In my discussions with general management, health and safety professionals, educators, and executives from the safety equipment industry, it has become clear that regulatory pressure (OSHA in the U.S.) is no longer the driver for health and safety that it once was. Frankly, it never should have been a key driver, but many enterprises needed the nudge of regulatory workplace standards along with inspections, citations and penalties. Suffice it to say, the regulatory driver ebbs and flows as a result of politics, the labor agenda and, most unfortunately, reaction to catastrophes, e.g. Bhopal, India; Channelview, Texas; and Hamlet, N.C.
There is one set of drivers that is not subject to ebb and flow. That set is firmly based on principles and values that many, if not most, enterprises share. These principles and values can be captured in a simple model called the People, Public Trust and Profit model. The interesting thing about this simple model is that it represents the fundamental basis for not only business success but also health and safety success. One could visualize the model as a three-legged milk stool with the principles/values of People, Public Trust and Profit supporting both business success and health and safety success.
Let"s examine each leg of this principle/value-driven model, paying particular attention to the role health and safety plays in supporting principles/values critical to the success of any enterprise.
People are the first and most important leg of the model. Successful enterprises invest heavily in attracting and retaining quality people, and this means operating personnel as well as managers. For enterprises to be successful in today"s global economy, it is essential that they have a highly capable and committed work force.
Simply said, people are essential for the success of any enterprise. People are also entitled to the preservation of their lives and limbs. This is accomplished by providing a healthy and safe workplace. This, of course, is our professional and ethical charter.
Productivity is a critical element of business success. How can an enterprise even hope to attain optimum productivity without addressing the second-highest human need, safety, on Maslow"s Hierarchy of Needs? Companies striving to maintain or achieve leadership positions in our global economy are implementing work systems based on empowerment, high performance and self-direction. Leveraging these highly productive work systems requires worker trust and commitment that can be attained only when the second-highest human need, safety, is fulfilled.
Another critical factor in optimizing performance is labor/management harmony. There is a tremendous cost in terms of energy, time and business disruption when health and safety issues cause labor/management conflicts.
Public Trust speaks to the reputation and integrity of the enterprise, its products and its corporate citizenship. Companies trade on their reputation and that of their products and services. Ask CEOs of leadership companies about the reputation of their companies and their brands. You don"t even have to ask; just listen when they speak either inside or outside of their company.
Health and safety affects public trust both directly and indirectly. A case in point -- the September 19, 1997, cover story in USA Today had two headlines. One read, "Levi Strauss" big split." The other headline, below a picture of disgruntled employees and another sewing jeans in a factory, stated, "Dispute strains reputation." The focus of the story was an internal conflict between employees about actual and alleged workplace injuries. Note, this dispute was between employees, not employees and management. Two observations: First, the internal conflict became highly publicized, to the detriment of the company. Second, do you believe that the plant involved was able to sustain optimum productivity as a result of this health and safety-induced conflict?
What would the impact be on a high-profile consumer products company if stories of occupational health outbreaks associated with a major brand hit the consumer press? Obviously, the consumer would be concerned and, in all likelihood, would make an alternate purchasing decision because the reputation of the brand was called into question and he or she would no longer hold trust for it.
Public trust is directly related to a company"s license to operate or expand. Consider the community pressure that would be brought to bear on a company that over the past several months had experienced a number of process safety upsets or environmental releases. The NIMBY principle (Not In My Back Yard) would certainly come into play. Public or community trust is a critical aspect in expanding and siting operations.
Regulatory aspects can fall under the public trust heading. Public trust requires companies to obey the law. OSHA is not reluctant to publicize citations resulting in large monetary penalties. The Wall Street Journal reserves space on its front page for such stories.
In my early years as an industrial hygienist, I thought it was absolute heresy to link health and safety with profit. Yet, as time went on, I saw many situations where health and safety had a direct impact on the bottom line. Three such scenarios are:
Productivity/business continuity: Productivity is critical to profitability. Consider the impact on productivity caused by health and safety-induced labor/management disagreements; prolonged regulatory inspections; or serious or catastrophic workplace injuries, illnesses and fatalities.
