Private Business and OHS Compliance

Privately-owned businesses in Australia continually under-invest in occupational health and safety and this has the effect of reducing their value as well as increasing overall risk.

Most small and mid tier businesses take a reactive approach to OH&S compliance, often only complying after an OH&S incident puts them at risk. This tendency to overlook OHS or to cut corners is one of the biggest governance gaps for private businesses in Australia and costs them millions in lost value.

It is important to remember that a business’ status as privately-owned, “small” or “medium” is not a defence to OH&S prosecution and liability. The potential for OH&S to have a significant impact on Australia’s thousands of private-owned business has increased in recent years. For example, states coming under the new Harmonised OHS Laws have increased penalties and heightened the risk of conviction for directors.

A workplace death could result in fines in excess of $1M, conviction of the employer company under OH&S legislation and, potentially, conviction of the employer company’s directors.

For most privately owned businesses the sale of that business is a once in a lifetime opportunity for the owner to realise the value of years of hard work.  But privately-owned companies usually have to overcome credibility issues when undertaking a sale. Trade and private equity buyers expect lesser compliance, poorer systems, and accordingly increased risks. From an OH&S perspective, this means that these buyers will factor in to the sale price their estimate of the costs required to bring OH&S compliance up to their (higher) standard.

On top of this having something go wrong on an OHS front would impact on the sale process and the opportunity to maximise the value of the business. For example if a serious incident like a serious injury or fatality did occur the first action could be a prohibition notice stopping all work then  a improvement notice, requiring remedial work to be done, equipment to be replaced, or other steps to be taken in order to make the plant safe. Any prosecution arising from the investigation could take years to resolve. If the incident is a serious one it is almost certain that a prosecution will occur, usually of both the employer company and the also senior management or directors who were responsible for the work being performed that led to the incident. These factors will create significant uncertainty for any sale.

A sale process can take anywhere between three and nine months. If the sale of a business is being negotiated and a serious OHS incident occurs it can impact the sale significantly.  The buyer will think they are able to fix OH&S compliance up to their standards and have made an allowance for transition costs in their pricing, but they won’t have factored in the costs of any serious incident.

The fact that the business is now subject to a regulatory process will create uncertainty and all planned sale process timelines will likely be pushed out. The business’ reputation may be damaged and there may also be contractual impacts, especially if the business has government contracts.

 The end game could be at the least a significant discount to the purchase price or worse the abandonment of the sale by the purchaser.

 This can be avoided if OH&S compliance is part of the general good governance of the business. First step is to conduct an OH&S audit  undertaken by a suitably qualified OH&S consultant. All issues identified should be fixed and a paper trail or plan left to confirm the proactive steps taken to comply with OH&S obligations.

A proper OH&S compliance plan means having appropriate systems and processes to identify and manage risks, including employee induction, visitor training, officer training, job safety analysis, supervision and monitoring, incident reporting and monitoring and consultation. Of course this will reduce the likelihood of an incident occurring and of being prosecuted for less serious OH&S breaches.

Taking these steps will assist private business owners to protect and maximise value when they look to sell. Even if a sale does not proceed, the investment in compliance is not wasted, as there are still adverse consequences for a continuing business if a serious workplace incident occurs. 

Good OH&S governance is a key value driver for business and allows it to present as materially more attractive than other private businesses.


About the Author

Joanne Wallace is our resident "Safety Guru". Joanne has provided advice on safety management for the past 10 years and written hundreds of articles on safety issues and tips. Joanne has experience in many industries ranging from manufacturing, food processing, timber milling, retail, office and wholesaling providing her with knowledge and experience managing risk and injuries in these industries.

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