Corporate campaigning on the way; Maximising the legacy of Longford

Your article about shareholder activism (In the eye of the storm, Company Director, April) raises some important questions about its motives and activities.

The kind of activism canvassed in the article has its origins in the US trade union tactics. Faced with declining influence and membership, some US unions turned to broadly-based, wide-ranging and long-running campaigns of legal, regulatory, economic and political activism against target companies.

The leverage employed in such campaigns has often been to drive down a company's shareholder value for the purpose of encouraging shareholders to force a change in the company behaviour. The behaviour may, in fact, create shareholder value but it is opposed by the trade unions on political, industrial or other grounds. It is often referred to as corporate campaigning.

The methodologies of such campaigns included:

* building coalitions and developing allies to associate reputable organisations and individuals with criticism of the company;

* attempts to discover and exploit structural, decision making or communication weaknesses in a company;

* increasing company risk through litigation and scrutiny by regulatory agencies;

* media management; and

* weakening confidence in corporate governance.

The CFMEU's campaign borrows from this model. A person of repute has been hired to lobby on its behalf, using language intended to hit the right spot with shareholders (shareholder value) and delivering a message about the alleged risk to shareholders because of the behaviour of the target company and how this requires a stronger role for unions. Cleverly, the vehicle for this message has been a magazine for business.

This is classic corporate campaigning US union style. As the article reveals, it is a particular industrial relations campaign dressed up as something else.

The conditions which give rise to corporate campaigning in the US, declining union membership and influence, exists in Australia. Corporate campaigning is likely to become a feature of the industrial relations landscape.

The wider issue for investors (particularly institutions) is the responsibility they have to distinguish between value adding and value destroying activism. The wider issue is how to recognise corporate campaigning and how to manage it.

Peter McLaughlin

World Competitive Practices Pty Ltd

Maximising the legacy of Longford

The tragic accident at Esso's Longford Gas Plant on September 25, 1998 killed two people, severely injured eight others and cut Victoria's gas supplies for up to two weeks. The failure of the gas supply system and the personal hardships endured will ensure that Victorians will remember the accident. Those working at the plant that day will never forget.

With insurance companies joining the class action against Esso in August 1999, the claims for compensation are set to exceed $1.4 billion and the case, set down for June 2000, may run for five years.

The accident and subsequent Royal Commission hearings received wide press coverage, extended by the litigation process and the absence of any admission of liability. The release of "The Esso Longford Gas Plant Accident - Report of the Longford Royal Commission" by the chairman, Sir Daryl Dawson some nine months later again received wide coverage; based mainly on the finding that Esso failed to provide a safe working environment in breach of the Occupational Health and Safety Act, 1985 (Vic) and the impact of the Royal Commission's findings on the possible outcomes in the class action suit. What Dawson has delivered is more than a thorough investigation of the Longford explosion and fire but suggests the need for a fundamental change to our industrial safety systems.

The lessons from Longford are many, and include: the cost of industrial accidents and litigation as a remedial mechanism, management systems must embrace and recognise the human element rather than focus on fiscal damage control. For regulators, engineers, scientists and those concerned with occupational health, safety and risk management, the fundamental lessons appear in the Dawson Report at Chapters 14 "The Regulatory Environment" and Chapter 15 "Conclusions and Recommendations". These chapters focus on the capacity of various regulatory models to deliver safety as well as efficiency. The class action will ensure that the public is reminded, over a period of years, that gas accidents are both tragic and expensive. One hopes that the fundamental lessons regarding the shortfalls of a performance based self certifying regulatory system delivered by the Dawson Report are not lost among the clamour of claims for loss.

Dawson sets the operation of the Longford gas plant in its legislative context, from the 1972 Robens Report in the United Kingdom, the duty of care obligations of the Occupational Health and Safety Act (Vic) 1985; the Cullen Report in the UK on the Piper Alpha accident in 1988, and the UK Safety Case regime: to the Petroleum (offshore) Management of Safety Case Regulations (Cth) 1996, the Gas Safety Act 1997 (Vic) and the Gas Safety (Safety Case) Regulations 1999 (Vic).

