Investors and Portfolio Companies: 3 Health and Safety Exposures
Investment firms think about health and safety twice: during diligence, as a line in a report, and after an incident, when it becomes an urgent problem with a board seat attached.
The period in between is where the exposure actually accumulates, and it is the period nobody owns. The deal team has moved on. The portfolio operations team is focused on growth, pricing and hiring. The company itself is doing what growing companies do, which is outgrowing its arrangements.
This article is about the ownership period rather than the transaction. Three exposures, and the first is personal.
1. The directors you appoint carry duties, and some of them are criminal
The exposure most often unpriced, because it attaches to individuals rather than to the fund.
In Great Britain, section 37 of the Health and Safety at Work etc. Act 1974 provides that where an offence by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a director, manager, secretary or similar officer, that person as well as the body corporate is guilty of the offence.
Read "neglect" carefully. It does not require a decision to do something wrong. It can reach a director who did not ask, did not receive information, and did not put arrangements in place to receive it. HSE publishes guidance for directors and on leading health and safety at work.
Outside Great Britain the position is often sharper, and this series has now traced it across several jurisdictions.
Australia attaches a personal due diligence duty to officers under its model work health and safety law, covering people who participate in decisions affecting a substantial part of the business. Every Australian jurisdiction now also has an industrial manslaughter offence applying to officers personally, and the penalties are expressly uninsurable in several of them.
Korea provides for imprisonment of not less than one year for responsible management personnel where a serious accident causes death, extended to businesses with five to forty-nine workers from January 2024.
South Africa places the primary duty on the person with overall management and control, which for a foreign-owned entity is a question of fact rather than of job title.
New Zealand and Malaysia both provide routes to personal liability for officers and directors.
Three practical consequences for an investment firm.
Your appointed directors are within these definitions, and so potentially are portfolio operations executives who make decisions about budget, headcount and systems for a portfolio company. The duty is personal and non-delegable, so it cannot be discharged by the company having a policy. And where the duty is expressed as due diligence, the operative word is usually verify: receiving a favourable management report is not verification.
2. Diligence describes a moment; ownership is a period
The structural problem, and it explains why the first exposure grows quietly.
A diligence report describes a company as it was during a few weeks of scrutiny. Then the company changes in exactly the ways that invalidate the report: it moves office, doubles headcount, opens an entity in another country, adds a lab or a rota, changes its provider, or loses the one person who understood the arrangements.
Every one of those is a trigger for review, and none of them generates an alert in a portfolio monitoring pack.
What proportionate ongoing oversight looks like is short and specific. Not a monthly report, which nobody reads and which measures the wrong things anyway.
Four questions per company, per year. Who is the named competent person, and are they still there. When was the risk assessment last reviewed, and what triggered it. How many actions are open and how old is the oldest. Which countries do you now employ people in.
One structural question at board level. Has anything changed that would have altered the diligence conclusion. Office, headcount, jurisdictions, working patterns, equipment.
One verification step. Something the board sees that did not come through the management line being assessed. That is what health and safety audits are for in this context, and it is the step that converts an officer's assumption into evidence.
The reason this works is that it is cheap enough to apply across a portfolio. A twenty-company portfolio can run this in a day per company per year, and holding the results in one place across every company is where health and safety consultants and software are worth more together than either alone.
3. The exposure that reaches the fund is not the regulatory one
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The commercial point, and it is the one that should determine how much attention this gets.
For most portfolio companies in technology, financial services and professional sectors, the probability of an enforcement action in any given year is low. That is the risk investors instinctively price, and it is the smallest of the three that matter.
Value at exit. A buyer's diligence will find what your diligence found, plus whatever accumulated since. Unresolved findings, missing documents in overseas entities, an open action list, and arrangements describing a previous version of the company all become price adjustments or indemnities. The cost is not the remediation; it is that it surfaces during exclusivity when the leverage has moved.
Contract risk. Portfolio companies selling to enterprise customers are asked for health and safety evidence in supplier assurance. A company that cannot answer loses time in procurement and sometimes loses the deal, and that lands directly in the revenue line the fund is underwriting.
LP and reporting exposure. Institutional investors increasingly ask about workforce and human capital matters, and reporting frameworks in several jurisdictions now bring workforce conditions within mandated disclosure. A fund that cannot describe its position across its portfolio is answering a question it will be asked again.
Concentration. The one investors underweight most. A fund holding a dozen companies in the same sector holds a dozen versions of the same unassessed risk, whether that is on-call rotas, content review work, client-site attendance or overseas entities set up without local advice. What looks like a small issue in one company is a portfolio-level pattern.
The three, in short
| Exposure | Who carries it | What reduces it |
|---|---|---|
| Personal duties on appointed directors | Individuals, in some countries criminally | Verification, not reports |
| Drift between diligence and exit | The company, then the fund | Four questions a year, per company |
| Value, contracts, LPs and concentration | The fund | A portfolio-level view, not a document set |
The middle row is the cheapest to fix and prevents both of the others.
For international portfolios
Two points that make the position harder than a single-jurisdiction fund assumes.
Personal liability is where jurisdictions differ most. Great Britain reaches directors through neglect, consent or connivance. Australia, Korea, New Zealand, South Africa and Malaysia go further, with duties expressed directly and penalties that in several cases cannot be insured. A director appointed to a group board with subsidiaries in those countries may hold duties they have never been briefed on.
Obligations attach at very low headcounts abroad. A portfolio company that has hired three people in Belgium, Bulgaria, Slovakia or Greece has crossed appointment or service thresholds that do not exist in Great Britain, and a company with more than fifty in France, Morocco or Japan has crossed considerably more.
The practical answer at portfolio level is a common set of questions applied to every company, with local confirmation where the answers indicate exposure. Our global health and safety consultants establish what attaches in each jurisdiction a portfolio company operates in, and our international health and safety consultants keep that current as companies expand.
Where Arinite fits
Arinite provides the independent verification that officer duties increasingly require, and does it at a cost that works across a portfolio rather than for one company at a time. We support 1,500+ businesses across 50+ countries and protect 100,000+ employees, with 95%+ client retention over 15+ years. Our health and safety consultants work extensively with finance and banking, insurance and IT and software organisations, which describes both the investors and most of what they hold.
If you appointed directors to portfolio boards and could not say when they were last briefed on the duties they hold, a free gap analysis is the right place to start.
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Written by
Arinite Health & Safety Consultants
Health & Safety Expert at Arinite
