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Chemical companies cope with a decade of change.

There have also been product tampering cases such as the Tylenol and Pepsi incidents and interruptions to various companies' critical computer-based operations due to fires, floods and human error. These large-scale disasters, combined with higher real-practice premiums for doctors and escalated legal liabilities, have caused a rapid growth in risk management activities, domestically and internationally.

However, the growth in risk management has far outweighed the desire of some companies to reduce costs by cutting back on their risk management efforts. Made increasingly aware that risk management can offer longterm savings through the avoidance of direct damages, fines, penalties and liabilities, as well as the increased use of self-insurance, many organizations are developing aggressive risk management programs. The level of effort required to achieve compliance and maintain an active risk management posture is likely to remain high for some time.

The growth of risk management has been particularly prevalent in the chemical industry, primarily because of an increase in state and federal regulations and the public's concern about safety. Besides influencing chemical manufacturers, these risk management issues affect companies that use large quantities of chemicals in the manufacture and industrial processes for their own operations. Induded in this category are organizations not normally associated with chemicals, such as water treatment facilities, which may use chlorine in water purification, and food manufacturers, which may use ammonia in refrigeration systems. With the continuing proliferation of regulations, the ever-present possibility of another disaster and a public increasingly concerned about environmental, health, safety and economic issues, it is becoming more important than ever for chemical firms to adopt good risk management practices.

Regulatory Issues

In the chemical industry, much of the heightened demand for risk management services stems from pressure exerted by regulators and the public to improve safety standards within the industry. However, according to data reported by the National Safety Council in 1991, cases involving days away from work and deaths in the chemical industry equaled 0.62 incidents per 100 full-time employees, compared to a rate of 2.15 for all other industries. Yet, even though these statistics demonstrate that the chemical industry has a better safety record than most other industries, it still has a poor image in the eyes of the public and many governmental entities.

This misperception stems from the spectacular nature of many of the events that do occur, as well as the potential for multiple fatalities or injuries. While actually few in number, the catastrophes that do take place are memorable. For example, major plant fires and explosions are often captured on film and played over and over on television, increasing the magnitude of the event in the public's mind, even though the event itself may not have resulted in any injuries.

Also, the proprietary nature of many of the processes and materials used by chemical companies had led the industry to adopt a "trust us" attitude, which often entailed withholding certain information from the public. Unfortunately, this has enhanced the public's distrust and fear. However, massive campaigns by the Chemical Manufacturers Association (CMA) to make information available to the public have demonstrated that simply offering the information is often enough to improve the public's perception of the industry; for concerned individuals, knowing that they have access to information on the industry is reassuring, although very few actually avail themselves of this opportunity. The joint effects of the threat of large safety and environmental disasters and the concern of public and regulatory bodies have caused several specific trends. First, many industries have increased their self-policing measures. In the chemical industry, examples include individual companies undertaking reviews to identify potential reductions in hazardous material inventories, the development of CMA's Responsible Care programs and the rounding of the American Institute of Chemical Engineers' (AIChE) Center for Chemical Process Safety. Some of these efforts are longterm, while others are reviews focused on discovering the causes of specific incidents.

Secondly, there has been an increased number of regulatory requirements at both the state and national level. For example, California, New Jersey, Illinois and several other states have enacted programs to address hazardous materials usage - especially for very toxic materials. At the national level, new regulations passed over the last 10 years include SARA Title III, the new Occupational Safety and Health Administration process safety management rules, the Clean Air Act, and new Department of Transportation and Coast Guard regulations on the transport of hazardous materials. Each of these regulations requires companies to gather and analyze data and fulfill certain reporting requirements. Many companies also find that they must tailor their responses to each regulation, causing some degree of redundancy in their risk management efforts.

The third trend is the emergence of public opposition groups, many of which have formed over the last decade. As opposed to community groups seeking to work with facilities, opposition groups strive to single out certain facilities or companies for increased scrutiny, protests and even legal action. In order to counter such activities, companies expend considerable time and expense on various reviews and studies.

Together, the reactions to these various trends or concerns have overwhelmed the risk management capabilities of many in-house environmental, health and safety departments. In some cases, outside assistance is needed simply to increase available resources, but other situations require specialized expertise in areas such as risk assessment, hazard identification and toxicology. Companies have found that it is often most cost-effective to hire these experts on an asneeded basis, especially since the number of qualified practitioners in some fields is so limited that the only practical way to obtain them is on a contractual basis. Generally, the problem of obtaining specialized resources exists in all industries and businesses relying on some form of risk assessment as part of their risk management program. Another driving force behind the use of outside contractors or consultants is a concern for corporate and individual liability.

