Press Release: 16 Apr 2009

Corporate manslaughter

New challenges for boardroom and advisers

The increasingly complex landscape of risk management, corporate governance and reputation management changed for ever in the spring of 2008 - 6th April, to be precise.

The new Corporate Manslaughter and Corporate Homicide Act came into operation from that date and applies to all companies, regardless of size. In essence, it introduces a new offence across the UK allowing for prosecution of companies and organisations where there is judged to be a gross failing in health and safety management with fatal consequences. Clearly, it gives the courts greater powers to shame companies and brands  and the people who run them.

Companies will be exposed to more police investigations, higher fines (theoretically, without limit) and a wider range of possible offences, lawyers claim.

The Act is primarily a response to widespread criticism of the existing law, after a series of failed prosecutions over disasters such as the 1987 capsizing of the Herald of Free Enterprise ferry in the English Channel, which resulted in the deaths of 193 people, and the Southall train crash in 1997.

Importantly, for those offering pre-emptive and risk management advice to larger or high-profile business boardroom teams, the new law theoretically makes large companies more vulnerable because prosecutors no longer have to demonstrate that a single senior official is the "controlling mind" and shoulders the main responsibility for a death. The act requires instead that senior management as a whole play an accountable role in the offence.

And, of course, there's a whole new branch of the risk advisory profession that's been emerging in anticipation of the far-reaching implications of the new Act, which will not only cover fatal accidents at work but also cases of death on the roads during work journeys.

Meanwhile, critics of the long-awaited Act say it is too lenient and lets individual managers off the hook. There has also been a cautious but relatively sanguine reaction from some businesses, so far, as only the first test cases will start to alert commercial lawyers and their clients to the real scale of the threat.

However, some industry leaders, at least, are alarmed by proposals that guilty companies could face fines of 10 per cent of turnover, translating into hundreds of millions of pounds for the major corporations.

Such fines could dwarf the largest penalties imposed so far under health and safety legislation. For instance, there was the £11m fine imposed on Network Rail and Balfour Beatty over the Hatfield crash in 2000 and the £15m fine of gas supply company Transco over an explosion in Lanarkshire that killed a family of four in 1999.

Of course, there are two perspectives former fines did not "reflect the seriousness of the offence of taking a life by negligent management of health and safety, often over a prolonged period, saving money and cutting costs". A fair point, in many people's view, and one that business leaders need to keep carefully in focus if they come under scrutiny.

One further aspect of the Act is worth comment, for now... A further potential penalty facing companies convicted under the Act is the imposition of an "adverse publicity order", requiring them to announce findings in advertisements or letters to suppliers and shareholders. The FT reported on 7th April that some businesses are fearing the reputation implications almost as much as the potential fines. They were reporting on the findings of law firm Norton Rose, which claimed, in its own research, that of the firm's 90 or so clients, 42 per cent said they believed publicity orders were the biggest deterrent under the new rules - only three per cent less than those who said that fines were the biggest threat.

For those approaching the risk arena from a reputation management point of view - that is corporate communicators and corporate affairs professionals - there is a need to review and strengthen all appropriate areas of senior director and management training, risk assessment, insurance and internal reporting. This is going to affect corporate stakeholders and due diligence fundamentally. The legislation is going to demand smart, well-managed culture change and, consequently will fall fair and square into the remit of 'communications'. It will further heighten the scope and significance of the communications team, who can legitimately design and co-ordinate the many tasks and functions involved.

Not a time for over-reaction - but a definite moment for considered and thorough review of company practice, particularly for quoted businesses and their boardroom teams.

Chris Woodcock is Managing Director of risk communications and PR consultancy Razor and a Managing Partner of the College Hill group.

01869 353800

chris.woodcock@razor.eu.com