Strategic Thinking – a corporate governance issue

Governance is the system by which organisations are directed and controlled by their board of directors. It is through the lens of governance that the broadest strategic decisions are taken and management is held to account. Governance processes are somewhat distinct from management, which are often regarded as the day-to-day decisions taken to run a business. 

 

In recent times, the term ‘corporate governance’ has become common parlance,¹  founded on the belief that risks should be systematically identified, assessed, controlled and reviewed.²  Indeed, with the growing recognition that corporate governance arrangements need to encompass all business risks, OHS is now increasingly being seen by organisations as a corporate governance issue.

 

Corporate OHS governance

Guidance produced by the HSE provides an understanding of how OHS fits within traditional corporate governance and the benefits an integrated approach can bring.³  Importantly, the guidance details what corporate governance as applied to OHS may look like in practice, presenting a conceptual framework made up of seven key principles.

 

1. Director competence

A good starting point to encourage top management to take an interest in OHS is to recommend that they attend training. There are various internationally-recognised OHS training programmes that have been developed to address the specific requirements of top management. For example, IOSH Directing Safely and Safety for Senior Executives courses are ideal for top management in small and large organisations respectively. These programmes can help to raise awareness of the need for top management to provide sound strategic direction for OHS and the importance of its role in shaping the OHS culture in the organisation.

 

In addition to training, the safety and health practitioner can make top management aware of industry conferences and external seminars that address OHS, or recommend involvement in government committees. These forums provide an opportunity for top management to engage in OHS debates and may help in enhancing interest in the discipline. To further develop levels of awareness, it is also commonplace in some organisations for external speakers to deliver brief presentations on topical OHS issues at board meetings, or to permit an external OHS advisor to sit on board sub-committees dedicated to risk management.

 

2. Director roles and responsibilities 

Unfortunately, a belief can exist in some organisations that OHS is regarded solely as the remit of an OHS department and is not the responsibility of top management. However, integrating OHS into holistic corporate governance structures is a constructive way of promoting collective responsibility from top management. Moreover, guidance published by the HSE aimed specifically at directors, offers specific advice on their OHS responsibilities.⁴

 

One specific action point in the guidance recommends that the board of directors needs to formally and publicly accept its collective role in providing OHS leadership in its organisation.  Although this guidance was superseded in 2007,⁵  the message still remains the same in that, irrespective of the appointment of a health and safety director, members of the board should have both individual and collective responsibilities for OHS. 

 

The problem with responsibilities is that they tend to be delegated. Subsequently, it is important that the safety and health practitioner, in liaison with human resources professionals, ensures that job descriptions for all positions in an organisation, including top management, include responsibilities and accountabilities. 

 

Guidance produced by IOSH provides a breakdown of the accountabilities of directors within the UK.  The preparation of position descriptions with applicable jurisdictional accountabilities can be an effective way of ensuring that top management fully understand their commitment to providing effective 

OHS leadership.

 

3. Culture, standards and values

Fundamentally, OHS is about people. It is about preventing death, injury and ill health to those people at work and those affected by work activities. However, this laudable goal will never be achieved if there is a misalignment between OHS requirements and the core values of the organisation. Top management commonly proclaim organisational vision and values. The concept of a business vision is discussed later, but values relate to the core principles or standards in a business — they should sum up what the business stands for and what makes it special. For example, the business values at the Coca-Cola Company include leadership, passion, integrity, accountability, collaboration, innovation and quality. It is important for the safety and health practitioner to be aware of the values of the organisation and determine their compatibility with the overall vision for OHS.

 

The tone that is set from the top of the organisation is vital in driving OHS improvements, with evidence suggesting that management styles characterised by openness and flexibility are the most effective in promoting a positive OHS culture.⁶  To encourage greater commitment from top management, the safety and health practitioner can play a role as facilitator in providing opportunities for top management participation in OHS. This can include organising periodic management safety tours or encouraging top management to be involved in OHS competitions. These initiatives can also help engender commitment from lower levels of the organisation and assist in cascading OHS messages throughout the organisation.  

 

4. Strategic implications

The starting point for creating an effective OHS strategy invariably involves defining a vision. Without the need to name and shame organisations, a quick trawl through any search engine will quickly find proclamations of visions for ‘world class OHS performance’ but a vision should be something that you can see. Furthermore, you should know when the vision has been achieved and it should reach out to everyone within an organisation at a personal level in order to influence desired behaviours. 

 

The ability to describe the future you desire in terms that employees can understand is a crucially important part of defining an OHS vision. It helps people visualise the journey you want them to take and ensure the decisions they make are consistent with that vision.

 

The term ‘zero’ is commonly adopted into modern OHS visions (see ‘zero harm‘).  Indeed, a vision that incorporates zero is an effective way of instilling clarity within an OHS strategy, however, the safety and health practitioner needs to make sure that the criteria for achieving this goal is clearly defined. Once a vision has been formalised it needs to be communicated effectively to the workforce. Training provides an ideal opportunity to communicate the vision, however, it should be reinforced periodically using other forms of communication, such as posters, leaflets and text messages, always with involvement from top management, to ensure that the critical messages remain in the minds of the workforce.

