Environment, Health and Safety Governance and Leadership

The Making of High Reliability Organizations

Waddah S. Ghanem Al Hashmi

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317497950
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Gestión

Environment, health and safety (EHS) management has become increasingly important in the past 10 years, especially within high risk and high reliability organizations. EHS is driven from the top of an organization, and whilst there has been much research on the subject of EHS leadership, there is very little on EHS governance and the director's role in leading or influencing change in organizational safety/EHS performance.

Environment, Health and Safety Governance and Leadership: The Making of High Reliability Organizations reviews the factors influencing safety/EHS leadership and governance and addresses all the areas where the role impacts on the performance and sustainability of organizations. Based on the author's in-depth research, the book draws on much of the best-practice standards developed by many leading organizations such as the UK Health and Safety Executive (HSE), the Institute of Directors (IoD) and the Organisation for Economic Co-operation and Development (OECD).

This book provides exclusive insights and legal imperatives for practitioners and leaders to inform decision making, strategy and EHS governance, all of which can have a fundamental impact on business continuity, developing company value and the sustainability of large organizations around the world.

1
Introduction

EHS has become more critical for organizations because of negative impacts including both direct financial effects with immediate losses and longer-term business effects such as shareholder confidence, public distrust, class-action and financial compensations and penalties.^[1] However, EHS developments have also become too complex for business managers to understand at times. Even the links of incidents to their direct, related and root causes are not fully understood, as well as the cause and effect of business decisions made which may have attributed to the losses and impacts. The same probably applies to sustainability, corporate social responsibility (CSR) and enterprise risk management (ERM). Due to the growing complexity and interactivity, EHS professionals and managers/directors are finding themselves working ever more closely with the strategic business planning functions in corporations.^[2]

The costs of HSE incidents to industry are great. They encompass direct costs, including medical; compensation insurance; legal fees etc. and indirect costs: uninsured costs; employee morale; time lost at work; loss of experience; economic loss due to the injured person’s family; and lost time in investigations, as well as many others.^[3]

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To put things into global context: just as an example, between July and December 2012 alone (i.e. over a span of six months), there were six major petrochemical explosions and fires; six major and serious incidents in E&P offshore incidents; one very serious onshore incident; two serious incidents in fertilizer plants; three major and serious incidents in gas plants; and 19 refinery incidents ranging from significant to major incidents. There have been fatalities and major injuries^[4] as well as combined losses amounting to many millions of dollars in direct and indirect financial and reputational impacts.

When we look at the Middle East, there have been many changes in the Arab world and the GCC states in the past 30 years. Those of the past seven years are probably most significant, partly because of the strong tides of socio-political changes with underpinning socio-economic drivers (e.g. a younger population seeking job opportunities).^[5] At the same time much more focus is placed on matters such as CSR, nationalization and transparency, with national and international companies expected to clearly show their (mainly socio-economic) contribution as corporate citizens. These changes can be regarded as risks when the organizations have not prepared themselves appropriately. Other major risks are talent management matters (or human capital development), business continuity and more holistic enterprise risk management. In the energy sector alone, the expectations are that energy demand in the Gulf region will increase by 150% + by 2030, and this will place even greater pressures on energy supply companies and other associated secondary industries such as manufacturing, power and utilities, aviation and the transportation and logistics sectors.^[6]

But globally, an emerging risk is the requirement to apply HSE standards; these vary between jurisdictions, and the lack of uniformity has deterred organizations from entering and operating in certain markets.^[7] This has become a real problem because organizations have to balance between the application of good industry practice, which helps them manage the risks in their operations, against the local socio-economic, geo-political, regulatory and general market conditions.

Globalization has also had a significant impact, particularly in the Arab and GCC economies. Traditionally these economies have been centrally controlled, but with a breakdown of economic boundaries have come under an increased pressure due to the power of markets driven by multinationals, technology and changing economic factors. This has in turn led to the need for a more informed leadership within the major industries within the GCC, with perhaps more engaged and informed boards.^[8] A major benchmarking study undertaken in the O&G sector shows that even very large national organizations such as the Abu Dhabi National Oil Company (ADNOC) have had to embrace great reforms in terms of corporate governance.^[9]

In 2010 the GCC – Board Directors Institute (GCC-BDI) was established as a not-for-profit organization dedicated to making a positive impact on the economies and societies of the GCC states and region through promotion of professional directorship and raising the level of board effectiveness. The founding members are from both the financial and industrial sectors, and there are professional content partners representing four of the most well-known international business consultancies, regulatory partners and corporate affiliates representing both the financial and industrial sectors. Their workshops focus on raising board directors’ awareness on matters including strategic risk management, legal imperatives for board directors and leadership matters (see www.gccbdi.org).^[10]

Although the fiduciary and legal duties of directors, especially in listed companies, have become more pronounced, the reference of the same in global standards and codes of practices has been covered in detail later in the book.

This also has led to an emerging risk where organizations have to apply HSE standards, which vary in different jurisdictions, so even applying a particular “best practice” may not be suitable in a certain jurisdiction. This has even deterred organizations from deciding to enter and operate in certain markets.^[7]

Carey and Patsalos-Fox (2006)^[11] explain that after many serious corporate governance standards have come into effect, such as the US-based Sarbanes-Oxley Act (SOX), the demand for academics, non-profit organization executives and retired executives to be engaged as board directors has increased dramatically.

In 2012, the Organisation for Economic Co-operation and Development (OECD) developed a voluntary standard on “Corporate Governance for Process Safety – Guidance for Senior Leaders in High Hazard Industries” (PSM) that focuses on high risk industries.^[12] The document concludes with a model in which leadership is the heart of the model.

