep in the cost impact of fines and court fees awarded against dilatory offenders of safety regulation.
In August 2006 Fosters Australia Limited received Victoria’s biggest ever fine under the Occupational Health and Safety Act 2004 following the death of a worker in 2006. The fine was $1.125million. Reports state that safety improvements following the accident cost the company $3.9million. The judge commented that the high fine was applied because there had been a similar incident a few years previously. Problems had been identified but not fixed. Among the remarks attributed to WorkSafe Victoria’s Executive Director John Merritt, are the words:
This Company is successful and should be setting an example by ensuring the highest safety standards are maintained. With listed companies now in their ‘reporting season’ they have the opportunity to transparently report on their health and safety performance – for better or worse – and to identify what will be done in the future. Being a good corporate citizen is not just about sponsoring charities, grassroots community projects and having good environment standards. A successful business is a safe business.
[For a fuller account visit www.ausfoodsnews.com.au ]
Looming Regulation
Demands for the improvement and maintenance of workplace safety standards, and the upgrading of regulatory mandates for industry compliance do not abate during economic downturns. We expect ongoing safety regulation changes as we adapt to the changing work environment influenced by new technology and new workplace practices developed for and by employers. Too often an organization is not ready for and does not recognize the significance of regulatory change specifics. Workshops, seminars and internal meetings go some way toward meeting revised safety regulation goals, but effectiveness can vary from strong to very weak, sometimes due to the communications and management hierarchical structure of the organization. Top people under pressure during an economic crisis are not the easiest to convince that an option that appears to involve more cost is the best choice. Preoccupation with cost in these conditions can displace intelligent risk management analysis. Articulated and understood correctly, there is a difference between cost and investment.
We only need to consider the Fosters story above to realize what that difference can mean. Translating this to the present downturn and to aviation and mining, the question is:
“Could the ostensible cost savings from terminating ten people, without strategic analysis as to the actual risk and impact of exposure to liability, be outweighed within months by a failure in safety continuity and functionality leading to fines, legal costs and damaging publicity for the organization?”
This is not an argument for retaining ten people. It is a rationale for definitive identification of critical expertise and functionality. If we imagine that the payroll overhead, embracing all related costs including office accommodation, achieves a notional saving of $1million from this headcount reduction of ten personnel, this pales into insignificance if the outcome resembles an event of the Fosters proportions.
Below I mention the upcoming implementation of a new aviation safety regimen. It is important to pause for a moment and reflect upon the fact that in Western Australia particularly, and more generally across the country, the fortunes of aviation and mining are intertwined. In this vast state with its testing environments, both sectors have to be interested in the prospects and future of the other. Safety is a permanent characteristic of business operations in both; yet there is little that is shared, possibly because of narrow perceptions about limited commonalities.
At JFG we see it differently. We believe that safety and security mandates and the cost efficient responses to both have sufficient risk management similarities to achieve benefits for airlines and mine operators; and that should surely be appealing to hard-pressed executives looking for solutions in a downturn -? But my purpose in this slight departure from the main message, is to say that while I go on to discuss aviation safety education and training changes, mine sector managers should take note that shifts in aviation regulation represent a wider mindset that will eventually, perhaps sooner not later, surface in resources and mine safety. At the close of this article I will explain why I believe this is so.
Safety Management Systems [SMS] and introduction of Human Factors [HF] Training and Assessment.
Currently in the Notice of Proposed Rule Making stage, this amendment process affecting civil aviation in Australia is steadily advancing to its implementation stages with dates already set for 2009, beginning in July. The NPRM is a voluminous document that we at JFG have been studying and analysing. It arrives at a very challenging time for Australia’s airlines; but it will become an unforgiving instrument for those who fail to dedicate the required effort to focus, plan and implement – and thereafter to sustain the SMS culture.
The following touches upon some selected pointers on this regulation:
The Safety Management System or SMS is a systematic approach to managing safety that must include the organizational structures, accountabilities, policies and procedures necessary to manage safety in a systematic way. It requires the establishment and maintenance of an ‘appropriate organisation’ with a ‘sound and effective management structure’, to administer an approved SMS. It addresses the mandate to have a program approved by CASA to train and assess personnel in Human Factors [HF] and NOTECHS – or non-technical skills for specific human competencies.
Whereas this new regulatory approach was triggered through Australia’s membership of the International Civil Aviation Organisation [ICAO], the NPRM detail conveys an Australian no-nonsense approach and a seriously committed tone to this regulation. We have been given plenty of notice and it will be surprising if much tolerance will be shown for non-compliance as the second half of 2009 unfolds.
The potency of penalties is widely discussed across industry and specifically for aviation in submissions to the federal governments examination ‘Toward a National Aviation Policy Statement’. A contingency step for top executives at this time is to remind themselves of the range of fines and related costs within their safety risk profiles.
Summary – Countering the Threat of Safety Compliance Penalties During the Downturn
- It is more often the basics that are neglected. Analyze the continuity and functional impact – quantify risk of harm of personnel reductions, i.e. by potential loss of expertise, functionality, key connections with regulators and internal functions, as opposed to a red-pen cost percentage savings approach
- Senior managers should resist the development of a fear culture that will lead to be told ‘what they want to hear’ rather than the facts about the safety performance status of the business operations. Staff reductions may effectively send the message that only good news is welcome; active communication on this is vital. Passive expectation that this is not the case is insufficient; it will be assumed by those who fear for their jobs – ‘am I next?’ – that they should not risk reporting safety issues
- Be aware that loss of critical safety expertise may de-motivate other personnel affected [a] by the loss of that source, [b] by an ill- fitting role and demand overload as a consequence and [c] by the perception that managers have not adequately understood the serious implications of its effect on safety standards
- Anticipate the risk that whistleblowers within and without, aggrieved by the employer’s downsizing decisions, will add to the potential for safety violation allegations made against organisation
- Understand that interpretation of regulatory safety mandates is a skilled process; one that may be ambiguous or anomalous; that should not be left to literal interpretation but requires practical understanding and articulation
- Be vigilant for threats – compile a compliance audit and support reporting personnel
- Establish and implement a safety compliance continuity plan
- Be disciplined for safety compliance at all levels, top-down; bottom-up
David Forbes
December 2008