The buck has to stop somewhere

21:30, Nov 08 2012

Director culpability for health and safety has come under scrutiny in the wake of this week's damning Royal Commission report into the Pike River tragedy.

The commission's report into the explosion two years ago found the 29 Pike River miners died because of massive failings on the part of their employers and government agencies. Coal production came before safety.

While the Government's acting on all but one of the report's 16 recommendations to improve health and safety enforcement, it has to shoulder much of the blame for failing to adequately monitor the mine company's self-regulation of safety. The company - its management and directors - are also quite rightly in the frame.

The government is considering amending existing legislation to ensure board directors regard health & safety as their concern. It has also mooted a new corporate manslaughter charge where a corporation can be charged over conduct leading to someone's death.

Former Pike River chief executive Peter Whittall is facing 12 charges of health and safety failures and the report also criticised the board for ignoring obvious warning signals. It singled out former chairman John Dow, saying he assumed things were under control "unless told otherwise"which went against good governance responsibilities. Dow though compared the difference between governance and management as the same as that between "church and state".

The then Pike River directors – Dow, Whittall, Ray Meyer and Stuart Nattrass (also a director of failed South Canterbury Finance) - are said by their lawyer to be considering some report findings they didn't agree with, namely that they should be held responsible for health and safety.

But the buck has to stop somewhere.

Many directors appear concerned however at the increasing expectations of them and at the impact of prosecutions taken against directors in high profile company collapses such as Feltex here and Centro in Australia. In the Feltex case, the acquittal of five directors effectively ring-fenced the extent to which directors can be considered liable for accounts they sign off. By contrast, the Centro case lifted the standard of care directors must give investors.

There has also been a spate of prosecutions of failed finance company directors and in the Lombard case in particular, the judge commented directors should have asked harder questions of management when they failed to deliver on earlier promises.

Financial performance is one thing; a culture of workplace safety another.

New Zealand's workplace injury rates are twice as high as Australia's and six times higher than Britain's so it's obvious something needs to change and fast.

The Independent Taskforce commissioned by Government to review our health and safety in employment regime is considering bigger fines and tougher penalties for companies and directors. The aim is to cut our workplace injury and death toll by 25 per cent by 2020 and the options include health and safety duties for directors being written into the Companies Act with criminal charges for breaches.

Under our current Health and Safety in Employment Act, directors are only liable if they participated in an offence – by actually directing, authorising, assenting or acquiescing in a failure to take all reasonably practicable steps to ensure work safety. In addition, they had to have have known the situation was unsafe or breached the legislation's requirements. There have been very few prosecutions under this test of "knowing assistance" said law firm Chapman Tripp in a recent legal note.

Australia has made it a positive duty on directors to do due diligence to ensure businesses comply with health and safety law and created a presumption in favour of safety over cost. That presumption doesn't exist here where there's regular argument in the courts over whether safety measures are "reasonably practical" in relation to costs.

Chapman Tripp had concerns though about imposing more positive duties on directors and subjecting them to criminal offences, particularly in health and safety "when much of what matters is operational rather than governance issues", it said.

That's Dow's defence but public perception is that directors who govern a company should also be responsible for its culture of workplace safety.

One Christchurch reader wrote this week that as expected the Pike River mine report showed the mighty dollar dominated everything. "Profits before people. When will this capitalist selfishness end?" he asked.

It will only do so with good governance.