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The S in ESG is a broad category that also includes human capital management. Keeping employees happy, healthy, and safe is critical to smoothly operating a company. However, when it comes to employee relations, things don’t always go smoothly. Sometimes there are disputes and how companies choose to resolve those disputes can have unintended and significant impacts on company operations and risks.

In 2022, the United States saw a flurry of labor union elections. Some companies responded with hostility to unionization efforts – going to great lengths to curb potential unions. Amazon and Starbucks have both been dinged by various courts for violating labor laws in an effort to deter union organizers. It remains to be seen if these tactics will be successful in fending off unionization.

However, success from a legal standpoint does not mean that human capital problems are solved. From a practical perspective, unless the underlying problems voiced by employees are addressed, resentment and low employee satisfaction will persist – leading to disengaged employees, which can cost companies in numerous and financially material ways.

A Recent Example

The recent train derailment in East Palestine, Ohio offers an example and provides lessons on human capital management. Last year, rail workers’ unions were poised to strike. Their grievances included a lack of paid sick leave, allegations of rail workers being overworked, and lines being understaffed which they state is the result of a practice known as precision scheduled railroading (PSR). Concerns over PSR were reported on by Freight Waves in 2021 in an interview with Jason Cox a leader of the Brotherhood of Railway Carmen Union – who stated that due to PSR the inspection time per rail car was cut from three minutes to one.

When these issues and others came to a head last year, the railway unions were ready to strike. However, on December 2, 2022, President Biden signed a bill into law that made the rail strike illegal. The provision of that bill which would have guaranteed sick days to rail workers failed to pass Congress. The law avoided a strike that would have damaged the US economy but failed to solve the underlying human capital management issues facing rail companies. 

Roughly two months later, a Norfolk Southern train carrying hazardous chemicals derailed in East Palestine, Ohio. The suspected cause of the crash was a mechanical issue with an axle on one of the 150 cars. Now Norfolk Southern is facing multiple lawsuits relating to the crash, plus the cost of cleanup, and possible reputational damage along with potential further scrutiny of labor practices.

What this Means

While it is impossible to know if the company’s response to employee grievances was a direct cause of the derailment, the timeline and facts indicate that it was likely a contributing factor. How much management decisions regarding human capital contributed to the incident is certain to be brought up during litigation surrounding this event. However, there are some immediate takeaways:

  • Understand that employee satisfaction directly impacts company operations and risk. Keeping employees happy isn’t just a “nice to have” item. Employee satisfaction has been tied to a series of benefits including higher productivity, more creativity, enhanced collaboration, and lower turnover. There are also downsides of poor people management – dissatisfied or overstressed employees are more likely to under-perform important duties, opening the door to material financial risk. These can directly impact a company’s bottom line and the opportunities presented by better human capital management should not be overlooked.
  • Use your employees as a resource. Your employees know a lot about the daily operations of your company. Leverage this knowledge and be open to ideas and concerns among employees, especially those concerning safety of your operations and products/services. This can better help you manage risks, spot opportunities and improve efficiency.
  • Address and resolve labor issues from more than a legal compliance viewpoint. Viewing labor disputes as “us vs. them” can be unhelpful. Even after a company “wins” such a dispute the underlying issues can persist. Those issues can impact employee satisfaction and your company’s bottom line. Resolving disputes isn’t easy, but a result that works for everyone is more likely to bring significant benefits and reduce a range of potential liabilities.

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The Editor

Zachary Barlow is a licensed attorney. He earned his JD from the University of Mississippi and has a bachelor’s in Public Policy Leadership. He practiced law at a mid-size firm and handled a wide variety of cases. During this time he assisted in overseeing compliance of a public entity and litigated contract disputes, gaining experience both in and outside of the courtroom. Zachary currently assists the editorial team by providing research and creating content on a spectrum of ESG… View Profile