Occupational Health and Safety
Introduction
The International Labour Organisation (ILO) estimates that approximately 1.2 million people around the world lose their lives through accidents and diseases linked to their work every year. In addition, workers suffer 270 million occupational accidents and 160 million occupational diseases each year.
While estimates of the financial costs arising from these accidents and diseases are controversial, the ILO has estimated that financial losses due to workplace injuries and ill-health exceed $1,250 billion. In the UK, the Department of Health and the Health and Safety Executive (HSE) estimate that approximately 40 million working days are lost to occupational ill-health and injury each year, costing the UK economy around £12 billion.
Many companies in which Insight invests operate in sectors with significant occupational health and safety (OHS) risks. We believe that one of businesses’ primary responsibilities is to protect the health and safety of its employees. We also recognise that a poor health and safety record also often means that companies face higher direct and indirect costs. Direct costs include fines, compensation, insurance and sick pay; indirect costs relate to lost productivity, management time, reduced staff morale and a tarnished corporate image.
Insight established its OHS engagement programme in 2003. Our aim is to encourage companies in which we invest to govern and manage their OHS risks effectively. Our engagement has comprised:
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Improving reporting on OHS
Insight has been working with the HSE’s Business Involvement (BI) Programme to develop and promote the CHaSPI. CHaSPI is a means by which business can communicate performance on OHS using a recognised set of indicators. We have supported the development and encouraged companies to participate in CHaSPI for several reasons:
- Increasing the transparency of companies’ OHS performance by publishing an index will encourage them to achieve high levels of performance in an area that is a source of potential risk to shareholders and employees.
- It enables companies’ boards to benchmark their performance against similar organisations and report fuller information to shareholders and stakeholders.
- Achieving high standards of OHS should enable companies to demonstrate they are able to self-regulate effectively and thus potentially reduce the likelihood of stricter and costly regulation.
CHaSPI is a web-based benchmarking tool that is made up of nine indicators. The first five are quantitative indicators including, for example, the injury rate and the number of major incidents and the remaining four are qualitative – including for example, whether the board has made a declaration that it has assessed the health and safety hazards associated with its activities and has implemented an appropriate set of risk management controls. The particular advantages of the Index are that it sets out a best-practice framework and, through public disclosure of performance, provides a catalyst for continuous improvement by companies. It also helps investors and others to assess the health and safety performance of companies in which they are investing.
In 2004, Insight wrote to 68 companies to encourage them to participate in the testing and validation of CHaSPI to ensure that the Index was relevant to their sectors, generated useful information for investors and was straightforward to complete.
In 2006, we wrote to 44 companies (including writing to 21 of the original 68 companies) to encourage them to participate in CHaSPI.
As a result of Insight’s engagement and the HSE’s supporting work, 9 out of the 68 original companies have published comparative data on the Index; 17 have registered to CHaSPI, but are yet to publish their results; and a further 8 committed to Insight in writing to sign up to CHaSPI.
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Promoting best practice governance of health and safety
In our discussions with the HSE (which together with UK Health and Safety Commission (HSC) is responsible for the regulation of almost all the risks to health and safety arising from work in Britain), we noted that the HSE does not provide a complete and up-to-date view on how boards should govern health and safety issues. Insight’s particular interest in the project was to establish an overall OHS governance framework that investors could promote to the boards of companies in which they invest.
We therefore co-funded a report, "Defining Best Practice in Corporate Occupational Health and Safety Governance" with the HSE to define best practice standards in the governance of corporate Occupational Health and Safety. We believe the report provides useful guidance to boards on how they may discharge their responsibilities in this area.
The report highlighted that there is a lack of clarity regarding the distinction between the role of executive managerial responsibilities and the governance role of the board of directors. The report also claims that research has shown that "there is evidence that in many sectors there is still a lack of engagement at the highest levels in UK organisations," and that "directors are still unclear as to their role in OHS leadership and in ensuring that risks to OHS within their business are properly controlled."
More specifically, the report suggests that more detailed guidance is required in the following areas of OHS governance:
- How to incorporate OHS into existing governance structures (which for large companies involves the internal control procedures and the audit and remuneration committees).
- The role of non-executive directors versus executive directors.
- How to effectively implement OHS management delegation.
- How to set objectives and monitor performance of the business.
- How to incentivise the executives to deliver good OHS performance.
The report identifies seven key principles that should underpin OHS governance.
In December 2006, Insight distributed the report to the chief executives of FTSE100 companies.
Going forward, the HSE has asked the Institute of Directors (IoD) to convene a group of stakeholders charged with developing a replacement set of guidance using the report as a starting point. Insight will continue to have ongoing discussions with companies on health and safety issues as part of our programme of meetings with company chairmen.
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Publications
Reports
"Defining Best Practice in Corporate Occupational Health and Safety Governance"
Briefings
"New report on the governance of occupational health and safety"
"Health and safety at the top of the agenda"
"Insight and the Health and Safety Executive collaborate to define best-practice governance framework"
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