In advising manufacturers and other businesses under investigation for serious safety breaches, legal exposure usually stems not from a single operational failure, but from a lack of leadership oversight. By embedding a culture of safety, companies can avoid problems and focus on achieving their business goals.
Senior management play a pivotal role in shaping a company’s legal risk profile. They shape the culture and of an organisation. In the manufacturing sector, where product integrity, health, safety, and compliance are critical, leadership decisions can be make or break. Companies need to manage and avoid human failure proactively as part of the risks assessment procedure.
Legal Accountability of Directors and Senior Managers
Directors are typically protected from personal liability by the limited liability of a company. However, they can be held responsible for manufacturing failures in situations where a director’s negligence or illegal actions lead to a manufacturing failure rather than failure being an ordinary business risk.
Under legislation such as the Health and Safety at Work etc. Act 1974 (HSWA) and the Corporate Manslaughter and Corporate Homicide Act 2007, senior management can be held accountable for systemic failures that lead to injury or death of not just employees but of customers.
- 1. The Health and Safety at Work etc. Act 1974 (HSWA)
Under section 37 of the HSWA, a director or senior manager can be personally prosecuted where an offence is committed with the consent, connivance or neglect of a director. Directors cannot avoid a charge of neglect under section 37 by arranging their organisation’s business so as to leave them ignorant of circumstances which would trigger their obligation to address health and safety breaches.
- 2. Corporate Manslaughter and Corporate Homicide Act 2007 (CMCHA)
Under the Corporate Manslaughter and Corporate Homicide Act 2007, liability occurs when a death is caused by a gross breach of duty and that breach is substantially attributable to senior management failings. As such, decisions made at board or senior management level (or, conversely, the absence of such a decision), can form the basis of criminal charges. The maximum penalty is an unlimited fine. The court can also make a publicity order requiring the organisation to publish details of its conviction and fine. - 3. Gross Negligence and Disqualification
Directors may also be liable for related offences, such as the common law offence of gross negligence manslaughter, where their own grossly negligent behaviour causes death. This offence is punishable by an unlimited fine and life imprisonment. If a director responsible for health and safety neglects these responsibilities and the company commits a health and safety offences as a result of this, the individual director may have also committed an offence.Further, under the Company Directors Disqualification Act 1986, section 2(1) the court can disqualify an individual convicted of an offence, including a health and safety offence, in connection with the management of a company. Entirely at the discretion of the court, this requires no additional investigation or evidence.
How Legal Exposure Arises: Governance Blind Spots
It is seldom the case that companies or any individuals within them are engaged in deliberate wrongdoing, or even obviously reckless behaviour that is unsafe or may cause injury. Generally, companies become exposed due to blind spots in the way the company is run, sometimes due to gaps in the way the company is managed. These gaps in governance can create an environment where unsafe practices persist and even thrive until the wake-up call when something goes wrong.
Key Organisational Gaps that Lead to Liability:
- Lack of senior management visibility over safety and compliance issues. Board members are collectively responsible for providing leadership and direction on health and safety. Sometimes, management delegate the functions of health and safety compliance to a specific person or team within the organisation. Where management does not retain clear oversight over the decisions taken in relation to safety or make safety a clear priority, gaps may occur.
- Failure to allocate clear responsibilities for risk management. Sometimes, responsibility for product safety is not made a priority within the organisational leading to critical gaps.
- Inadequate internal reporting structures, can mean red flags are missed or ignored. Sometimes an organisation’s structure, including lines of reporting, means individuals lack expertise to pick up on actual or potential issues with product safety. Perhaps responsibility for testing and safety is put within a division which also has other goals, whether sales goals, or high production targets.
- Inadequacy of product testing regimes. Sometimes products must pass tests to gain certifications to be placed on the market. This can lead to sales or marketing colleagues driving certification processes. Without wider scrutiny, such testing can lead to a focus on passing a test rather than being alert to wider issues. Manufacturers need to be alive to the fact that such tests may not replicate real world scenarios, or reflect the way in which the product may end up being used.
- Focus on revenue targets or on profitability. Tight margins or focus on growth targets, without the necessary checks and balances can lead to safety being seen as a “blocker”. Placing safety at the heart of the organisation, over and above all commercial aims is key.
- Insufficient knowledge of product use. Where component parts or raw materials go through a further transformation process after leaving the manufacturer’s factory, the manufacturer may naively assume that customers know how to use the product safely, or familiar with the relevant regulations to use it, and that these regulations are clear. Do you understand how your products will be used? If they are part of a supply chain, are you confident your customers understand how they can use them safely? If not, have you provided necessary warnings in marketing or product literature.
- Failure to draw on experience. Companies need to look critical at near misses, whether from minor complaints they have received, or reports of near misses, and to consider whether they are relevant or whether they need to take action in any way.
Creating a Culture of Accountability and Reducing Legal Risk
Accountability begins at the top. Senior leaders set the tone for the entire organisation. They must drive a transparent safety-first culture, to ensure that potential for any issues practices is minimised.
Here are the strategic actions senior management must take:
Category | Main Action | Sub-Actions |
1. Visible leadership on compliance and ethical conduct | Leaders must be visible champions of safety placing safety before profit | – Place health and safety at the centre of the company. Appoint a board member, director, or chief executive champion for legal and regulatory risk tasked with health and safety, to send a signal that health and safety are key. |
2. Make responsibility for safety a key role within the organisation | It is essential that safety becomes a key role within an organisation | -As well as board level involvement, appoint key people responsible for safety. Do not delegate health and safety to a junior or middle management level and hope for the best. |
3. Make safety a priority for all employees | Make safety a priority for all employees | -Consider including responsibility for safety in the job descriptions, performance criteria and incentive structures of all employees. |
4. Use the Plan, Do, Check, Act approach set out by the Health and Safety Executive | Use the Plan, Do, Check, Act approach set out by the Health and Safety Executive | In particular, set the direction for health and safety, deliver effective management systems, monitor and check your performance, and act to review your performance. Follow HSE guidance, assessing risks to employees, customers, and anyone affected by your activities. Ensure the effective planning, organisation control, monitoring and review of preventative and protective measures. |
5. Think and act beyond policies | Companies employing five or more people must have a health and safety policy | All too often this may a standard template or companies might take a tick box approach without considering the actual risks. Manufacturers also need to think beyond this about product risks. |
6. Clear escalation pathways for safety concerns | Clear escalation pathways for safety concerns | -Larger companies may want a safety or ethics helpline for employees to raise concerns. All companies should have a pathway to raise risks, e.g. via a form on the intranet, or via specific directors, as well as a policy for recording, investigating, and resolving concerns. |
7. Actively monitor risks and near misses | Actively monitor risks and near misses not just within your own company, but (where known) for competitors in other companies in the same or comparable markets | -Do not ignore warning signs such as near misses. |
Conclusion
Legal liability does not begin on the factory floor. It needs to be set from the top, by the senior managers with authority to lead on safety, compliance, and integrity, protecting their people and products, as well as their business. By focusing on potential risks, manufacturers can avoid legal exposure, leaving them free to focus on their business goals, whether these be sales growth, increased market share, entrance into new markets, or preparing for potential mergers or sales.
As business owners, we understand the risks that businesses face every day. Whether you’re looking to manage your regulatory compliance obligations, for guidance through litigation, or advice on managing cyber threats, our experts will work alongside you and take a fully tailored approach to helping you manage risk.
Find out more about how we can help your business manage risk, contact us today.
Author
Roxanne specialises in resolving commercial disputes, providing straightforward, strategic legal advice to help clients navigate risks, including corporate liability, and find solutions to the challenges of running a business.