Companies gearing up for the 6 April implementation of the new Corporate Manslaughter and Corporate Homicide Act 2007 would be wrong to assume that health and safety and HR departments will bear the brunt of the new rules. There are key issues that land firmly at the feet of finance directors.

The Act creates a new offence of ‘corporate manslaughter’ (or corporate homicide in Scotland). Organisations will be guilty of the offence where a fatality is caused by a ‘gross breach’ of a duty of care and where the actions of senior management played a significant part in the breach.

What constitutes a gross breach is clearly of fundamental importance and juries will be directed to consider a range of factors, including the company’s ‘safety culture’, the seriousness of the failure, the risk of death and adherence to health and safety guidance.

Virtually all workplace deaths will lead to a lengthy corporate homicide investigation by the police and Health & Safety Executive. Some of these investigations will lead to prosecution and it is a matter of time before there is a conviction. For FDs, in particular, there are several key practical considerations.

First, as part of the senior management team, they play a significant part in ensuring that health and safety is managed appropriately at board level and is given the highest priority, particularly in risky sectors. Clearly though, an FD’s main health and safety responsibilities revolve around the company finances.

Any police investigation will scrutinise the allocation of resources to health and safety functions. If corners were cut financially, jeopardising safety, this will be a powerful factor for the jury to consider in establishing a company’s guilt. If a company is convicted, cutting corners will also be a serious aggravating factor in sentencing.

‘Safety spend’ will be analysed in great detail by the police and FDs must ensure any decisions are properly minuted and documented, so that any financial decision regarding safety spend or lack of it can be fully supported. Approval processes, in terms of the overall safety budget and financial requests for safety generally will have to be carefully looked at and a paper trail must be in place to show all decisions regarding funding have been properly considered at the appropriate level.

Playing it safe

How much is spent will depend on the nature of the business, but the law requires all organisations to do everything reasonably practicable to ensure the safety of everyone affected by the business’s operation. At the very least, FDs will have to be able to demonstrate their safety spend was in line with industry standards.

They should check the organisation’s insurance cover to make sure it is adequate. In particular, the legal costs of a corporate homicide investigation and trial, including the payment of prosecution costs, could run into millions of pounds and this should be covered.

There could also be significant business disruption during the investigation and trial, which could in the worst case scenario result in operations being shut down by the police to enable them to complete their investigations. Directors’ and officers’ cover should be reviewed.

The fines for companies found guilty of the new offence are unlimited and could be huge. The current proposals are for fines in the region of 2.5% to 10% of gross annual turnover, averaged over a three-year period. Businesses cannot insure against these fines, and they will come straight off the bottom line. Accordingly, once a corporate manslaughter investigation has been triggered, FDs must ensure proper provision is made in the accounts in respect of the criminal fine and the legal costs.

In addition, there are new powers for the courts to order organisations convicted under the Act to publicise the fact of the conviction, the level of fine and the details of the breaches in the national media and through commu nication with customers, investors and other stakeholders. This is potentially of even greater long-term damage to bottom line performance and should be a key concern to FDs.

Finally, it would be a grave error to underestimate the financial impact of a long and invasive police/HSE investigation, which would inevitably follow a workplace death. Such a process will involve close scrutiny of health and safety spending, decision-making and practice, as well as police interviews of key executives and personnel.

This will sap morale, resources and cast a shadow over the reputation of the company until it is concluded. Financial decision-makers have a key role to play in making health and safety a boardroom priority. They will also find themselves on the front line in any police investigation in demonstrating the organisation’s commitment to compliance. With stakes this high, you must take full responsibility for safety.

Practicing safe finance

• Make sure safety management is appropriately and adequately funded. The funding, and the steps taken to check it, must also be documented
• Safety management should be driven from the board level down, and all duties and responsibilities at senior management level must be clear, both to the individuals and from documentation
• Do not delegate inappropriately
• Conduct an immediate audit of the entire safety management system
• Ensure that the safety culture within the organisation is given the highest priority
• If an incident occurs resulting in serious injury, or a fatality, make sure that it is properly managed
• Have a procedure in place for dealing with police investigations, these will be lengthy and very intrusive and will eat up a lot of management time
• Put procedures in place to deal with damage to the company's reputation, which could be enormous
• Provision should be made in the accounts for the potentially huge fines and legal costs which could arise in the wake of an accident
• Carry out an urgent review of your insurance policies to make sure that you are covered for legal costs in respect of such proceedings
• Make sure that your directors' and officers' insurance is adequate

David Leckie is a partner in the commercial litigation and advocacy team, specialising in health and safety, with Maclay Murray & Spens