GEMI March 2002 Benchmarking Survey Choosing HSE Priorities in a Time of Economic Difficulties

1. GEMI March 2002 Benchmarking SurveyChoosing HSE Priorities in a Time of Economic Difficulties George Nagle Bristol-Myers Squibb Company March 14, 2002

2. 1. Which of the following best describes the overall change to your company’s employee population over the last 2 years?

3. 2. If it has decreased, by how much?

4. 3. Which of the following best describes the overall change to your company’s HSE staff over the last 2 years?

5. 4. If it has decreased, by how much?

6. 5. Compared with 2 years ago, has your current companywide HSE operating (non-capital) budget…..? • Overall average change in operating budget: -2% • Average operating budget increase: 20% • Range of responses: 5% - 70% • Average operating budget decrease: 20% • Range of responses: 5% - 50%

7. 6. Compared with 2 years ago, has your current companywide HSE capital budget…..? • Overall average change in capital budget: -7% • Average capital budget increase: 34% • Range of responses: 5% - 100% • Average capital budget decrease: 21% • Range of responses: 10% - 50%

8. 7. If there have been decreases in HSE staff, in which of the following areas have they occurred?

9. 8. If downsizing has occurred, how has the HSE staff been impacted as opposed to other groups?

10. 9. Have you discontinued certain HSE activities over the past 2 years due to decreased resources?

11. Participation in industry trade associations (10) Participation in professional associations (9) External Affairs (8) Regulator/Legislative Affairs (7) Internal Communications (5) External HSE Reporting (4) Safety (4) Environmental (4) Training (4) Medical (3) Industrial Hygiene (2) HSE-related Engineering (2) Analytical Testing (1) Process Safety (0) 10. If the answer to Q-9 was Yes, in which areas were activities decreased?

12. Medical (4) Analytical Testing (4) Training (4) HSE-related Engineering (4) Environmental (3) Industrial Hygiene (3) Regulatory/Legislative Affairs (3) External HSE Reporting (3) Safety (2) External Affairs (1) Internal Communication (1) Participation in industry trade associations (0) Participation in professional associations (0) Process Safety (0) 11. If the answer to Q-9 was Yes, in which areas were activities outsourced?

13. 12. Are there any areas in which activities has increased?

14. Environmental (2) Training (2) External/Internal Relations (2) Participation in Industry/ Professional Organizations (2) Environmental air issues (2), environmental due diligence Ext. Environmental Reporting (2) Increased focus on Product Stewardship and Product Safety (2) ISO Certification/Verification Process Corporate Citizenship activities Staff at facility and business group level has been increased to address program enhancements Internal governance programs Supply chain environmental management OSHA Star Program Technical support to sites’ compliance efforts Title 5 and MACT requirements (US only) Regulatory Monitoring Stakeholder relations Six Sigma 12. Areas in which activities has increased (continued)

15. 13. How would you rate the breakdown of your HSE activities at this time? • Average % of current proactive HSE activities: 45% • Range of responses: 5% - 90%

16. 14. How would you rate the breakdown of your HSE activities 2 years ago? • Average % of proactive HSE activities 2 years ago: 44% • Range of responses: 5% - 90%

17. 15. Which of the following actions have you undertaken in response to changes in resources? • Reorganized HSE functions (18) • Changing auditing frequency (13) • Delegated more responsibilities to line management (13) • Implemented new HSE information management systems (12) • Installed more management systems (9) • Rewriting standards (7) • Hired more consultants (7) • Outsourced activities (6) • Changing subject matters areas audited (5)

18. 15. Continued. • Others: • Undertaken Worldwide EMS Review • Instituted Corporate & OpCo Compliance Functions • Priorities setting, managing • Time management • Reduce redundancy • Better pair skills, synergies, staff development

19. 16. In decision-making on changing priorities, which of the following have you utilized? • Multi-disciplinary team (18) • Survey of customers (16) • Benchmarking peer companies (16) • HSE staff decision (14) • Other: • Review & assessment of internal needs

20. Public reporting/ transparency (16) Product stewardship (15) Air (12) Sustainability (11) Water (11) Corporate Citizenship or Social Responsibility (10) Safety (8) Pollution Prevention (7) Regulatory reporting (7) Complying with voluntary standards (4) Health (3) Stormwater (3) Others: Supply Chain EHS Management Investor Relations 17. What issues are you expecting to take increasing amounts of your resources in the next year?

