Crucial risk management considerations for Directors

Insights on a Director’s Risk Exposure

Company directors of manufacturing companies have a lot at stake – but they may not realise just how much.

Disasters such as the 2010 Pike River incident are a clear example of what can happen when a board is not in line with good governance responsibilities. Effective health and safety governance culture must be in place at every level of a business so that warnings about risk management are heard, acknowledged and acted upon.

However, making the right decisions requires a thorough understanding of the risks through an accurate and expert risk assessment. It also requires getting advice on how to address and mitigate those risks in an effective manner rather than carrying on with ‘business as usual’.

This is where a company’s board of directors’ due diligence responsibilities plays a key role.

WorkSafe itself says the manufacturing industry needs to place greater emphasis on assessing the risk that machinery poses and installing appropriate safety measures.

“WorkSafe is visiting scenes too often where something has got stuck in a machine, a machine has jammed, or something needed to be moved and a worker has damaged a limb in the process. It is time for the manufacturing industry to lift its game and take ownership for the injuries that are occurring on its watch.” 

WorkSafe’s Head of Specialist Interventions Simon Humphries

What are the risks for directors who do not undertake due diligence?

An officer’s responsibility lies in taking active steps to check that all systems are operating effectively. This means ensuring your team has access to the appropriate resources and processes for dealing with health and safety. At the same time, you must ensure that worker participation practices are in place. 

If WorkSafe decides a director has breached their obligations, charges can be laid against the director personally. These can either be on their own or in conjunction with other charges laid against the business or a worker. A director can be fined up to $600,000 and imprisoned for up to five years if their failure to comply with duty results in exposing an individual to a risk of death, serious injury or serious illness. 

Recently, WorkSafe prosecuted Salters Cartage Ltd and its owner, Ron Salter, after an explosion at their Wiri plant left a worker dead. The company was then fined $258,000 and Ron Salter was personally charged with 3 offences and fined $25,000 with four months home detention.

What about the risks to the organisations that directors are responsible for?

A review of the machine safety related prosecutions under the Health and Safety at Work Act (2015) reveals a typical fine of $250,000 for an amputated finger(s) – with the starting point much higher than that.  Every transmission (e.g. chain and sprocket), conveyor belt, auger and processing plant could present this much financial risk if it is not fully assessed and managed. 

Machine guarding: the biggest risk to your employees

No matter how big or small its onsite industrial machines, every manufacturing company must manage its machine safety risks. Since the Machinery Act of 1950, New Zealand workplaces have been legally required to adequately safeguard machinery. 

However, more than 70 years after the legislation came into force, workplaces still aren’t getting it right. Fatalities, amputations, and other injuries from machinery still occur far too often in New Zealand workplaces. 

According to WorkSafe, the cause of these incidents is primarily ineffective or absent machine guarding. This continues to be a problem despite the fact companies are required by law to ensure machinery is safe to use and to eliminate or minimise any risks wherever reasonably practicable.

Why are these accidents still happening?

Essentially, the problem is traced back to not having an effective machine safety risk management plan or system in place.  

Machine guarding is a highly technical area of engineering. The complexity may lead directors to rely on their Health and Safety or Engineering teams to provide them with insights on risk. But if these teams don’t have the appropriate technical knowledge, the situation can quickly run into trouble. Deciding that the Health and Safety team can manage machine health and safety effectively themselves sounds logical, but this is rarely the case. 

Trust your staff – but verify their knowledge

Your health and safety personnel are unlikely to be an expert in the field of machine safety.  Yet it is often the information they provide to management and directors through risk assessment that forms the basis of an organisation’s machine safety risk management plan. 

It is up to directors to verify the health and safety personnel have established the full picture.  This may need to be done independently to ensure accurate and impartial data is captured.

Machine safety risk improvement is NOT a business-as-usual undertaking.

The period between receiving a risk assessment report and responding to the findings may be far longer than intended. This is because the management team may be so overwhelmed by the scale of the task ahead that they don’t know where to start – which only further delays the changes required to ensure machines are safe.

There is the issue of ‘organisational risk’, in which a company lacks the internal resources (competency or capacity) to develop and implement a practicable and effective risk improvement plan and the overall programme ends up in the too-hard basket with little meaningful risk reduction achieved.

Further problems can occur when the work is carried out by contractors brought in to do fixes who don’t have the right methodology or technical understanding of what is required. Without proper engineering design management processes, the work is not done to standard – and will have to be done again.  This often happens when the contractors have just been handed the report without further instructions. This is a huge waste of valuable time and resources.

Due to a lack of the required internal machine safety competency management, directors may not be aware that the improvement work has not been carried out to standard and significant risk remains.

A robust machine safety risk management plan needs to be created to prioritise and plan machine guarding improvements so risk reduction can be achieved in the most timely, cost and risk effective manner. 

Why getting expert advice is best practice

Machine safety solutions must be properly planned, prioritised, designed, and implemented to be truly effective. If not, you’ll remain non-compliant, at risk and may have to redo the work in a few years. 

Machine guarding is a highly specific area that requires dedicated resources. TEG Risk is one of the few companies that provide an expert risk assessment as well as planning, specification, design and or validation services: 

• We can create a tailored machine safety guarding improvement plan, removing this task from busy engineering teams
• We can provide specific work packs for your contractors to allow them to undertake the correct fixes that will meet machine safety standards
• When the project is complete, our validation service will confirm that you have a robust machine safety management plan in place.

“There is so much information and guidance available to companies and it must be implemented. Now is the time to stop and assess your machinery and stop an accident before it occurs. Do this before you find yourself with an injured worker and under the scrutiny of an investigation.” 

WorkSafe’s Head of Specialist Interventions Simon Humphries

Undertaking due diligence around your machine safety risks is not just a matter of completing assessments and handing them to your staff.  A director’s responsibility lies in verifying that their entire team and their contractors have the expertise to both estimate how much risk there is and then effectively implement the required improvements. To ignore this responsibility is a risk to both your personal liability and that of the company you oversee.

Further information can be found in the TEG Risk Director’s Guide To Machine Safety Risk.