OECD Corporate Governance for Process Safety conference, 14-15 June 2012
Judith Hackitt CBE, HSE Chair
Why Corporate Governance and Why Now?
Good morning. I am delighted to have this opportunity to speak to you today, especially given that the subject is one that I feel very strongly about – the need for Leadership in Process Safety Management. Throughout my five years as Chair of Britain's Health and Safety Executive, I have given my strong personal support to our Major Hazards division in raising the profile of this subject with UK based businesses. I have also travelled to the US, Asia and Australia to speak at conferences and participate in workshops about this important subject.
For many, the subject of Process safety (also known as Asset or Operational Integrity) remains a specialist subject and the territory of specialist engineers, possibly focused on the role of those who designed the plant and therefore regarded as somehow "fixed" or "sorted". Let's be clear that this is far from the case.
Unless we break this mindset which seems to prevail in the Boardrooms of much of the major hazards industry around the world we can expect one or two things to happen. There will continue to be major incidents around the world which will cause substantial levels of casualties to employees and members of the public, major environmental damage, loss of assets and your ability to produce, and the companies you run will suffer huge financial losses and damage to your reputation as a result. It doesn't have to happen to your company for the financial and reputational consequences to impact upon you. The reputation of the whole industry rests upon the performance of the weakest link – and that could be any one of you. Interestingly, at one level many of you already recognise that – it is in part because of that recognition that Responsible Care has spread around the world but whilst Responsible Care programmes have a lot to say about safety and environment in general and more recently with regard to product stewardship, you have to look hard to find explicit reference to prevention of catastrophic major incidents which is what process safety is all about.
In a sense, high-hazard industries have a choice to make about committing to leadership in process safety, but I would question whether it is really a choice at all. Society is becoming increasingly less tolerant of mistakes and in some respects society tends to have a longer memory that your own corporate memory. Their intolerance is exacerbated when it falls to communities or Governments to pick up and carry the on-going costs of clean up, economic damage and caring for those who have been hurt and damaged by events which could so easily have been prevented.
One way to provoke behaviour change would be through regulation. Certainly in the UK, HSE is held in high esteem for our regulatory approach to major hazards. We receive frequent requests from other governments for advice on how to implement an effective major hazards regulatory regime based on our "Safety Case" approach. This includes from countries like China, Australia, Singapore and indeed in the wake of Deepwater Horizon, from the US Government.
One of the problems with a legislative approach to preventing major incidents is that regulation is a blunt instrument. Everyone in the sector will be impacted by the requirements and it is unlikely to take account of the differences which exist in each and every one of your businesses. It is also invariably seen by industry as an imposed external cost rather than a very necessary and integral part of doing what you have to do to operate in the major hazards sectors.
Following the Buncefield explosion in the UK in 2005, the independent board of enquiry which was set up pressed for stronger regulation to address the failings which were identified and which needed to be applied across the fuel storage sector. Neither HSE nor industry felt that this was an appropriate way to proceed, but what was actually needed was to increase the ownership and understanding of process safety risks at senior manager level. We embarked on a Process safety Leadership Programme aimed at board and senior executive level. The enthusiastic adoption of a set of Principles of Process Safety Leadership by industry in the UK was seen as the start of an alternative approach to introduction of tougher legislation. Commitment to a set of principles is the start but it is delivery which really counts. Albeit somewhat slower than we had hoped for, UK major hazards industries are now starting to deliver with training of executives and board members in process safety management. It has been fascinating to see how Scottish Power, who you will hear from later today, have led the way; demonstrating that this commitment to and delivery on plant integrity and reliability from the top to the bottom of the organisation has delivered real benefits on their bottom line profitability.
Making the changes to effectively lead process safety will not be easy. It requires acquisition of knowledge about the state of the plant and how it is performing on a regular basis, understanding - and believing - what can go wrong – as Andrew said last night "thinking the unthinkable". It means thinking through the short and long-term consequences of seemingly unrelated business decisions taken in your boardrooms.
In 1974 the Nypro explosion at Flixborough occurred because a temporary un-engineered solution was pressed into service in order to keep production going.
In the 1984 explosion in Bhopal at Union Carbide – poor maintenance and inadequate engineering competence were identified as contributory facts in the deaths of more than 2,300 people.
In 1998 the massive explosion at Esso Longford was the result of a corporate decision to reduce engineering costs.
Process safety fell between the cracks in the corporate structure and managerial oversight of the two large companies who owned Buncefield leading to the explosion there in 2005.
In 2005, BP Texas City was the most profitable refinery in North America, even though it was an old plant. Before the incident a corporate benchmarking exercise had revealed higher than average maintenance costs which were cut back to bring them into line with the rest.
I have already said that process safety is often regarded as a specialist subject consigned to "experts". But there is a real need to look hard at who has the expertise and more importantly, who needs to have it.
