Oxford, MS — The makeup of a corporation’s board of directors can have a considerable influence on workplace safety, a pair of researchers conclude in a recently published paper.
Listing standards in effect since 2003 require half of the directors of certain publicly traded firms to be independent. Audit, compensation and nominating committees need to be fully independent.
Researchers Lixiong Guo of the University of Mississippi and Zhiyan Wang of Wingate University looked at 1996-2008 injury and illness data from 377 parent firms. Of those firms, 88 were subject to the new listing standards and controlled nearly 1,600 establishments. The remainder of the firms, which already had independent boards in place and controlled more than 4,100 establishments, made up the control group. A total of almost 35,000 establishment-year observations were recorded.
The researchers compared the two groups and found that, between 2000 and 2001 – prior to the new requirements – the firms that became subject to the change (“treated firms”) had 28% fewer independent directors on their boards and had nearly 4.4 more work-related injury and illness cases per 100 full-time employees per year. They also found that transitioning from a non-independent board to an independent board “significantly improves” workplace safety. “Specifically, we find that establishments belonging to firms that were forced to transition to an independent board experienced a significant decline in the total case rate of work-related injuries and illnesses relative to establishments belonging to firms that already had an independent board before the shock. The decline in total case rate is between 9% and 10% of the sample mean injury rate and thus is economically significant.”
They note that safety and health improved at the establishments under the treated firms as a result of increased safety investments relative to total assets and sales. Those firms also were “more likely to incorporate safety-related benchmarks into CEO compensation contracts.”
The positive impact on safety and health impact also is attributable to independent directors’ labor market incentives that can enhance their reputation through maximizing shareholder welfare, the researchers said. This includes a reduction of negative publicity for firms that incur OSHA violations, an increase in long-term shareholder value and catering to preferences of major shareholders.
“Our findings suggest that the combination of board independence and ownership by long-term or socially responsible investors can effectively enhance corporate social performance,” Guo and Wang write.
The paper was published by the Social Science Research Network.
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Original article published by Safety+Health an NSC publication