We often hear comments like “high performing businesses also perform well in workplace safety”, but is this true?
The Economic Society of Australia published a study on this topic a few years ago to see if there was a link between workplace safety performance and the share price of companies listed on the Australian stock exchange.
It was noted that this question is of particular interest to institutional investors.
The study was conducted by monitoring the share price of listed companies immediately before and after workplace safety prosecutions by the Victorian WorkCover Authority (VWA) in order to gauge the impact, if any, of such adverse news about the business.
Similar studies in the US confirmed there was a negative impact on share price when announcements are made about workplace safety prosecutions.
Value of a Life
Interestingly, the paper also cited another study which determined the “marginal value of life” in the range $11m to $19m. This value of life is probably closer to the opinions of affected families and the growing community expectation, but much higher than the current maximum legislative penalties, and astronomically higher than what the Australian courts are currently prepared to “meter out”.
Good Managers Manage Safety
Westpac Investment Management (2000) assessed the top 150 Australian-listed firms against OHS ratings supplied by the Monash University Accident Research Centre (MUARC), and found those businesses with higher OHS performance ratings outperformed the S&P200 index over a 10 year period. The authors suggested the link between OHS performance and share returns reflect superior management, although it is noted this question was not specifically addressed in the research paper.
US Share Price Drops with OSHA Penalty
The literature available on the impact of legislation on injury rates, which is largely North American based, has shown OSHA Regulations have little real effect on work injury rates.
However in the US it is clear that the share price does drop around the time that OSHA prosecutions are reported in the Wall Street Journal.
The time from offence to penalty in Australia is typically between 6 months and 2 years, with an average of about 1 year.
Whilst an announcement of a WorkCover prosecution is regarded as bad news, the study found that the relatively low fines (average $33,000 for the study period) and greater propensity to implement improvements prior to going to court (eg mitigation) in Australia, compared to contested larger US OSHA fines, results in negligible share-price impact on Australian listed companies.
Inadequate Consequence for Real Change
No one likes criminal prosecutions or fines, but the reality is business applies its attention and resources to those aspects of the business that have the highest impact – positive or negative, and workplace safety whilst important is not the top priority for most organisations (despite their safety slogans). This is particularly true in Australia where the OHS penalties are orders of magnitude lower than in the US.