21. 18. What is your current HSE strategic planning time horizon?

22. 19. Do you believe that a company’s HSE performance can “coast” for a period of time after resources are cut until performance begins to noticeably deteriorate? • 1-2 years (11) • 9-18 months (2) • Variable, but no more than 2-3 years • Very dependent upon how advanced the current performance is • Depends on condition of the EHS management system when cut took place

23. 20. Based on your experience, what are the first signs or symptoms that a company’s HSE program may be suffering from lack of resources? • Responses were grouped into the following categories: • Compliance Issues (14) • Internal Audit Performance (6) • Increased Accident Rates (5) • Poorer Employee Opinion Surveys (3) • Lack of Progress on Company Goals (3) (Specific comments are listed on the following 3 pages.)

24. 20. Based on your experience, what are the first signs or symptoms that a company’s HSE program may be suffering from lack of resources? • Increase in accident rates and increase in compliance issues • Compliance problems, increases in emissions, unhappy colleagues leaving the company • Performance metrics on EH&S, employee opinion survey, customer survey decrease • Poorer audit performance • NOV’s, bad audits • Beyond compliance program accomplishments diminish • Surprise issues appear, regulatory recordkeeping and compliance issues appear for routine type items. Regulatory deadlines are missed. Organization is constantly in a reactive mode. • Ignoring issues until they blow up in your face.

25. 20. Continued. • Increase in accident rates. • Relative increase in Notices of Violations from government regulatory inspections. • Decrease in employees perception of company’s EHS performance in periodic employee opinion surveys. • Increased incident rates. • Basic compliance performance start to suffer (e.g. recordkeeping) • Program execution problems (training, recordkeeping, audit frequency slippage, etc.) • Short term decrease in effort directed to proactive activities. More outside contracting/consulting of required activities and less outside contracting/consulting on proactive activities. • Noncompliance - fines • Near miss and recordables increase

26. 20. Continued. • Increased audit findings, more frequent permit exceedances. • Poor results on company E&S assessments. • Lack of progress toward established goals and regulatory non-compliance. • Personnel (staff issues) • Increased variety and quantity of “minor” issues in compliance, training, staff utilization and competence. • Employees lose focus of their role in ESH and improvements began to slow down. Something needs fixing but may not involve more personnel or resources. • The nature and number of audit findings and increased safety and environmental incidents. • Things fall through the cracks; compliance problems. • Lack of timeliness, no progress on strategic plan.

27. 21. Do you consider your company an HSE leader?

28. 22. Do you feel that your company is currently adequately covering all HSE compliance issues?

29. 23. What are your major concerns for the future related to HSE staffing and resources? • Lack of specialized HSE knowledge, loss of institutional knowledge, no depth on the “HSE bench,” lack of career development opportunities in HSE • We are less concerned than we were since senior management is clearly focusing on the whole area of Social Responsibility far more than ever before • Development of colleagues across the organization to anticipate EHS opportunity as a regular part of their overall decision making. Integrating EHS into the regular mindset of all colleagues. Developing EHS professional to be the facilitators, expert advisors, and communications specialists. They are not necessarily prepared for these new roles. • That we take a SMART approach to compliance and continuous improvement and don’t fall into the trap that simply “throwing more people” at the issues will fix them.

30. 23. Continued. • Expectations of flat budget will continually pressure means to reduce costs including staff. We are trying to focus on transitioning the perspective of the group from a necessary overhead to one of value added to businesses where they desire stronger support with more resources. You have to try. • Potential continued reductions unless economics improve soon. • Inadequate attention to detail will result in releases, fines/penalties, reorganization. • Concerned that management may decide to outsource the function. • Employee motivation and the resources will continue to decline while the EHS issues will increase in complexity. • We have not seen the bottom. • Need to continue to invest in EHS team’s professional training and development. • Delegation of EHS functions to line management is easier said than done, especially when line management’s resources are also being reduced. • Maintaining a proactive/leadership position.

