The furore caused by the SC judgment on the Bhopal catastrophe has initiated a lot of debate on both the prevention of such incidents and the fixing of liability when such events do take place. The debate on the civil nuclear liability bill, the inferno at a fuel depot in Jaipur and the gulf oil spill have made this topic very relevant today. While the primary motive of any industrial concern is the generation of wealth through the production of goods and services, it should go about this process in such a manner that the health, safety and well being of its employees, customers, the general public and the environment is preserved. The consequences of industrial disasters – ranging from loss of human lives, to environmental damage and the resultant financial and legal liabilities on the corporates should make the government and corporates sit up and take notice. As the old adage goes, an ounce of prevention is worth a pound of cure. A top imperative for any company should be to institutionalize the safety processes across all is operations.
A very apt model for institutionalizing safety processes in each and every action of a company is the way a Finance department is run within a company. Cutting across the silos, the Finance department ensures the propriety of cash flow into and out of the company. The books of accounts are subjected to statutory audit on a quarterly basis and the buck stops at the desk of the Chief Financial Officer (CFO). Additionally, every public company has to publish its quarterly financial statement that is counter-signed as authentic by the CFO and the Managing Director (MD). No transaction – be it a few rupees worth or a few millions worth – is outside the purview of the internal and external audit teams. To top it all, the audit committee of the board of directors oversees the internal audit and external audit process and monitors the internal control process. A key function of this committee is to ensure regulatory compliance. All companies put in place multiple layers of monitoring and control for the finance function as this is at the core of the raison d’etre of the company, namely, making profits.
The above model is worth emulating in building a safety organization within a company. Many companies do have a safety department, but this is typically relegated to a subsidiary function that often exemplifies “responsibility without authority”. Analogous to the Finance department, the safety department should be authorized to oversee the gamut of processes – from the design and layout of the building as per safety norms, the processes used for production, the compliance of the end product to safety regulations, the consumption of natural resources to the safe disposal of wastes. The safety department should be headed by a Chief Safety Officer (CSO) who has a seat on the board of directors and reports to the MD. A key role of the CSO is to institutionalize periodic safety drills, benchmark the response times in these drills and bridge the lacunae identified. The CSO should lay down the safety policy of the company and should conduct a quarterly audit to ensure compliance to the guidelines. The audit should oversee the adherence to norms, scope for human errors, equipment wear and tear and all other factors that could affect safety. The audit reports should be filed with the regulatory authorities after approval of the board. The CSO should recommend enhancements to the safety apparatus as and when needed. At the board level, a safety committee can oversee the audit and ensure compliance to regulations. In due course, an Institute of Safety Auditors can be constituted akin to the Institute of Chartered Accountants for the external audit.
A logical question is whether the office of the CSO is established to find a scapegoat in the event of an industrial accident. Going back to our analogy, a CFO is never fired or sued for every audit objection or financial fraud or loss that occurs in a company. But, the CFO is held responsible when the financial loss can be traced to a deliberate systemic flaw. Similarly, a CSO need not be hounded for minor incidents due to human error or negligence. But, the CSO should be held liable if the accident can be attributed to a deliberate and systemic subversion of safety processes. The European Union guidelines used for fixing liability when a life saving equipment fails is a valid reference model. If the company can produce pre-existing documentation to prove that all commercially reasonable care had been taken to identify the weak links and mitigate the risks by design then it is free from criminal liability even when an equipment fails. Experience shows that major catastrophes take place when the minor symptoms are ignored and glossed over. Putting in place a formal safety organization with responsibility and authority is the only option companies have to prevent accidents and fix liability in the event of an accident.
Following the Bhopal verdict, a reputed banker lamented that punishing non-Executive directors and Chairmen for industrial accidents would scare away professionals from becoming independent directors. The solution is fairly simple – professionals should choose only those companies that have institutionalized and internalized safety.