Technology-enabling: Quite possibly, this is a new term but this is what we health and safety professionals do almost every day of our working lives. I"m not sure our senior line managers really recognize that, without health and safety, they could not make many of the products they presently produce, nor would those products perform as well. Toxic chemicals are broadly used, but they can be handled safely only when comprehensive industrial hygiene practices are put in place. Hazardous processes are essential for manufacturing everything from microchips to huge construction vehicles. Flammability, explosivity and reactivity require sophisticated process hazard management. Are we communicating these kinds of contributions to senior managers in terms they can be expected to understand?
Injury and illness costs: This is the most direct and obvious example linking health and safety with profits. Frankly, this is where the health and safety professional must talk in the same language as their senior line management. Two examples, one actual and one hypothetical, follow:
Large company -- actual: This $25 billion company had total annual workers" compensation costs of $10 million. Not much for a $25 billion company, so senior management might find it hard to get interested. However, the sequence below will take us from $10 million to over $1 billion. Benchmarking data showed that these costs were from 4 to 8 times lower than their competition. Using the mid-point of 6, this company"s costs would have been $60 million if they were average. The profit margin for this company this year was 5.6 percent. The point was made to senior management that if they were average in terms of health and safety, they would have had to sell an additional $1.1 billion just to offset these increased workers" compensation costs. This is a powerful way to present the true costs for injuries and illnesses. The formula is:
Sales to offset losses = $ losses X 10
% profit margin
Senior management left this presentation understanding that health and safety not only delivered on the company"s principle of treating people with respect but provided a clear competitive advantage. All costs were direct costs with no indirect cost multiplier used. However, the next example does consider indirect costs.
Small company -- hypothetical: The Average Widget Co. has 100 employees and annual sales of $26 million. It operates at a profit margin of 5 percent so its profits were $1.3 million. Its Lost Workday Case Rate (LWDCR) is 5.3 (the OSHA average for manufacturing). Published costs for LWDCs vary greatly so the average of five different sources was used to come up with $24,600/LWDC. Therefore, the direct costs came to $130,400. Using an indirect cost multiplier of 2 brings this to $260,800. A 2X multiplier for indirect costs is extremely conservative. Classical texts suggest a range from 3 to 50X.
It is prudent to maintain credibility with line management, which suggests a well-documented multiplier. An article in the July 1997 issue of the Archives of Internal Medicine uses hard data to validate a multiplier of 2X.
Using 2X, the Average Widget Co. would have to sell an additional 20 percent or $5.2 million in widgets to offset its losses from LWDCs alone. The opportunity lies in the fact that a 1/3 reduction in LWDCs would increase profits by 6.2 percent. Do you think its senior management thought about health and safety in these terms?
The inextricable link between health and safety and three critical business principles/values has been demonstrated. In actuality, health and safety professionals play a key stewardship role for all three legs of this model. Health and safety professionals should leverage this model to establish, in the eyes and minds of their senior management, that health and safety is not only a moral responsibility, but aligns with the same principle/values that drive the business. Do not assume senior management sees or understands this strategic relationship. Health and safety professionals must search out ways to demonstrate how health and safety outputs directly and positively affects PEOPLE, PUBLIC TRUST and PROFIT. It is the purpose of this article to facilitate that process.
Dr. Richard D. Fulwiler, CIH , is president of Technology Leadership Associates, Cincinnati, a consulting firm specializing in increasing individual effectiveness and building organizational capability in the occupational health and safety arena. After 28 years with Procter & Gamble, he retired as its director of health & safety-worldwide. He is adjunct professor at the College of Medicine, University of Cincinnati; course director for the Leadership and Management Course at the Harvard School of Public Health; and course director for the Qualified Safety Sales Professional Course. He can be reached at 513/941-1377.