31. 23. Continued. • Competition for resources in a rapidly expanding organization. • Changing regulations, changing regulatory enforcement emphasis. • An aging demographic with no new hires. • International technical support. • Meeting the sustainable issues. • Change in basic company structure. • Inability to comply with exponentially increasing air requirements (especially MACT standards). • We would like to eventually be considered an HSE leader and are now trying to “sell” and implement sustainability. Will we have the staff to do this? • Unintended consequences. • Having enough qualified professionals to meet challenges and inability due to many HR laws about replacing inadequate personnel. • Transferring knowledge base to new, younger employees as the workforce transitions; having enough resources to deal with new regulations.

32. 24. If you could anonymously deliver one message to the CEOs of the Fortune 500 on this topic, what would it be? • HSE protects the reputation of a company in many ways and a good reputation built over a long time can be lost in a very short time. • Investors will judge companies on how they manage their Social and Environmental performance in both good and bad times, but, you will be sanctioned more heavily over a longer period if you let up in these areas because of “temporary” economic difficulties. • EHS must remain a key priority of the business. • Effective EH&S program management is not just a compliance requirement, but is a competitive advantage if managed correctly. • Don’t through the baby out with the bathwater. • Strong EHS programs help achieve business objectives. • Don’t be short-sighted. Look to long-term sustainability and how HSE contributes to that.

33. 24. Continued. • Evaluation and validation of resources is good for the organization, but make sure you clearly understand the difference between leadership, compliance, and inadequacy and the resource levels needed for each. • Take the long view in terms of corporate reputation. • Would you put a family member on a plane where the preventative maintenance and flight crew training just barely meet minimum government requirements? Wouldn’t you want them on an airline with programs that were reasonable and necessary? Then why not strive for the same in the level of EHS performance within your own company? • Don’t sacrifice HSE for the short term. • Make sustainability a priority: if you do it right, it will pay for itself. • Ask questions within your organization concerning the HSE governance capabilities and look closely at the results. • Cut HSE budgets as an extreme last resort. Be flexible and allow HSE professionals to adjust priorities with changing business challenges.

34. 24. Continued. • Pay for people or pay fines! • Today’s improvement efforts will bring about next years rewards or punishments. • Be a leader in Sustainable Development. • If resources are cut to an extent that our ability to perform our job effectively is seriously curtailed, the ultimate cost to the corporation in increased fines and loss of corporate image will be several times the money “saved.” • E&S (if done correctly) is value added, not something that is required to be done and that detracts from the main business. It must be implemented and viewed as adding value to the company’s core business. • Do not allow a perception in y our senior managers that you are less committed to EHS while you expect improved efficiencies and productivity in the company. The assurance process should be emphasized, top-line opportunity processes vigorously managed, staff developed, and maintain appropriate proactive programming that you not fail to meet your underlying core values or future business opportunities.

35. 24. Continued. • The CEO’s personal leadership is vital to maintaining good HSE performance. • The public and non-governmental organizations (NGOs) are better educated and focused and are putting more pressure on companies. The competition is funded by the charitable trusts and they have an extensive amount of funding. We need resources to address these issues. • HSE requirements do not change with the economy.

36. 25. If you could anonymously deliver one message to HSE government regulators on this topic, what would it be? • Consider offering incentives for those companies that go beyond compliance • EHS must remain a key priority of the business. • EH&S can focus on the correct solutions without all the burdensome regulatory requirements if they would accept transparent performance reporting. • Allow for more innovative approaches but expect good performance from companies. • Allow more flexibility to meet targets/objectives. • Focus government resources on the important stuff. Continue to use market (emissions trading) to drive improvements. • The lack of enforcement for the last 10 years encourages companies to take risks and under-fund the resources. Government requirements and enforcement assist in bringing visibility to the issues at hand.

