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Companies in debt take more work health and safety risks

Tuesday 28, Apr 2020

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Companies in debt take more work health and safety risks

Research has revealed that companies cutting corners on workplace safety to boost short-term financial gains are rife, and that any short-term financial gain from cutting corners will be short-lived. Researchers from the Australian National University (ANU) and other universities internationally have found that debt was the driver of this risky behaviour, and they believe the problem will only worsen as the coronavirus (COVID-19) pandemic continues to impact the world’s economies.

Dr Di Fan from ANU, who co-led the research, warns that Australian companies are susceptible to having a “myopic focus” at workers’ expense. “In Australia, the economy has already been strained by the US–China trade war, and firms are experiencing higher survival pressure in the face of COVID-19,” Dr Fan said. “As a consequence, they may be motivated to take resources from workers. Governments should keep an eye on whether workplace safety is being compromised amidst these dire economic conditions.”

The research team investigated the health and safety regulation breaches of more than 4000 manufacturing companies in the United Kingdom. Worker injuries in the study included crushed limbs and serious injuries causing death. “We found companies that risked workplace safety for quick productivity gains experienced a hit to their bottom line in the long run,” said Dr Fan. The study also found that companies with a 20% increase in debt led to a roughly commensurate rise in breaches of health and safety regulations.

“Debt was a big driver of these risky practices — the higher the debt, the greater the likelihood a company would breach health and safety regulations. We found firms taking out loans did not invest this money into human capital — rather they used it to push productivity, which placed operational workers at risk in the process,” Dr Fan said. “Risky practices, such as cutting corners on safety, harms sales growth, return on assets and ultimately the bottom line, so it’s not worth it in the long term. On average, profit margins dropped by 1.27% in the first year after a safety breach, with a hit to sales growth of 3.62% and a reduction of 1.34% to the return on assets for the same period of time. These are significant figures, especially at a time when global economies are contracting so rapidly.

“Prioritising profit over safety for short-term financial gains is ultimately a lose-lose situation; it ends up being bad for the firm, bad for the workers, bad for the shareholders and bad for society as a whole,” Dr Fan concluded.

Image credit: © Meepian