All accidents are preventable. This simple fact, which used to be top-of-mind for every chemical industry manager, seems to have been increasingly either forgotten or ignored in recent years. The evidence is in the chart above: showing industry force majeures since 2008 (as reported on ICIS news):
- They were at a record level in 2015, continuing the trend seen since 2012
- They were up 25% in 2015, after rising 61% in 2014 and 30% in 2013
- This means they were more than double 2008′s level
Why is this happening?
In the past, safety was the top priority of every Board and manager. Profits came second. Nobody wanted to be responsible for death or injury because they had taken a short cut to save money. And, of course, if you put that statement to any manager today, they would still agree with it. But the evidence of the rise in force majeures shows that in too many companies, safety is no longer such an absolute priority.
Yet safety management is an absolute. You cannot be half-safe. So if a valve has a working life of, say, 10k hours, you must replace it after 10k hours even if it might last another thousand. Nor can you allow half-trained people to operate plants, and you must ensure that training is regularly updated and that management enforces the rules.
All this costs money. And many shareholders these days don’t actually bother to understand the businesses in which they invest. Instead, investing is a form of computer game for them, and they buy/sell on the basis of computerised “screens” – “X” is trading at a more attractive multiple to “Y”. One very senior investor even told me last year that he “didn’t see the point of having a CEO, as the performance of the business was already captured on his spreadsheet“.
As a result, the absolute priority of safety has been compromised. The average investor only expects to hold their shares for a few months – the high-frequency traders for only milliseconds (and they do half of all trading). So many have no interest in the long-term future of the business. Their priority is to achieve the highest possible share price in the shortest possible time, and then sell out. So they really don’t want to spend time discussing issues like this with the company, and they don’t care if their short-sighted approach leads to a problem after they have sold their shares.
Nor do they care if customers get upset. They will have sold their shares long before this causes business to be lost.
Of course, there are still some fund managers who do think long-term:
- They do believe that their job is to support companies to grow their business for the long-term
- Their aim is to help it to increase its earnings, so that it will be able to increase its dividend payments
- They know these dividends will then be available to pay out promised pensions to fund members when they retire
But they are no longer the majority, as the second chart confirms.
This is why many managers feel pushed to cut back on maintenance and training, and take the risk of using equipment beyond its scheduled working life – thereby saving money and boosting the share price in the short-term.
This seems to be why we continue to see record levels of force majeures, at the same time as the industry is continuing to report strong profits. Its not because companies can’t afford to spend the money, but because we live in a world where the concept of short-term shareholder value rules.