The Occupational Safety and Health Administration's (OSHA) Voluntary Protection Program (VPP) requires that a given facility go well beyond what is minimally expected of them by OSHA standards. VPP participation is resource-intensive and often requires significant capital expenditures at the outset and a relentless commitment from facility and organizational leaders to keeping their facilities safe.
Indeed, given the resource intense nature of such an endeavor, one might be hard-pressed to understand why a facility decision-maker would ever decide to undertake such a task. Yet many facility managers do, and many VPP sites belong to some of the most profitable and progressive organizations in the world. The company names on the VPP roster should cause non-participants to take notice and wonder whether these progressive companies might be on to something. Could going the extra mile in the area of employee safety and health and partnering with OSHA actually be a strategy for success?
To answer this question, let us first take a look at the popular and academic business literature suggesting the existence of economic rewards for companies that choose to be good and do good. In general, the prevailing argument suggests that companies choosing to engage in activities that are socially responsible (operating a safe worksite being only one of several criteria) will reap a multitude of rewards for doing so. These rewards include an enhanced public image of the firm resulting in increased sales and market share to customers of social conscience1, increased value of the firm due to the attractiveness of the responsible firm to social investors2, less adversarial relations with regulators3 and even claims of happier employees4. Ultimately, as many investigators have argued, firms that engage in responsible decision-making perform better financially and a link between Corporate Social Performance (CSP) and Corporate Financial Performance (CFP) has been demonstrated in numerous studies5.
Of course, the studies establishing this link are not perfect in their design, and there are also a number of studies showing no demonstrable link. In addition, one could argue that financial performers perform better in the realm of social responsibility because they can afford to. Certainly then, we must look at some additional information if we are to discover whether involvement in a program like OSHA's VPP program might be a strategy for success.
In his book Greening the Firm, Aseem Prakash explores the internal politics of companies considering whether to undertake participation in environmental, voluntary programs sponsored by governmental regulators and industry groups. He categorizes decision-making using several criteria based in part, on the information made available to decision makers.
One criterion used for decision-making is what Prakash terms "ex-ante" decision-making. This decision-making process involves conducting cost-benefit analysis on the initiative in question. Basically, if the financial benefits from the initiative result in a return exceeding the company's required rate of return over a period of time, the project is accepted.
This approach to decision-making is certainly not new in that, financial decision-making tools such as Return on Investment (ROI) and pay-back period are commonly used in business when considering capital investments. Recently, however, there has been increased focus on using ROI tools to calculate the projected ROI resulting from various Environmental Health & Safety (EH&S) initiatives. Many EH&S professionals, for instance, have recently been using ROI to sell safety-related initiatives to executive decision-makers, and some well respected consulting firms have even been using an ROI model to help convince prospective clients that implementing a safety management system akin to the management system prescribed by VPP can result in a return that far exceeds the ex-ante criteria of most companies.
In addition to the recent interest in using financial tools to assess the potential ROI for S&H related initiatives, there have been numerous examples of financial success stories claimed by VPP companies indicating that VPP participation has resulted in considerable savings. The following, for instance, are just a few success stories taken from OSHA's VPP benefits Web page:
- From 1989 when Thrall Car's Winder, Ga., plant began implementing its programs to qualify for the VPP and 1992, workers' compensation costs dramatically declined by 85 percent, from $1,376,000 to $204,000. Mobil Chemical Co. reduced its workers' compensation costs by 70 percent, or more than $1.6 million, from 1983 to 1986, during the years it was qualifying its plants for the VPP. This reduction was sustained through 1993.
- At Georgia Power's two power plant construction sites, the direct cost savings from accidents prevented at one site was $4.14 million and was $500,000 at the other for 1986 alone.
- Mobil Oil Co.'s Joliet, Ill., refinery experienced a drop of 89 percent in its workers' compensation costs between 1987 and 1993.
Thus, given these success stories, there is good reason to suspect that participating in VPP may meet the ex-ante criteria for many facilities if the company was to take the time to conduct a cost-benefit analysis. Accidents are very costly and the prevention of even seemingly minor accidents could save a company thousands of dollars. Other benefits have also been claimed including increases in productivity, and decreases in both absenteeism, and turnover. Thus, VPP participation may indeed be a good strategy for companies looking to eliminate waste and attempting to create lean processes.
Another area where VPP participation may provide a benefit to participants is in its dealings with stakeholders. In essence, stakeholder theory as first described by Edward Freeman6 suggests that firms exist primarily to create wealth and value, and to distribute that wealth and value to those who hold a legitimate interest in the firm, otherwise known as stakeholders.
