The Compliance Trap: Too Much Focus On Regulations Will Shortchange Your People & Profits

Jonathan Jacobi

Jonathan Jacobi, Sr. EHS Consultant, UL PureSafety

Professional Safety, Journal of American Society of Safety Engineers

Federal regulations have two fundamental shortcomings: They cannot take into account differences among workplaces and workers, and they define only minimum standards that can be expected of every company. Treating such generic minimums as end goals is as unwise for SH&E programs as it would be for other business functions. (Imagine executives telling employees not to go beyond the minimum level of product quality or productivity reached by every competitor.)

That’s why OSHA has the Voluntary Protection Programs, Safety & Health Achievement Recognition Program, and other initiatives that encourage employers to exceed compliance. It’s why a growing number of industry groups promote more rigorous standards and best practices. And it’s why we should set higher standards and tailor processes to our workplace, rather than relying on what is spelled out (or left out) by regulations.

Gray Areas Lead to Fines, So Stay Ahead of Regulators

Many federal regulations leave too much to interpretation and create compliance challenges. But, in general, it is good that regulators do not dictate every detail of every SH&E activity. Workplaces vary greatly, and employers should have flexibility to determine what works best for their specific needs. As for compliance challenges, if a company strives to meet industry’s highest standards and stays current with best practices, it should be well beyond the gray areas where interpretation differences could result in a “gotcha.” Take OSHA’s General Duty Clause, a catchall requiring employers to provide a workplace “free from recognized hazards that are causing or are likely to cause death or serious physical harm.” Some dismiss this clause as so open-ended it could apply to anything. But the key phrase is recognized hazards, which OSHA most often defines relative to industry consensus.

For example, to show that an electrical safety hazard was a recognized hazard, and that a preventive method existed—even if not spelled out in federal regulations—OSHA references NFPA’s Standard for Electrical Safety in the Workplace (NFPA 70E). NFPA 70E is the basis for OSHA’s less-detailed standards; some states already incorporate it, and most companies performing electrical work treat it as the authoritative reference. So, it shouldn’t be surprising when OSHA invokes the clause against companies that meet federal regulations but ignore 70E.

Not staying ahead of regulators has become a bigger gamble as inspection frequency and fines continue to rise, particularly for high-hazard industries, targeted emphasis program hazards, and willful, repeat and/or severe violators. The trend toward more proactive intervention and stronger punishments is likely to continue regardless of the political climate due to at least three factors:

  • Evolving technology/best practices. Regulators are asking SH&E programs to do more, in part because today’s technology and best practices make it possible to do more. They also enable the government to collect and analyze more data and take action more quickly.
  • More stringent standards drive results. Regulatory decisions are increasingly data-driven, with all sides of the political spectrum demanding proof that programs deliver measurable results. Repeatedly, more stringent standards do result in fewer incidents, injuries, illnesses and fatalities. In fact, federal regulators often cite data from stricter states, such as California, as justification for raising national standards.
  • A “fair market.” Appearing before the House of Representatives Committee on Education and the Workforce in 2011, Secretary of Labor Hilda Solis noted that “strong enforcement protects businesses by creating a fair market for them to compete in. The vast majority of employers in our nation care deeply for their employees and spend their hard earned revenue on running a safe workplace. We cannot sit by while they are forced to compete with employers who unlawfully cut corners.” Even senior executives who criticize specific regulations tend to agree with that point.

The smart strategy is to keep SH&E programs a few steps ahead of regulators.

Lawyers Cost More Than SH&E Professionals—Minimize Liability Risks

Frequently, minimum compliance with federal standards still leaves employers exposed to workers’ compensation and legal claims. When regulations are outdated, insufficient or lacking, employers must still take reasonable steps to protect worker safety and health. In court, reasonable may not be limited to federal standards if more rigorous, widely adopted industry standards exist, or if workers identified a hazard and it was not addressed. For newly developed chemicals and similar hazards, courts also have ruled that companies must conduct studies to determine appropriate exposure levels and protection.