If senior managers have little or no knowledge of process safety, not only do they become overly reliant on their experts to manage the risks, they also place impossible constraints on the experts to perform their role through cost cutting, de-manning directives and so on. Lack of knowledge also gets in the way of the ability to gain assurance – if you don't know the right questions to ask how can you assure yourself that matters are being managed effectively by those to whom you have delegated?
But we must also ensure that the so-called "experts" are truly competent. Young graduate engineers may not have the competence to take charge of mechanical integrity of complex chemical plants unless they have been properly trained, provided with the right information about the history of the plant and taught how to communicate their concerns.
It's also important to be aware of the dangers of false "comfort blankets" – when the engineer tells you that a catastrophic event has a 1 in 10 to the minus 6 or 8 chance of happening lets be very clear that he didn't tell you "It's never going to happen", what he actually said was "If an unlikely set of circumstances were to coincide this catastrophe could happen tomorrow!" Management systems and procedures have become a common form of comfort blanket – but in the real world people deviate from procedures, find workarounds, encounter unusual circumstances which are not covered by procedures and act on their initiative – and they are often praised and rewarded for doing so. Systems and procedures should only ever provide comfort if you know and are assured that they reflect the reality on the ground all of the time.
I said earlier that you face a choice – the reality is that the choice is whether or not to continue to gamble – to trust that others are taking care of it, to believe (erroneously) that the sophisticated process control systems you've seen on your plant visits are infallible, to presume that cost saving measures will have no impact on plant integrity, to fail to listen to what others would like to tell you if only you were to ask the right questions.
I am greatly encouraged when I hear senior executives in the major hazards industries talk about having a chronic sense of unease when it comes to process safety and asset integrity. Complacency and trust in systems and experts is a dangerous state of mind. You should be sceptical about perfection, welcome bad news and actively seek to find out about your plant and your company's areas of greatest vulnerability in terms of major hazard risks.
The publication of this new OECD Guidance today marks a great opportunity – to quickly adopt these principles and put them into practice. For all of you to run your businesses in a way that embodies this guidance. The thinking and the route to improving Corporate Process safety Governance has been done for you by an international panel of experts. If you believe, as I think you do, that a voluntary approach is preferable to regulation then demonstrate that you can deliver and don't take too long to do it.
The very first sign that many of us would expect to see is the adoption of these principles and guidelines into the Global Responsible Care programme which all major chemical companies endorse at senior executive level. Trade and professional bodies should be encouraging and supporting all of you in your businesses to take this forward and to ensure that the laggards are brought along with the leaders and that capacity building facilitates and accelerates progress around the globe.
Progress needs to be measured and reported, if we are to build stakeholder confidence that a change is really taking place within the industry. It is not enough to wait with baited breath to see how long it is before the next major incident. Leading indicators to show that performance is really improving are essential. We know that among major hazard sites in the UK there are on average two loss of containment incidents every week, with half of that number having the potential to develop into major incidents. At least the UK has a marker against which to measure improvement even if it is one that adds to that current feeling of chronic unease.
We need to see much more measuring and reporting of performance using leading indicators. Scottish Power have embraced this principle and are giving some innovative thought to what process safety awareness, reporting and measurement would look like if we gave it as much attention as we give to raising awareness, reporting and measuring of personnel safety performance. Perhaps we should change all those "Hold the handrail" signs to ask "Is this handrail rusty and about to fall apart?"
Scottish Power are an incredibly open company, they are keen to share what they have done but they are also very willing to learn from others. That sort of attitude is a rarity when it comes to Process Safety in the chemicals and major hazards sectors. Corporate fear (driven by the shadow of litigation) gets in the way of sharing lessons learned and good practices. The consequence of this is that each company seems destined to have to learn every lesson for itself the hard way – before it picks up on that valuable learning that was already out there and could have prevented a similar catastrophe from repeating itself.
It's time to stop putting corporate time and effort into rationalising why the incident which occurred at Buncefield, Texas City, or wherever else couldn't happen to you because your process and your systems are somehow subtly different. The reality is that the similarities far outweigh the differences. I find it morally indefensible to accept a situation where risks are being taken unnecessarily because of a failure to share and learn lessons among yourselves, but even putting that aside the cost and the inefficiency of this silo mentality makes no business sense at all.
Today's event really does present a great opportunity to you all to make an individual and collective change to your approach to Corporate Governance in Process Safety. Don't waste the opportunity – if you do it will be more than a shame – it will be a tragedy in the form of a major incident sooner or later for one or more of you here today. Seize the opportunity to show to Governments and society that you understand the risks, you acknowledge their growing concerns and you are determined to rebuild confidence by demonstrating improved individual performance and sharing valuable lifesaving, catastrophe preventing lessons with others. Learn the questions you need to ask in your own business and reward those who tell you the harsh reality not those who tell you what they think you want to hear. The consequences of all this will bring enormous benefits to you and your business – improved reliability, assured operation, longer term security and increased profitability – not to mention a better night's sleep for each and every one of you!