GlencoreXstrata’s annual report shows more than 26 deaths

Last week the Australian Financial Review (AFR) brought some focus on occupational health and safety (OHS) by reporting on the most recent annual report from GlencoreXstrata in its article “Mining’s not war, why 26 deaths?” (subscription required). The article is enlightening but as important is that a business newspaper has analysed an annual report in a workplace safety context.  Curiously, although OHS is often mentioned as part of its sustainability and risk management program, safety is not seen as a financial key performance indicator, and it should be.

AFR’s Matthew Stevens wrote:

“Everybody in mining talks about ‘zero harm’ being the ultimate ambition of their health and safety programs. But talking safe and living safe are two very different things.”

GlencoreXstrata’s 2013 annual report is worth a look to both verify the AFR’s quotes but also to see the corporate context in which fatality statements are stated.  The crux of the AFR article is this statement from the Chairman’s introduction:

“It is with deep sadness that I must report the loss of 26 lives at our combined operations during 2013. Any fatality is totally unacceptable and one of the Board’s main objectives is to bring about lasting improvements to our safety culture.” (page 76)

(A curious sidenote is that the interim Chairman is Dr Anthony Howard, formally of BP and brought to prominence by the Deepwater Horizon oil spill.)

The company is implementing new safety processes, based on a similar program of  Xstrata’s.  Stevens points out that by bundling the statistics of Glencore and Xstrata for 2012, the number of fatalities increases to 53. GlencoreXstrata’s aim to improve the safety culture is admirable (page 16) and the scope of the challenge is enormous given the global presence of the company and its diversity.  However a company that has an annual revenue of $233 billion should be well placed to achieve this cultural change, even though there are many more mundane actions that can be taken to decrease fatalities, perhaps at less cost.

But GlencoreXstrata’s 2013 annual report has safety included in its “Non-financial key performance indicators” (page 13) which is odd as, elsewhere in the report, the financial context of safety is acknowledged. Under “Principal risks and uncertainties” it talks of the cost of regulations, including OHS:

“These laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon damages to property and injury to persons resulting from the environmental, health and safety and other impacts of the Group’s past and current operations, and could lead to the imposition of substantial fines, penalties, other civil or criminal sanctions, the curtailment or cessation of operations, orders to pay compensation, orders to remedy the effects of violations and/or orders to take preventative steps against possible future violations. Moreover, the costs associated with compliance with these laws and regulations are substantial.” (page 21, emphasis added)

In the same chapter GlencoreXstrata says this about “operating risks and hazards”:

“These risks and hazards could result in damage to, or destruction of, properties or production facilities, may cause production to be reduced or to cease at those properties or production facilities, may result in a decrease in the quality of the products, personal injury or death, environmental damage, business interruption and legal liability and may result in actual production differing from estimates of production.

The realisation of such operating risks and hazards and the costs associated with them could materially adversely affect the Group’s business, results of operations and financial condition, including by requiring significant capital and operating expenditures to abate the risk or hazard, restore the Group or third party property, compensate third parties for any loss and/or pay fines or damages.” (page 26)

A further example of the corporate and financial cost of safety is under “community relations”:

“If it is perceived that the Group is not respecting or advancing the economic and social progress and safety of the communities in which it operates, the Group’s reputation and shareholder value could be damaged, which could have a negative impact on its ‘‘social licence to operate’’, its ability to secure access to new resources and its financial performance.” (page 30, emphasis added)

If GlencoreXstrata is embarking on a change to its own safety culture, a good starting point would be to include OHS as a financial key performance indicator as the company itself admits that the mismanagement of safety (ie workplace deaths, injuries and illnesses) may incur financial penalties for non-compliance, “significant capital and operating expenditures to abate the risk or hazard”, potentially reduced access to resource opportunities.

Values based safety

The Chairman’s report is an interesting read not only for the acknowledgement of workplace fatalities as emphasised by Matthew Stevens, but also for the values statements that do not seem to fit with the reality of 26 deaths in a single year.  The report lists three values that are directly related to workplace safety:

“Entrepreneurialism
Our approach fosters the highest level of professionalism, personal ownership and entrepreneurial spirit in all our employees while never compromising on the safety and wellbeing of our people. This is important to our success and the superior returns we aim to achieve for all our stakeholders.”

“Safety
Our first priority in the workplace is to protect the health and well-being of all our workers. We take a proactive approach to health and safety; our goal is continuous improvement in preventing occupational disease and injuries.”

“Responsibility
We recognise that our work can have an impact on our society and the environment. We care profoundly about our performance in compliance, environmental protection, human rights and health and safety.”

These statements in a report that also states the company has had 26 workplace deaths illustrates well the hypocrisy that many workers see when hearing the safety leadership clichés from their own senior managers.  Certainly all companies aim for better safety and safety is always a journey towards that aim but how do such value statements sound to the relatives of the dead workers?

26 deaths “while never compromising on the safety and wellbeing of our people”  Really?

“Our first priority in the workplace is to protect the health and well-being of all our workers.” Great priority but the reality is that the company failed 26 of its workers, and their families, in the worst possible way.

Risk management

The corporate governance report (page 82 onwards) discusses the company’s approach to risk management.  It states:

“Effective risk management is crucial in helping the Group achieve its objectives of preserving its overall financial strength for the benefit of all shareholders and other stakeholders and safeguarding its ability to continue as a going concern while generating sustainable long term profitability. Spanning the organisational structure, Glencore’s disciplined approach to risk management and control originates with strategic responsibility in the hands of the Board, which also retains operational authority on matters exceeding agreed thresholds of materiality.” (page 83)

The paragraph is full of the buzzwords that executives like but the first sentence of illustrates the enormous (maybe impossible) challenge for a company to achieve “effective risk management” while never compromising on the “safety and wellbeing of our people”.

The corporate governance report clearly shows the prominence of the Board in achieving change through its “strategic responsibility” and “operational authority” and it is here that effective safety leadership should also be on display.

GlencoreXstrata is only one example of a global company that has an unacceptable level of fatalities related to its work.  The 2013 report outlines its response to this reality by implementing a new safety program and clearly such a strategy needs to be successful.  It is not often that the AFR looks at an annual report through a safety focus.  It could benefit from doing so more often.  But a more detailed look at the 2013 GlencoreXstrata annual report illustrates the inconsistencies inherent in a large global corporation between the financial imperative and the moral imperative.  To achieve the cultural change it seems to expect from its new safety program, GlencoreXstrata should instigate a thorough review of it’s Boardroom culture and the organisational culture that, from the evidence of this annual report, seems to treat the deaths of its workers as somehow separate from the economic health of the business.  That is surely unsustainable.

Kevin Jones