Issue Brief: Workplace Safety and Labor
Workplace safety and labor relations generally refer to how a company manages its workforce, including employee health and safety issues, as well as relationships with unionized and non-unionized workers. How well a company addresses workplace safety risks can affect its operations, reputation, employee morale, and financial performance. Leading companies understand that engaged employees—those who are involved in and satisfied with their work and the company—are critical to the firm’s success. In fact, research from Gallup shows that companies with engaged employees are more profitable—exhibiting higher productivity and customer satisfaction scores, fewer safety incidents, and less employee turnover.1 Fair labor policies and safe workplaces are critical to creating an environment that fosters success in today’s global marketplace.
However, recent tragedies such as the explosions at the Upper Big Branch mine in West Virginia and the Deepwater Horizon oil rig in the Gulf of Mexico remain unfortunate reminders that safety is often overtaken by other corporate priorities. Meanwhile, news stories and documentaries provide occasional glimpses into the deplorable work conditions endured by many employees, particularly in overseas factories, which include sweatshop conditions, intimidation, discrimination, harassment, or worse—modern slavery. These situations are not only morally reprehensible, they can also lead to significant financial consequences, a damaged company reputation, and depressed shareholder value.
Calvert believes that safety, freedom, and dignity in the work environment are fundamental rights, regardless of an employee’s country of origin, gender, race, or socioeconomic status. To that end, we urge companies to establish robust codes of conduct, with strong labor and safety provisions, and to take active steps to enforce them across their global operations. Fostering safe work environments and high labor standards is not only the right thing to do for the health and well-being of employees—it also yields multiple benefits for the community, the environment and, ultimately, the company itself.
Unfortunately, many companies may fall short of creating a safe, fair, and healthy workplace environment. According to the International Labor Organization, 6,300 people die from a work-related accident or disease each day, and 86,850 people are involved in work-related accidents.2 Furthermore, the brunt of these incidents is often borne by the poorest, most unskilled, and least protected members of society, who may fear retaliation if they report unsafe working conditions.
The Occupational Safety and Health Administration (OSHA) plays an important role in promoting safer workplaces. OSHA was established in 1971 as an agency of the Department of Labor to set and enforce workplace safety standards. In fact, a recent study by the Rand Corporation of OSHA inspections conducted between 1999 and 2005 indicated that injury rates declined 19%-25% annually relative to inspections from 1979 to 1998.3 While this progress is encouraging, OSHA’s limited resources means companies often must self-regulate to comply with occupational safety and health laws. Unfortunately, many companies take this duty too lightly, which can be especially problematic in industries with particularly high safety hazards, such as manufacturing, oil and gas production, mining, agriculture, construction, and transportation.
In fact, a glance at the history of industrial disasters shows that some businesses continue to violate basic labor standards despite the laws and regulations. In 1911, 146 garment workers died during the notorious fire at the Triangle Shirtwaist factory in New York City, trapped inside by locked exits and stairwells. The loss of life places the incident fourth on the list of the 10 deadliest industrial disasters in U.S. history and it spurred a number of new factory safety laws. Yet in 1991, a fire at a North Carolina chicken processing plant lead to 25 worker fatalities and 54 injuries after workers were prevented from escaping due to locked emergency exits. In addition, 215 jobs were lost after the plant was closed. In both fires, company management locked the doors from the outside due to concerns about theft and unapproved breaks.
In Calvert’s view, a safe work environment starts at the top, with a strong commitment from senior management to make it a priority. As part of our review process, we evaluate each company’s safety policies, performance records, procedures, management systems, and training programs against benchmarks and best practices for its industry. Calvert regularly advocates for disclosure of this information through direct and multi-stakeholder engagements with companies. We typically expect stronger disclosure from companies that face more significant safety risks. For example, we look for comprehensive workplace safety disclosures from extractives companies, but would expect less safety disclosure from a financial services firm. We also encourage companies to publicly establish and report on their safety goals and targets in regularly published sustainability reports. Finally, we expect swift and appropriate responses from company management when significant problems emerge.
To help ensure the growing global economy would provide benefits for all, the International Labor Organization (ILO) established the first set of universal labor rights in 1919. In 1998, the ILO adopted the Declaration on Fundamental Principles and Rights at Work, which reflects a commitment by governments, workers’ organizations, and companies to uphold basic human rights through four core standards:
- Freedom of association and the effective recognition of the right to collective bargaining
- Elimination of all forms of forced or compulsory labor
- Effective abolition of child labor
- Elimination of discrimination in respect of employment and occupation
Calvert analyzes companies’ codes of conduct, in conjunction with their supplier codes of conduct, to assess whether they are aligned with all applicable laws and/or international standards—such as the ILO Core Labor Standards cited above. We also review efforts to track performance throughout the supply chain, preferably through independent third-party monitoring or verification. Finally, we evaluate the disclosed results.
Ideally, we are looking for strong labor policies that reflect a commitment to workers’ rights and human rights, a history of positive or improving labor relations, fair wages, and comprehensive benefits and training opportunities for workers. Since even leading companies can fall short of best practices, we have worked with companies across many industries to improve their treatment of employees, including improvements to their codes of conduct. We have also tackled these issues from a broader perspective by participating in multi-stakeholder coalitions on labor issues related to human rights.
The Business Impact
In our view, how well a company addresses labor and employee safety risks can affect its operations and reputation, as well as its investment performance. We believe that companies with well-developed labor and safety policies, comprehensive training programs, and strong leadership commitment are more competitive and better positioned for long-term success than their industry peers.
Companies lacking strong policy commitments to manage labor and safety risks are more likely to experience labor unrest, lower productivity, costly accidents, legal and regulatory penalties, and a damaged reputation—as well as higher health care expenses, workers’ compensation claims, insurance premiums, and employee turnover. Unmanaged labor and workplace safety risks can also potentially threaten sales if disrupted service causes frustrated customers to take their business elsewhere. Furthermore, in the United States alone, costs from unsafe working conditions are estimated to reach from $250 billion to $300 billion a year.4
Studies also support what Calvert has advocated for years—strong correlations exist between employee satisfaction and shareholder value. According to a study by management consulting firm Towers Perrin, companies with the highest percentage of engaged workers had significantly higher operating incomes and earnings per share, while those with the lowest employee engagement saw these measures decline over time.5
Overall, Calvert believes global corporations have both the power and responsibility to curtail abusive labor practices where they exist and work to ensure fair labor and workplace safety standards for their employees, suppliers, and vendors. A strong commitment to safety and good labor relations promotes a more stable environment and productive workforce, which enhances the potential for a company’s long-term success and profitability for shareholders.
1. Gallup, Employee Engagement: A Leading Indicator of Financial Performance, http://www.gallup.com/consulting/52/employee-engagement.aspx
2. ILO, Safety and health at work, www.ilo.org/global/topics/safety-and-health-at-work/lang--en/index.htm
4. AFL-CIO, Death on the Job, May 2012, www.afl-cio.org
5. Towers Perrin Global Workforce Study, “Closing the Engagement Gap: A Road Map for Driving Superior Business Performance,” 2007-2008, www.towerswatson.com
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