The theory was later separated into three stakeholder theory perspectives. The "normative" perspective focuses on weighing the interests of all primary stakeholders in determining what an organization ought to do. A second perspective describes the reality of how the interests of stakeholders are actually considered in the real world (the descriptive perspective), and the third stakeholder perspective looks at stakeholder interactions as a strategy for achieving a desired outcome7.
In exploring the third stakeholder perspective, known as "instrumental stakeholder theory" Thomas Jones8 pointed to some interesting insights relative to reasons why companies that do good, might benefit in the process. Jones discusses stakeholder theory in light of agency theory, team production theory and transaction cost economics and provides an instrumental stakeholder perspective which holds that opportunism is a source of loss of trust and that trust is essential for organizations to be competitive. He argues:
"…behavior that is trusting, trustworthy, and cooperative, not opportunistic, will give the firm a competitive advantage. In the process, it may help explain why certain 'irrational' or altruistic behaviors turn out to be productive and why firms that engage in these behaviors survive and often thrive."
Thus, Jones argues that there is an instrumental aspect to corporate social performance in that acting responsibly results in trusting relationships between the firm and its stakeholders that enhances competitiveness and financial performance. In essence, therefore, it is good for the company to be good. Forging trusting relationships with company stakeholders is good business.
From a VPP perspective, forming trusting relationships with customers by demonstrating to customers that the company cares for its own, earning the trust of the community by assuring the community that potentially catastrophic processes are safe, earning the trust of employees by introducing them to a culture that cares first for the employee's well-being, and earning the trust of government can all help add to a firm's bottom line by reducing friction with stakeholders (transactions), enhancing cooperation both internally and externally, and building a corporate reputation based on trust.
VPP therefore, can be viewed as a strategy for success. Companies that strive for long-term success and embrace the VPP model are aware of both the financial returns to be gained, and of the instrumental value of being recognized as a company that holds the well being of their people and their community in high regard, knowing there are rewards to be gained from such a reputation.
So is VPP participation a value or folly?
Certainly much of the information available to date indicates that VPP participation has some value to it, and companies looking for a strategic advantage would be well advised to explore the possibility of participating. Yes there is an investment of time, commitment and perhaps even some capital outlays, but there are likely many returns to be made on the investment and these returns will come in many forms.
Companies, for instance, report dollar savings ranging into the millions, decreases in employee turnover and increases in productivity resulting directly from their VPP efforts. Also, in a world of corporate scandals, denial of responsibility for defective products, and even sweatshops in some parts of the world run by multi-national corporations, the VPP flag flies as a symbol of corporate social responsibility, setting apart the company that chooses to do the right thing and helping to forge a reputation of trust with the company's stakeholders. So should your company look into VPP? Absolutely! All stakeholders with whom your organization interacts, including your shareholders, are likely to benefit from your participation.
1Besser, T.L., (1999). "Community involvement and the perception of success among small business operators in small towns," Journal of Small Business Mgt. 37:4; Osterhus, T.L., (1997) "Pro-social consumer influence strategies: When and how do they work?" Journal of Marketing. 61:4; Ruf, B.M., (2001) "An empirical investigation of the relationship between change in corporate social performance and financial performance: a stakeholder theory perspective," Journal of Business Ethics. 32:2; Videras, J., Alberini, A., (2000), "The appeal of voluntary environmental programs: Which firms participate and why?" Contemporary Economic Policy. 18:4.
2Frooman, J., (1997). "Socially irresponsible and illegal behavior and shareholder wealth," Business and Society. 36:3; Hutton, B.R., (1998) "Socially Responsible Investing: Growing issues and new opportunities," Business and Society. 27:3.
3Videras, J., Alberini, A., (2000), "The appeal of voluntary environmental programs: Which firms participate and why?" Contemporary Economic Policy. 18:4.
4OSHA, (2002), "The Benefits of Participating in VPP," US Department of Labor Occupational Safety and Health Administration, www.osha.gov/oshprogs/vpp/benefits.html .
5Besser, T.L., (1999), "Community involvement and the perception of success among small business operators in small towns," Journal of Small Business Mgt. 37:4; Ruf, B.M., (2001), "An empirical investigation of the relationship between change in corporate social performance and financial performance: a stakeholder theory perspective," Journal of Business Ethics. 32:2.
6Freeeman, R.E., (1984). "Strategic Management: A stakeholder approach." Pitman, Boston, MA.
7Donaldson, T., Preston, L.E., (1995). "The Stakeholder Theory of the corporation: Concepts, Evidence, and Implications," Academy of Management Review. 20:1.
8Jones, T.M. (1995). "Instrumental Stakeholder Theory: A synthesis of ethics and economics," Academy of Management Review. 20:2.