Organizational Benchmarking Study Results

Mar 24th, 2011 | By | Category: Auditing, Environmental Management

A client of Environmental Resources Management (ERM) was seeking benchmarking data about the organizational location of the environmental, health, and safety (EHS) audit function. In particular, the client wanted to know how common it is to have the EHS audit function report to the internal audit department, as opposed to the corporate EHS department. Since the client and ERM are both members of The Auditing Roundtable (AR), AR was asked to assist ERM in organizing a member survey.  Within a few days, there were 76 responses!

 

Audit Survey Results

Sixty-five percent of the companies that responded have the EHS audit program located within the corporate EHS department, versus 15% in the internal audit department.  In the remaining 20% of companies, the audit program was scattered among various departments – legal, operations, corporate compliance, and various others, including engineering, quality, and research.

Has this changed in recent years? The AR’s 2006 benchmarking study allows for some comparison, as shown in the chart below.

  Organizational Location of
  EHS Audit Program

2006
(161 responses)

2011
(76 responses)

  Corporate EHS

64%

65%

  Internal Audit

4%

15%

  Legal

9%

5%

  Compliance

7%

3%

  Operations

4%

4%

  Other

11%

8%

 

The internal audit department appears to be an increasingly common location for the EHS audit function. However, by far the most common location for the audit program is its more traditional home in corporate EHS.  The 2006 study, which was a more extensive benchmarking study than the recent survey that was just completed, also indicated that the legal (9%) and corporate compliance (7%) departments were actually more common locations for the audit program than was the internal audit department. The 2011 data suggest that this situation has changed.

However, the results of these two studies should not be considered definitive. In the summer of 2010, ERM undertook a separate internal survey of its key client managers that asked the same question about the organizational location of the audit program. Of the 38 responses, which came from large corporations across a wide range of industry sectors, none of the companies had EHS auditing in the internal audit department (although three of the 38 had it in the legal department). Therefore, the conclusions that the internal audit department is an increasingly common location for the EHS audit function and that it is a more common location than the legal department are not clear takeaways from these two studies. Certainly what is clear is that the dominant location for EHS auditing remains within corporate EHS.

 

Location of Corporate EHS Departments

The 2011 AR survey also looked at the organizational location of the corporate EHS department, and these data are shown below.

  Organizational Location
  Of Corporate EHS

  2011 AR Survey
  (76 responses)

  Legal

30%

  Operations

22%

  Engineering/Technology

10%

  Other

38%

 

ERM has considered this issue in several benchmarking studies over the years, and the 2011 AR survey showed a similar outcome:

  • The legal department is the most common location for the corporate EHS function, followed by operations and then engineering/technology. When the responses for these departments are combined, they account for more than 60% of the responses.
  • Other approaches include locating corporate EHS in corporate/public affairs or finance or having it report to the corporate compliance officer or directly to the chief executive officer.
  • In several cases, the global EHS function reports into a particular business unit, even though the scope of service of the EHS function covers all business units.

Based on some of ERM’s other studies and consulting experience, it is clear that while there may be certain common organizational approaches, how the organizational chart is drawn is not as important as the underlying business processes that drive EHS performance. What might appear to be an unusual organizational design can certainly be compensated for by strong governance and accountability processes (including an effective audit program), appropriate staffing levels, and a supportive corporate culture, including visible leadership from the top. Therefore, while organizational design is a relevant factor, it typically is not the critical factor in the success of a company’s EHS program.

 

About the Author

James Margolis is a partner in the Exton, Pennsylvania, U.S.A. office of Environmental Resources Management, where he leads ERM’s North American EHS Management System practice. He has more than 25 years of professional experience; the last 19 focused on helping multinational companies obtain business value through improved EHS management. He has led comprehensive enterprise-wide reviews of EHS management effectiveness for dozens of organizations and has developed and implemented improved corporate and facility-level EHS management systems that have contributed to significant reductions in environmental impacts, safety incidents, and EHS costs. Mr. Margolis has also helped several corporations develop and implement sustainability strategies, covering topics such as governance, supply chain management, product lifecycle assessment, corporate reporting, and the greening of internal operations.

Image: Network by Rodolofo Clix, Brazil.

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3 Comments to “Organizational Benchmarking Study Results”

  1. Bill Qualls says:

    Exellent work. The numbers pretty much verified what I thought about the HSE world and current trends.

  2. Dennis O'Regan says:

    With about 25 years of environmental compliance auditing behind us, I do not really see a lot of organizational progress that would indicate that businesses are gving the attention to EH&S compliance that agencies (EPA, OSHA, DOT) believe it deserves.

    Placing EH&S auditng within the EH&S department diminishes auditor independence and sets up a serious, real conflict of interest. If an organization is large enough to devote resources to an EH&S auditing function, then it should be able to find a home for those staff outside of EH&S. My preference wold be the Internal Audit function since the EH&S subject matter experts can benefit from the process experience of the financial and operational auditors.

    Also, having the entire EH&S function within the legal department seems to be anachronistic (unless the firm is a habitual lawbreaker). Firms with multiple, similar manufacturing locations need to be able to share the results of the audits between locations in order to benefit from lessons learned. The effort to maintain the attorney work product or self-evaluation privilege seriously inhibits benefitting from lessons learned. Nevertheless, having an attorney review a draft audit report is prudent since the auditors may be insensitive to their own written words.

    The organizational structure that works for the largest corporations is not going to be feasible for smaller comnpanies that do not have even a single person dedicated to EH&S. Thus, there will always be compromises.

  3. Norman Wei says:

    Two of the most critical factors in EHS auditing are competence and independence of the auditors. Most corporate internal audit departments are staffed by accountants who have very little knowledge of environmental issues and regulations. The worst thing a company can do is to hand a checklist to these internal auditors (accountants) and ask them to do an EHS audit while they are doing financial audits. I have seen that happen at a Fortune 500 company and it was a total disaster. Not only did the incompetent auditor fail to understand the basics of environmental issues, he also produced a misleading paper trail. Luckily I was able to alert the corporate law department in time to kill the report and make sure it never saw the light of day.

    On independence of the EHS auditor: It is a mistake to base EHS auditors in Operations because of the inherent conflict of interests. EPA’s audit policy requires independence of the auditor and I am not sure this arrangement would satisfy that.

    In my opinion, the law department is the logical place for EHS auditors. It also offers an added level of attorney/client privilege protection for the report.

    Norman

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