Regulatory Violations

Increased attention to risk management arises not only from the magnitude of fines that may be imposed, but also from changes in the way regulatory violations are handled. In the past, ignorance about the applicability of a law might have constituted a partial excuse for a violation. However, today the onus for recognizing, understanding and complying with applicable regulations is on upper management - whether or not they have ever been present at the location of a violation. This has led to increases in both companies' internal regulatory affairs staffs and companies' reliance on key industry associations for tracking regulations. Keeping on top of regulatory requirements is critical for companies that use and store sufficient quantities of hazardous materials to be affected by the regulations, even if they are not members of the chemical industry.

Industry associations play a key role in trying to improve performance throughout their respective industries, especially with regard to environmental, health and safety performance. The work of these associations results from the recognition that an accident or incident harms the whole industry, and not just the affected facility or company. Thus, these associations spend a great deal of time and resources providing guidance, setting minimum standards for members and educating various groups such as universities, member companies, other industry firms, the public and regulatory bodies. These efforts are increasing in situations where jointly addressing risk management issues between different industries provides benefits for both groups.

Many companies are setting "best industry practice" standards as a goal for their risk management programs. Strongly related to liability concerns, the goals of following best industry practice are thought to be feasible in a relatively short time frame and practical from a cost-competitive standpoint. More idealistic goals could force a company out of a particular business, possibly allowing a less proactive company to pick up that exact business - without having the same aggressive risk management posture. This does not help risk management from a societal perspective.

Safety Implications

There are a number of trends likely to affect risk management in the chemical industry. One example is that chemical firms - as well as companies in other industries - are placing more attention on ways to achieve both long- and short-term cost reductions. These cost control measures have implications for the safety function. For example, companies that are focusing on long-term savings will attempt to protect the company from low likelihood, high-consequence events such as major accidents, whereas short-term saving efforts will focus on reducing high-likelihood, low-consequence incidences such as minor work injuries.

In regard to the environmental, health and safety area, more individual state requirements and federal regulations are also expected to be passed, and are likely to be joined by an increase in such regulations on an international level - particularly in Asia and Latin America. The European Community already has the Seveso Directive - a regulation that addresses the handling of hazardous materials.

Ultimately, however, the overlap between the regulatory programs of individual U.S. states should be replaced by a more coordinated national program. But until such. changes are made, differing state regulations will remain a problem for the industry. As a result, companies must tailor elements of their risk management programs on a facility-by-facility - or at least state-by-state - basis. Unfortunately, this approach produces inconsistencies in a company's various programs, and makes it difficult for facilities to learn from one another and to share results. It can also distance corporate departments from the risk management activities existing at various plants, thus resulting in the loss of some of the potential benefits that can be derived from the typical corporate oversight and coordination role. The more advanced companies are in terms of risk management practices, the more likely they will be to establish modular programs, which start with a common approach for all company facilities, then tailor only the final portions of the analyses and associated reports to conform with each state's unique requirements.

Community Involvement

Future trends will likely include expanded interaction between companies and the local community hopefully in a way that is constructive and beneficial to everyone involved. There are several facilities in Louisiana and other states that already have such strong bonds with the local community. This process involves activities such as convening community advisory boards on a monthly basis, holding open houses and printing newsletters. When interacting with local groups, companies should have broad-based community involvement in order to gain awareness and support. This requires working with the entire community, and not just with adversarial groups.

Another anticipated trend is an increase in regulations dealing with the transportation of hazardous materials. An increasing number of communities are imposing routing restrictions, which may ultimately prohibit transport to certain destinations, or which may increase risk levels by forcing companies to use extremely circuitous transportation routes. To prevent this situation, communities such as Santa Barbara County in California are looking at risk-based routing decisions. Inter-industry committees are also being formed in an attempt to evaluate the situation from a broader perspective. One such group is the Inter-Industry Rail Safety Task Force, which comprises members of the CMA, the Association of American Railroads and the Railway Progress Institute. Together, this group represents the shippers of hazardous materials, rail carriers and those responsible for the design and maintenance of tracks as well as rail cars. Working jointly, such groups can be very efficient in determining the changes and improvements to be made to reduce risks. With more voluntary efforts like these among the affected industries, there will be less need for federal regulatory intervention.
COPYRIGHT 1993 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:safety regulations
Author:Bendixen, Lisa M.
Publication:Risk Management
Date:Aug 1, 1993
Words:1901
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