It is interesting to note that progressive companies now seek to fill at least a third of the board seats with seasoned professionals and specialists with expertise in corporate social responsibility (CSR), EHS, sustainability etc.^[10]

In the following chapters a review of many of the aspects discussed in this chapter is undertaken in further depth, and the implications in certain areas are elaborated on.

References

1 Lukic, Dane, Margaryan, Anoush and Littlejohn, Allison (2010): “How Organizations Learn From Safety Incidents: A Multifaceted Problem”, The Journal of Workplace Learning, 22(7), 428–450.

2 MacLean, Richard (February 2001): “Coming to Grips With Business Reality”, Environmental Protection Magazine, 42–44.

3 Al-Ahmari, Abdullah (February 2012): “The Relationship of Good Safety With a Good Business”, ASSE-MEC-2012-21, American Society of Safety Engineers – Middle East Chapter Conference and Exhibition, Bahrain, Page 152.

4 Marsh (2013): “The 100 Largest Losses 1972–2013 – Large Property Damage Losses in the Hydrocarbon Industry”, Energy Practice (Global Report), 22nd Edition, Marsh and McLennan Companies.

5 PRB Assad, Ragui and Rouddi-Fahmi, Farzaneh (2007 April): “Youth in the Middle East and North Africa (MENA): Demographic Opportunity or Challenge”, Population Reference Bureau (PRB), Washington, DC.

6 McKellar, Kenneth (August 2011): “Risky Business”, Interview, Published by Oil and Gas Middle East (Magazine).

7 Richardson, Graham (2013): “Risk in Emerging Markets”, Governance, March(225), 6–7.

8 Major, John (2005): “Multinational Corporations and State Sovereignty: Redefining Government Responsibilities in a Global Economy”, The Gulf Challenges of the Future, Published by The Emirates Centre for Strategic Studies and Research, UAE.

9 Booz & Co (2010): “Oil and Gas Sector and Corporate Governance Benchmarking”, Booz and Company Consultant Research Report Presentation, Version 2, Beirut.

10 Gulf Cooperation Council – Board Directors Institute website, www.gccbdi.org, accessed 20th September 2016.

11 Brodeur, Andre, Buehler, Kevin and Patsalos-Fox, Michael (2010): McKinsey Working Papers 18: “A Board Perspective on Enterprise Risk Management”, McKinsey.

12 Organization for the Economic Cooperation and Development (OECD) (March 2012): “Corporate Governance for Process Safety – Draft Guidance for Senior Leaders in High Hazard Industries”, Draft – 1st March 2012, Environment Directorate, Joint Meeting of the Chemicals Committee and the Working Party on Chemicals, Pesticides and Biotechnology, Ref: ENV/JM/ACC(2012)1.

2
Developing high reliability organizations (HRO)

The concept of high reliability organizations rests very much on the theory that accidents can be prevented through good organizational design and management/leadership.^[1] One of the most comprehensive studies undertaken in more recent years defining high reliability organizations is the HSE Laboratory (2011) study “High Reliability Organizations – A Review of the Literature”. In this work the definitions start from the context of the two (competing) prominent schools of thought that seek to explain accidents in complex, high hazard organizations: Normal Accident Theory (NAT) and High Reliability Organization Theory (HROT).^[2]

In NAT, the definition is very straightforward and depicts the tight coupling of various aspects of systems and system components (e.g. people, equipment, procedures) and shows that, due to the complex relationships and interdependencies of these tightly coupled and often highly automated systems, the timing of tasks does not even allow for human intervention. When a failure occurs in one part of the system, it quickly spreads to another part of the system, and you have a massive failure. Interestingly, researchers classified petroleum/petrochemical plants such as refineries as lower risk when compared to military systems and aircrafts etc.

This theory was apparently highly criticized mainly for its failure to be consistent in accurately capturing and differentiating between the design features of systems in these industries and ignoring the conditions in which complex systems operate and do not fail. Also, others have identified the weakness in the definition of the theory itself because it is too complex to serve the purpose of simply identifying how the theory describes accident causation, etc. It can therefore be argued that it thus becomes of little value to practitioners, as it fails to advise its users and suggest how accidents can be reduced.^[2]

In essence, the NAT describes the consequences of human-machine interface actions where the source of failure is more physical and/or technological. In contrast, the HROT can be described as more “in response to” uncertainty, complexity and risks and with a focus more on behavioural and socio-physical aspects.^[3] The socio-physical dimension is created from the tight relationship between the human being and the machine/physical processes.

The definition of HROT addresses the criticisms of NAT. This theory focuses mainly on the position that accidents in complex systems are neither unavoidable nor invertible. This is because of the processes in place that enable high hazard organizations to effectively prevent incidents and contain catastrophic errors from actually occurring and thus maintaining a consistent record of safe operations. In fact, HRO researchers maintain a positive view regarding the nature of accidents in complex systems by arguing that organizations can become more reliable by creating or engineering a positive safety culture and reinforcing safety-related behaviours and attitudes.

What is very interesting here is that HRO research...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Acknowledgements
• About the author
• List of illustrations
• List of abbreviations
• Foreword
• Preface
• Purpose and value of this book
• 1 Introduction
• 2 Developing high reliability organizations (HRO)
• 3 Corporate governance and historical review of developments
• 4 Legal imperatives that drive EHS governance
• 5 Environment, health and safety (EHS) in organizations
• 6 Risk perception, risk management and risk tolerance
• 7 Relationship of corporate social responsibility (CSR), social accountability (SA), and sustainability
• 8 The effective board and its relationship with the CEO/MD of an organization
• 9 Organizational structure and effective safety communication
• 10 Exploring the themes impacting EHS governance and leadership
• 11 Impact of board structures and future outlook on HSE governance
• 12 Model of EHS leadership in the context of corporate governance
• 13 The model of EHS governance and leadership
• 14 Conclusions
• Index