The Royal Commissioner examines the gradual transition from government assured regulatory outcomes (prescriptive method) through self-certification by safety case to the less stringent performance based self-certification based on broad statutory declarations of obligation. The latter which rely on litigation as the ultimate sanction. In this regard Dawson has carried out a Hazards and Operability study, or HAZOP on the regulatory environment and concludes that changes are necessary.

The Dawson Report observed:

Esso had adopted the Safety Case model for its offshore facilities but not for its onshore facilities. This may be explained by the absence of any obligation requiring it to do so. [14.30]

The regulatory regime covering Esso's operations at Longford (OH&S Act) was less stringent than for facilities up-stream (offshore) or down-stream (gas distribution and utilisation). Had Esso been required to submit a safety case with respect to Longford, as suggested in the proper implementation its own OIMS system, it is likely that it would have identified the very hazards which were evident on that day. [14.33]

There is scope under the existing laws such as the Occupational Health and Safety Act and the Dangerous Goods Act and the regulations made thereunder for inspectors to impose conditions or give directions or notices in certain circumstances. However, the use of such powers under these Acts for gas plant such as Longford would be inappropriate and the legal foundation for such a course is doubtful. [14.38]

The Victorian Government now proposes to implement the National Occupational Health and Safety Commission standard for the Control of Major Hazard Facilities (MHF) and that compliance with this standard should be compulsory for MHF operators in Victoria. It is anomalous that Longford should be exempt from such procedures. The imposition of the Safety Case regime of the type described would go a long way towards avoiding a repetition of the accident at Longford on 25 September, 1998. [14.39 & 40]

The Dawson Report recommended:

Apart from the specific steps taken (above); Esso's reliance on it's operating integrity management system (OIMS) to achieve a safe working environment was misplaced. External obligations of a detailed and comprehensive kind should be imposed upon Esso in order to avoid the repetition of an accident such as occurred on that day. Those obligations must be monitored (by government) to ensure that they are met and that aims similar to those expressed in OIMS are achieved in practice. [15.13 & 14]

An obligation should be imposed on Esso to demonstrate (to government) that its operating standards, practices and policies are reviewed and documented and that its training programs and techniques impart knowledge of all identifiable hazards. [15.16 &17]

The Safety Case or Safety Report prepared by the operator of a major hazard facility, such as Esso, must be accepted by the relevant authority as a prerequisite to the operation of the facility. Failure to comply with the safety case would be an offence. The obligation to identify hazards would be a continuing one, and the safety case would specify the requisite inspection, maintenance and testing programs. A government authority would be required to administer such a procedure and its powers should extend to all major hazard facilities within the State. [15.19 & 20 & 25]

Sir Daryl Dawson has made a valuable contribution to industrial safety by identifying an appropriate framework for systems of implementation, demonstration and mandatory compliance with safety requirements, such a process being overseen by an active government inspectorate; not only in the gas industry, but in all high-risk facilities across Australia.

It is worth noting that the recent overhaul of the British "Control of Industrial Major Hazards Regulations" 1984 (CIMAH) by the Health and Safety Executive resulted in the implementation of the "Control of Major Accident Hazards Regulations" 1999 (COMAH). The main focus of the 1999 UK regulations is the increased emphasis placed on compliance and the now mandatory demonstration of measures to protect people and the environment. The imposition of the mandatory requirements for a government agency's approval/acceptance of the safety case strengthen the probity of such regulation and will improve safety standards.

It is not necessary to reduce safety standards to effect the liberalisation of the market place. Competition is not a synonym either for "efficiency" or "safety". Effective regulation requires an awareness of industry and its workers, and constant monitoring.

Prominent safety advocate, Prof Trevor Kletz, has been paraphrased from his 1993 text on industrial accidents, Lessons from Disaster thus:

"A common feature has been a failure to learn from the experience of the past. Sometimes the knowledge was forgotten, and sometimes it was not passed on to those who needed to know. Sometimes the whole company or factory failed to learn, sometimes individual managers. The people involved in an accident do not forget but after a while they leave and others take their place. Organisations have no memory. Only people have memories and they leave."

The Longford Royal Commission Report recommendations, if properly implemented, will be a major step toward remedying this deficiency, and may stand as a tribute to those who lost their lives in the explosion and fire.

Peter J Stewart FAICD

Technical director

Combustion Air Pty Ltd

Western Australia

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