 

5.  Performance management

Once an OHS vision has been established, it is important for the board to be involved in setting objectives and targets to meet the overall vision. The safety and health practitioner should ensure that the organisation’s approach to measuring OHS performance encompasses lagging indicators or measures of failure, for example, number of lost time accidents (LTAs), days lost due to occupational ill health, etc., and leading indicators that provide a more holistic perspective of the OHS culture and effectiveness of OHS management arrangements, for example, the percentage of top management attending OHS training, percentage of corrective action requests closed out, etc.

 

Top management often refer to the ‘balanced scorecard’ when discussing performance management.⁷  This tool essentially requires a combination of financial (revenue growth, profitability) and non-financial (customer service, sustainability, metrics) to be utilised when measuring an organisation’s performance. Although it is argued that OHS has financial benefits, in the context of the balanced scorecard it would typically be regarded as a non-financial consideration. 

 

The safety and health practitioner should recommend that OHS metrics are given sufficient weighting within methodologies of this nature.

 

6. Internal controls

The board should ensure that existing internal control structures provide for the identification and management of all key risks, including OHS. The safety and health practitioner may be regularly involved in performing audits of OHS management arrangements, however, it is important to ensure that the approach to OHS auditing is consistent with other internal audit processes within the business. Furthermore, even if an organisation does not follow OHSAS 18001 requirements, it is good practice to ensure that top management contributes to a periodic review of OHS performance.⁸

 

One of the issues with internal control mechanisms and associated board (group) decision making is ‘group think’;⁹  the phenomenon whereby members of the group are so concerned in striving for consensus that alternative or conflicting perspectives are often ignored, irrespective of their merits. The role of the safety and health practitioner, or in some cases a non-executive OHS director, should include the power to be able to offer opinion on important decisions with OHS implications prior to approval from top management. Indeed, the word governance is derived from the Greek word kubernetes, meaning ‘helmsman of the ship’,¹⁰  and even though the safety and health practitioner may not decide the direction that the ship takes, they should certainly help in manning the rudder.

 

7. Organisational structures

Previous discussion on director roles and responsibilities emphasises that although directors may have individual responsibilities for OHS they should operate collectively and that OHS is an issue for the whole board. Moreover, integrating OHS into holistic corporate governance structures is a constructive way of promoting collective responsibility from top management.

 

From the safety and health practitioners’ perspective, it is important that OHS requirements are communicated to top management and that careful attention is paid to ensuring co-ordination between the systems and processes developed for managing risks throughout the business.

 

There remains a growing trend for OHS to be part of a wider enterprise, risk-management perspective, placing significant emphasis on effective organisational design. This shift to risk management, as opposed to safety management, has resulted in organisations commonly establishing separate board sub-committees to consider risks which may affect the business, at a corporate, functional and project level. Although the creation of an executive OHS committee may not be warranted, it is important that the board is organised to deliver OHS governance and that appropriate structures are put in place to make it happen.

 

Conclusion

Research shows the benefits of governance processes as applied to OHS, including long-term prosperity and value creation.¹¹  However, more needs to be done to effectively integrate OHS into the existing governance arrangements in many organisations. Although governance processes may differ across different business ownership structures, it is important that the safety and health practitioner understands the importance of corporate occupational health and safety governance and some of the ways to encourage top management involvement 

in OHS.

 

Furthermore, with the increasing need for safety and health practitioners to have the ability to talk to business units in strategic terms, attempts should be made to propose solutions that are integrated with wider business considerations. In particular, demonstrating an understanding of wider governance issues and recognition of the business realities of decision-making can help improve top management perception of the role of the safety and health practitioner and help ensure that OHS requirements are given the attention they deserve.

 

References

 

1. Report of the Committee on the Financial Aspects of Corporate Governance, Cadbury Report, Gee (a division of Professional Publishing Ltd) 1992

2. Turnbull N, Internal Control: Guidance for Directors on the Combined Code (Institute of Chartered Accountants in England and Wales, 1999)

3. Health and Safety Executive, Defining Best Practice in Corporate Occupational Health and Safety Governance (HSE Books, Research Report 506, November, 2006)

4. Health and Safety Executive, Director’s Responsibilities for Health and Safety (HSE Books, INDG 343, 2003)

5. Health and Safety Executive, Leading Health and Safety at Work (HSE Books, INDG 417, C700, 2009)

6. Health and Safety Executive, The Role of Managerial Leadership in Determining Workplace Safety Outcomes (HSE Books, Research Report 044, 2003)

7. Kaplan R and Norton D, The Balanced Scorecard — Measures that Drive Performance (1992) Harvard Business Review 70 (1) 71-79

8. British Standards Institution, BS OHSAS 18001: Occupational Health and Safety Management Systems — Requirements (British Standards Institution, London, 2007) ss 4.6 Management Review

9. Janis I L, Victims of Groupthink: A Psychological Study of Foreign-Policy Decisions and Fiascos (Houghton Mifflin Company, 1972)

10. Garratt B, Can Boards of Directors Think Strategically? Some Issues in Developing Direction-givers’ Thinking to a Mega Level (2005) Performance Improvement Quarterly 18 (3) 26-36

11. Health and Safety Executive, Defining Best Practice in Corporate Occupational Health and Safety Governance (HSE Books, Research Report 506, November, 2006)

 

Rob Cooling is risk services manager for Parsons Brinckerhoff, Middle East and North African