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Rotman Insights Hub | University of Toronto - Rotman School of Management

Transforming safety culture: An auditing approach to reduce the likelihood of catastrophes

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Joel Amernic

Although nothing will absolutely prevent all catastrophes, when industries neglect safety on a psychological and cognitive level, it can increase the possibility of major catastrophes. A new paper from professors Joel Amernic and Russell Craig proposes a novel way of encouraging management: bring in financial auditors.

In their paper “Auditing safety leadership: three railroad catastrophes,” Amernic and Craig delve into three railroad disasters that occurred in the U.S., Greece, and India in 2023. In East Palestine, a town in Ohio, a freight train derailed on February 3, 2023, releasing large amounts of toxic chemicals and prompting mass evacuations of nearby residents. In Greece, an express intercity passenger train and a freight train collided head-on at high speed, resulting in 57 reported deaths. In India, approximately 300 people were killed, and many others were injured in a high-speed collision involving three trains.

According to Amernic, a professor of accounting at the Rotman School of Management, these companies likely had safety performance measures and metrics in place. However, he emphasizes that safety goes beyond mere metrics. "You can have the most wonderful system that measures safety performance on paper, but it must be taken seriously by leaders and senior management. Safety can't be just another box to tick off – it must be more fundamental, more visceral for them."

While bringing in financial auditors might seem unconventional, Craig and Amernic argue that these professionals can help foster a safety-first culture within organizations. Financial auditors, accustomed to verifying company claims, can demand clear evidence that leadership is genuinely committed to safety, much like financial audits. Of course, they would have to work closely with safety experts.

"Auditors have a respectful but skeptical mindset," says Amernic. "They want to see proof to verify what's really going on."

When a company opts to bring in an auditor for a safety review, Amernic suggests probing three specific areas. Firstly, auditors should examine whether the company fosters a climate of psychological safety, where employees feel free to speak up about safety concerns without fear of reprisal. This can be achieved through structures and procedures for anonymous whistleblowing on safety matters and by recruiting senior officials with a safety-first mindset.

Auditors should also investigate whether organizations publicly report meaningful safety performance indicators through mechanisms like CEO letters or annual reports. These indicators could encompass metrics on workplace accidents or infrastructure inspections, joining other regularly reported performance indicators in areas like accounting.

Amernic adds that companies can and do integrate safety into their day-to-day operations by rewarding employees for safety achievements, linking year-end bonuses or raises to safety measures along with financial KPIs. Of course, the design of the measures requires significant care and has ethical implications.

The final area auditors should explore is whether senior managers communicate with a "vocabulary of safety leadership." Amernic explains that this entails leaders consistently and meaningfully discussing safety issues. He points to CN Rail CEO Tracy Robinson's 2022 letter to shareholders, which included a dedicated section about the company's commitment to safety, aspiring to zero fatalities, injuries, and harm.

"CEOs can have a profound influence on others, and the way they think," notes Amernic.

To instill a "vocabulary of safety leadership" and cultivate a safety-first mindset, Amernic suggests organizations consider establishing special board of director committees to hold the CEO accountable on safety issues. Boards should also host dedicated meetings to address safety shortcomings identified in audits.

Amernic emphasizes that organizations can embed a safety mindset only if the CEO and board of directors genuinely "buy into" the importance of safety. Even in industries with seemingly lower safety stakes, such as tech or retail, there is an opportunity to reflect on safety measures, such as expanding the definition of safety to include issues of harassment and abuse or ensuring the safety of staff during store robberies.

"These notions of safety can be integrated into all types of organizations. It really is crucial and must be one of the foundational and cultural aspects of an organization," concludes Amernic. "It has to be on everybody's mind day in, day out. Organizations and society at-large would benefit from companies establishing a ‘vocabulary of safety leadership.’”

Joel Amernic is a professor of accounting at the Rotman School of Management.