37. 25. Continued. • Eliminate the paperwork nightmare. • Support research which demonstrates the business benefits of good EHS performance. • Use more voluntary programs with incentives. • Focus regulations on performance/outcome, not nitty-gritty how-to details. • Understand the real costs of regulation and make sure these requirements result in improvements to human health. • Consider long term effect to business, economy, and environment when evaluating regulatory modifications. • Everyone must win for anyone to win. • Regulations need to support all legs of Sustainable Development. • The same message that should be delivered at any time: Concentrate on regulations that have an impact on the environment -- don’t burden us with excessive recordkeeping and reporting that do nothing except increase our costs.

38. 25. Continued. • Regulators must have enough resources to review and act upon permit applications and remediations proposals. Re: otherwise business activities are unnecessarily slowed down. • Add real incentives to encourage improvements versus following shallow comments by NGOs. Also, regulatory agencies are employing many non-qualified individuals that should not be in the job. Believe they would do better if they outsourced entire function to private industry with certain checks and balances in place. • Take a long vacation - you deserve it. • We need to make our processes work to deliver sound public policy by balancing the environmental, energy, and economic policies. This would help us focus on risk and good science. • Focus on regulations that have a real impact on HSE improvement.

39. 26. Is there any advice or tips that you have found are particularly effective in managing HSE priorities in times of economic difficulties that you would like to share? • We have to learn to better communicate the value being created through HSE activities in financial terms to the CEO, CFO and to the investors. • The most important is not to lose (and indeed to transfer) the skills of the middle managers who manage these issues and see it as their “calling.” Once you’ve lost the institutional knowledge that these people have, it is very difficult and costly to restore it. • Get EHS integrated into the mainstream of the business; put in fully integrated EHS management systems. • If the EH&S function focuses more on their company business practices along the supply chain, they can evolve into a more effective position in their organizations. • Be sure and be very up front when discussing what types of support you will no longer be providing as a result of staff cuts. Senior Management depends on you to tell the whole story, regardless of how much they don’t like it.

40. 26. Continued. • Continue to look for efficiencies where possible. Make sure that you are part of the solution in efforts to reduce costs. • Make sure you have good cost justifications for as many activities as possible to ensure that you can show good value for the company. • Look for corporate initiatives that you can piggyback to improve EHS. • Try to get a high-level supporter or champion. • A clear understanding of the business priorities is a must and how EHS contributes to the key business goals and strategies is exceedingly important when engaging in dialogue with various management teams. • Be clear on who makes the decisions. • Even with diminished resources, maintain visibility, don’t hunker down. Go out of your way to make friends with your finance and accounting people. • Eliminate the unnecessary reporting - work on value-added items versus self gratification items.

41. 26. Continued. • Continue to focus presentations to management on the financial benefits of high level of EHS performance - e.g. reduced injuries lead to reduced workers compensation and insurance costs, certain health and wellness programs translate into direct bottom line savings in medical benefits costs, certain pollution prevention projects have translated into significant savings in raw material and disposal costs as well as risk avoidance, etc. • Make sure senior management understand how the HSE processes impact the overall corporate business priorities and that HSE resources are being efficiently applied to accomplish these priorities. • Focus on goal setting and priorities. Train your employees in HSE issues, both regulatory and proactive, and instill in them the attitude to take responsibility for their HSE actions. • Keep the NEED TO DO on the table and let go of the NICE TO DO. It can come back when economy improves. • It must stay as the number one items and not second.

42. 26. Continued. • We must get the businesses to understand that E&S is not just the responsibility of the E&S professionals, but of the businesses as well. E&S professionals must really focus on “value-added activities.” We must look at the activities we are currently performing and determine if we really need to perform them, and if so, we must determine if there is a more effective way to perform that activity. • Look for cost-effective ways to get the job accomplished and rack-stack priorities if crunch severe. • Don’t give up…COMMUNICATE in advance with upper executives what an issue is and why it is important before decisions are made. This is key. • Improve your management systems, drive HSE accountability to the line management.

43. 27. Would you like to see a GEMI workgroup formed to investigate the issues around “doing more with less?”