Recently, I was looking through our content files and came across a post I wrote in 2014. As I read it, it struck me how it could apply almost exactly to the situation we find ourselves in today. Here it is:
“The realities of our industry require a rigorous test for investment that, if used appropriately, can be healthy for the industry. Our facilities are expensive to build and maintain so they are funded by public market investors or private equity investors who expect a predictable financial return. This forces management teams to scrutinize investment and look for the most efficient way to accomplish their strategic goals with the investors’ capital. That’s very healthy because it assures a future investment in the business that leads to jobs and prosperity.
We’ve seen that this tension can fall out of balance, too. If management teams become too focused on the short term and forsake the long-term commitment to economic and community viability, a spiral begins that can manifest in failures that threaten the existence of the business. These can take the form of competitive disadvantage in cost, quality, or talent. Even more importantly and tragically, it can show up in safety incidents. This usually stems from the capital budget process when the pressure to reduce CapEx causes projects to fall out that are deemed “non-essential”. We’ve seen safety and economic performance deteriorate because the status quo was repetitively deemed “good enough” for the coming year until, because of some manifestation, it was not good enough.
I can remember a conversation on this topic with a CEO from one of the top petrochemical firms. He had just returned from New York and said, “Chris, yesterday I was standing in a Wall Street conference room, surrounded by financial analysts between the ages of 28 and 35, who control the cost of capital for us even though they have never worked in our industry. They don’t really care how we do it. They just demand that we deliver the number they expect each quarter. It’s terribly frustrating.” That was a very telling moment about the pressure that management teams face.
With our industry coming out of a deep economic trough, the pressure is on management teams to keep a tight rein on budgets after a season of painful cost-cutting. It’s vitally important to our people and infrastructure for them to keep investors happy in the short term while investing appropriately in the long term. If it’s impossible to do both, the former must yield to the latter to ensure safety for the industry.”
We may still be heading into the trough, but the message is the same: Keep a proper balance between short and long term investments in the business. It’s easier to say than to do, but here are some points to keep in mind:
- Frequently, those who are closest to the issue know best when new investment is needed. It’s up to these people, often of lower organizational rank than decision-makers, to raise the alarm when important assets are neglected and need reinvestment. This requires courage and a culture that rewards (or at least doesn’t punish) open communication.
- Management needs intellectual honesty when a decision to cut budgets is made. With the frequent shifts in management assignments, some are content to kick the can to their successor that results in extended delays in funding for important needs.
- It’s getting easier to pay for safety improvements. The rise of subscription service models by product manufacturers means that investments that were traditionally paid by the capital budget can now be sourced by paying a manageable monthly subscription. No more bloody knuckles during the capital budgeting process!
- Safety investments are carrying more weight in the business because of the rising prominence of socially conscious investing. “ESG” (Environmental/Social/Governance) investment criteria for $12 trillion in investment capital today (and growing) captures the attention in boardrooms across the industry. The “S” in ESG is supported by focusing on stakeholder wellbeing, which includes employee and contractor safety.
So, if you’re a safety and emergency response professional in need of funding at your company, take heart in the downturn. You have a noble mission and more support than you think. Go on. Make a pitch for that investment that will make your site safer.