Large settlements abound that illustrate the risk of leaving a company exposed. Last year saw the largest single plaintiff asbestos verdict in U.S. history—$322 million. Diacetyl-induced bronchiolitis obliterans—also known as popcorn lung disease—is a more modern case where waiting for federal regulation left companies exposed. There is still no federal regulation on diacetyl, but there have been numerous successful suits, including a recent $30-million verdict against BASF Corp.

It also is important to remember that even formal standards such as OSHA’s permissible exposure limits have their limits in terms of safety, health and potential liability. Such limits specify a chemical concentration that most workers can tolerate without harm—which means that some workers may have an adverse response at those same levels. It may be necessary to establish tighter controls for more susceptible employees.

Given our highly litigious society, why tempt fate? If a company exceeds compliance to ensure worker safety and health, and documents it, it will reduce the incidents and exposures that lead to lawsuits, establish a body of evidence to defeat unmerited claims, and show employees that the company is genuinely looking out for them—which will make them less likely to pursue lawsuits.

Protecting Your People = Protecting Your Reputation & Brand Value

In the past 2 decades, people have become more aware of SH&E. As job-seekers, investors and consumers, they are consciously aligning with companies that do the right thing in these areas and shunning those perceived as irresponsible. This trend has been amplified by the 24/7 news cycle and information flow enabled by the Internet and social media.

In short, safety and health performance, along with environmental sustainability and other aspects of corporate social responsibility, have become vital to a company’s reputation and brand value. Being known as a company that cuts corners in these areas presents serious competitive disadvantages:

  • loss of desirable jobs where SH&E performance are criteria or contract requirements;
  • difficulty attracting and retaining top talent;
  • poor employee morale and productivity (“the company does the minimum for us, so why should we do more than the minimum for the company?”);
  • obstacle to securing favorable lending or public investment;
  • resistance from community, labor and other groups.

When it comes to human safety and health, few individuals would limit the definition of “the right thing” to what is mandated by law. Today’s most successful brands have a reputation for protecting people and the environment all the time, not just when required by law.

Doing More for SH&E Does More for Overall Business Performance

The robust data collection, analysis and reporting of today’s SH&E technology systems have made it easier to demonstrate the potential bottom-line effect of SH&E programs. That starts with reducing incident-related costs—both direct costs (e.g., medical expenses, lost time, damage to equipment) and resource-draining indirect costs (e.g., insurance increases, replacement hiring/training, lost sales, PR damage control). (OSHA’s Safety Pays estimator at www.osha.gov/dcsp/smallbusiness/safetypays/ estimator.html offers interesting insights in this area.)

SH&E programs also are an effective control over rising healthcare costs, including those related to the aging workforce. The current healthcare system makes it hard to control such costs after an injury or illness, but preventive programs can keep people out of the system.

In these and other areas, however, a minimum-for-compliance approach reduces the bottom-line benefits. For example, strong wellness programs are consistently effective in changing lifestyle choices that drive up healthcare costs. Numerous studies have put the return on investment (ROI) of such programs at 3:1 or higher. In a 2008 Indianapolis Business Journal article, trucking industry leader Celadon attributed a 20% reduction in healthcare costs to its Highway 2 Health initiative. And Federal Motor Carrier Safety Administration’s 2007 Commercial Truck and Bus Safety Synthesis 15 reports that Waste Management Inc. discovered that slightly more than 10% of its employees used 80% of dollars spent on healthcare, workers’ compensation, absence and disability benefits. An integrated campaign targeting key risk areas has since delivered multi-year savings of more than $100 million. But, none of these programs are mandated by federal agencies.

Clearly, the first step to real safety and health ROI is to explore strategic, data-driven programs designed to prevent incidents, reduce costs and improve business performance, not merely achieve compliance.

This article can also be found in Professional Safety.