According to a recent industry report, over the last five years, 32 corporations – including Johnson & Johnson, Toyota and Merck – have paid $100 million or more in penalties related to environmental, health and safety (EHS) violations. Not surprisingly, BP tops the list at a whopping $25 billion in following its 2010 Deepwater Horizon incident.
To say that the legal and regulatory implications of a poorly managed EHS program can be disastrous –both from a financial and reputational/image perspective – is an understatement. Knowing this, I’d like to explore the current challenges EHS regulations pose for manufacturing, what the problems and solutions are for being compliant, and raise the question of whether these penalties have made any difference in curbing corporate misconduct.
The Challenge with EHS Regulations
It’s important for companies to realize that developing a process to ensure EHS compliance is not much different than a company’s product quality process. Companies must have internal processes in place before they can even think of providing high-quality products for consumers.
Unfortunately, because EHS regulations are so fragmented, it’s difficult to understand what the right protocols are in the ever evolving environmental and worker/workplace regulatory landscape. Regulations change by industry and are dependent on what part of the region a company is located. This is when companies have to do their due diligence to understand what the specific applicable regulations are in their field.
Here are some of the reasons companies have issues meeting EHS regulations, and what they can do to ensure they’re on the road to compliancy:
Lack of transparency – I can’t stress this enough, but there’s huge need for corporate transparency when it comes to EHS rules and regulations. We only hear about the large penalties and tragedies involving high-profile enterprises (Foxconn, BP, etc.), but what about the hundreds of other violations companies have committed? What are they doing to prevent these violations and accidents?
To learn from mistakes, companies must take the initiative to keep a public record of all accidents, situations and challenges, how they overcame these challenges and the lessons learned. When accident investigations or case studies are not done for all situations, it deprives the company, its employees and other companies in its industry of critical information for the prevention of future accidents. Thorough investigation reports can be one of the most valuable exercises for companies.
Lack of proper SOPs – Having standard operating procedures (SOPs) may seem obvious, but the lack of proper ones – especially ones that are not written and given to employees –actually is very common. SOPs create more structure in business activities, and make it easier for new and current employees to do their jobs and learn what policies and procedures are in place to handle repetitive situations/tasks.
When it comes to worker and workplace safety, any mishaps in large scale mean fatal accidents, loss of productivity and ultimately, operating costs to an enterprise. Not only that, any unaddressed issues lead to greater scrutiny for entire business segments. Additionally, proper SOPs ensure a company’s clients and customers are getting the best experience because there is a standard way of dealing with questions, recalls and accidents.
Simple human error and paper-based systems – A large number of organizations still rely on paper-based or disparate electronic systems (e.g. Excel spreadsheets, custom-built databases) for reporting, auditing and tracking purposes with respect to EHS. This opens them up to simple human error. Such systems do not provide the necessary control and efficiency when trying to simultaneously maintain EHS compliance, manage key processes and observe stringent procedures for tracking based on organizational SOPs; local, national and international government regulations; and compliance guidelines in conjunction with ISO 14001, ISO 9000 and OHSAS 18001, among others.
One of the biggest shortfalls of such siloed and inconsistent EHS management is the lack of transparency and ability to provide lessons learned from one business to other. While EHS compliance needs vary across industries, the overall objectives of environmental, health and safety compliance software are the same: to minimize risk and ensure compliance with EHS rules and regulations while enabling the organization to operate efficiently with safe operating environment for their workforce.
Curbing Corporate Misconduct
So have companies actually learned from these monetary sanctions and will this help usher in changed corporate behavior? Unfortunately in the long term, there is little evidence that fines and public criticisms prompt companies to reform its safety practices.
In fact, five years before BP’s Deepwater Horizon incident, a massive explosion at BP’s refinery in Texas City, Texas killed 15 workers and injured 180 others. BP blamed employees for causing the accident, but both OSHA and the U.S. Chemical Safety Board pointed to several deficiencies in company standard safety and policies.
If you examine the aerospace industry, primarily airline operations, it enforces a strict adherence to safety whether it is in the flight deck or ramp operations. Why? Because it is a ubiquitous business segment that directly is connected to consumers (airline passengers) and any safety miscues directly impact the safe operation of the aircraft as well as operating economics.
Also, the regulatory agency – the Federal Aviation Administration – has more power to enforce operational penalties, including denying operating authority.
With an ongoing increase in regulatory requirements, public transparency and practices, it’s becoming more and more essential for companies to have a consistent, standardized and detailed compliance strategy and set of compliance tools to tackle the tough EHS challenges.
Although many of the leading companies are beginning to undertake the responsibility of transparency and reporting to engage in corporate social responsibility, there still is a long way to go. These companies are leading the way by taking the initiatives to define objectives, strategize tactical means to attain these objectives and report annually under a voluntary basis. Such vision is important not only to set the direction for the company, but also to show how the corporation is being a responsible corporate citizen.
At the end of the day, becoming EHS compliant is a strategic advantage. It helps companies become more productive with safe work environments and proper employee training, raises the corporate social responsibility reputation and avoids costs and penalties from accidents that easily could be resolved with right protocols and practices.
About the author: Mohan Ponnudurai is the industry solution director of Sparta Systems’ Product Management group. He’s responsible for helping guide the company’s alignment with industry trends, needs and requirements. Additionally, Ponnudurai helps both Sparta Systems’ company and clients in the electronics manufacturing sectors to track and understand changes in the regulatory and business environment. He earned his bachelor’s degree in engineering from McGill University and MBA from the University of Tampa.