Formosa Plastics Group:
Industrial Safety is a Corporate Responsibility
United Daily News editorial (Taipei, Taiwan, ROC)
August 2, 2011
Summary: On Saturday morning, yet another fire broke out at the Number Six Naphtha Cracking Plant. The fire was quickly extinguished. But since last July, within one short year, the Number Six Naphtha Cracking Plant has experienced seven major or minor fires. These fires have lowered the Formosa Plastics Group's share prices. They have tarnished the reputation of the late Wang Yung-ching, Taiwan's famed "God of Managment." They have created a crisis of confidence in the petrochemical industry.
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On Saturday morning, yet another fire broke out at the Number Six Naphtha Cracking Plant. The fire was quickly extinguished. But since last July, within one short year, the Number Six Naphtha Cracking Plant has experienced seven major or minor fires. These fires have lowered the Formosa Plastics Group's share prices. They have tarnished the reputation of the late Wang Yung-ching, Taiwan's famed "God of Managment." They have created a crisis of confidence in the petrochemical industry.
The petrochemical industry on Taiwan is valued at over 3 trillion NT. It is one of the most important industries on Taiwan. The Formosa Plastics Group is the one of the leading companies on Taiwan. Founder Wang Yung-ching's lean, realistic, and efficient leadership and management style made the Formosa Plastics Group the pride of the industry. Management experts even speak of the "Formosa University" management model. It became a model for domestic and foreign enterprises to emulate. The accidents at the Number Six Naphtha Cracking Plant have dealt Formosa Plastics and the domestic petrochemical industry a major blow.
The seven fires at the Number Six Naphtha Cracking Plant broke out for different reasons. Some were the result of minor accidents. For example, a contractor accidentally collided with a pipeline. Others were the result of defects in the original design of the pipeline. Still others were due to environmental factors. Many explanations have been offered. Many factors played a role. But as Formosa Plastics Chairman Wang Chao conceded, "No matter how these fires broke out, they must not happen again." Formosa Plastics must focus once again on management. It must no longer point fingers left and right. Everything about the Number Six Naphtha Cracking Plant must be subjected to comprehensive review. This includes personnel, equipment, processes, management systems, and budget systems. Everything that can be done, must be done, in order to improve industrial safety and achieve a "zero accident" goal. That is the only way to end the string of accidents.
The Ministry of Economic Affairs and industry spokesmen have assessed the situation. Formosa Plastics' "cost rationalization" policy was once an object of pride. It achieved the highest efficiency at the lowest cost with the least manpower. But it may have been among the structural factors behind the recent accidents. The Ministry of Economic Affairs Industrial Development Bureau says it once asked Formosa Plastics to inspect the Number Six Naphtha Cracking Plant, to determine whether obsolete equipment should be replaced. But Formosa Plastics said it "would replace it at the end of its life cycle." Time dragged on. Months passed. The Industrial Development Bureau concluded that Formosa Plastics was indeed saving money at the expense of worker safety. Industry insiders have also privately criticized the Formosa Plastics Group for cutting corners and cutting personnel in order to lower costs. This led to reduced resources for front line industrial safety. This may be Monday morning quarterbacking, But there is considerable truth to these criticisms.
The free enterprise system is profit-oriented. Industrial safety is like any other form of administrative overhead. It costs money but generates no income. It is different from production. The retail sales system clearly generates profits. It makes money for the company. The only exception is when the economy deteriorates and products fail to sell. Otherwise, companies will not cut production and marketing funding or personnel. Industrial safety however, is another matter. The more successful the safety program, the longer a company is accident free, the less the company perceives the need. Industrial safety neither generates revenues nor increases production efficiency. When cutting personnel and costs, industrial safety tends to be first on the chopping block. Sadly, we think of industrial safety only when industrial accidents occur. Only then is the value of industrial safety understood.
The Number Six Naphtha Cracking Plant has caught fire, again. The day after the government announced its "four resolutions concerning the suspension of operations," the market value of the four crown jewels of the Formosa Plastics Group fell by 200 billion NT. Downtime led to the loss of hundreds of billions of dollars in revenue and profits. It is even harder to put a price on the loss of goodwil. Cutting back on manpower and resources for industrial safety is clearly penny wise and pound foolish. Formosa Plastics has been shrewd about cost control. Going too far on cost control may be profitable in the short term, but not in the mid or long term. Ultimately the losses may be inestimable.
The government has now issued a four-point resolution. Aspects of the resolutions exceed current legal requirements. But the Number Six Naphtha Cracking Plant has experienced seven fires in one year. People in the vicinity of the Number Six Naphtha Cracking Plant live in fear. People are angry at Formosa Plastics and the petrochemical industry. They are disappointed and skeptical. The government's four-point resolution is largely a response to public expectations. Industrial safety is not a techical issue that businesses can resolve behind closed doors, while keeping the public in the dark. It is a highly political social problem. Formosa Plastics must realize this. Only then can it understand the reaction of the government and the reaction of the public to the Number Six Naphtha Cracking Plant accidents. Only then can it appreciate the importance of industrial safety and social responsibility.
China Petroleum is also part of the petrochemical industry. Fifteen years ago, it experienced a chain of industrial accidents. China Petroleum replaced its chairman, invited foreign experts, and changed its internal structure, It evenutally overcame its problems with industrial safety. Over the years, it has been free of serious accidents. Formosa Plastics is renowned for its advanced management practices. As a private sector company, it has flexibility. The Formosa Plastics Group must devote more resources to public safety. It must not look to the short term. It must not cut salaries for industrial safety personnel. It must conduct an in depth review of personnel, equipment, processes, management systems, and budget systems. They can improve industrial safety, and achieve the goal of "zero accidents." They can ensure that industrial accidents are a thing of the past, and restore the lustre on Formosa Plastics' halo.