Salz Review
An Independent Review of Barclays’ Business Practices
Not all high-risk industries have zero tolerance for safety risk. Wildfire fighters, for
example, must balance allowing wildfires for environmental renewal, while protecting
human life and property. To achieve this balance, wildfire fighters first reduce unnecessary
risks, by actively pre-empting wildfires through controlled burn offs. Continual risk
evaluation process improvement is supported by feedback from fire analysts, training based
on an historical experience base, and on-call experts. Finally, the industry culture empowers
staff on site to make decisions, given their situational awareness.
Other high-risk industries must manage competing objectives and stakeholders’
expectations. In the pharmaceutical manufacturing industry, the dominant concern is
patient safety. Pharmaceutical companies must ensure product safety, observe extensive
legal and regulatory requirements and manage the significant costs of research and
development, but they must also foster invention and innovation. Stakeholders (employees,
trial participants, patients, physicians, carers, regulators and the public) all have interests in
ensuring the risks and business practices of the pharmaceutical industry are closely
managed. Pharmaceutical companies manage risk by partnering closely with regulators (to
ensure safety and obtain approvals) and closely controlling standardised manufacturing
processes. They also foster a culture of fact-based decision-making, informed by sequential
trials, and clear risk/benefit evaluations.
In some high-risk industries, striking a clear balance is hard. Defence contractors
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have
many, sometimes competing objectives. These include: national security; maintaining a
national defence capacity; commercial profit and economic benefit. The industry also seeks
to manage a balance between private and public interest – with the ability of a country to
defend itself cost effectively partly depending upon the contractor achieving significant
exports. Defence contractors must also weigh the ethical, reputational, bribery, corruption,
legal, commercial, confidentiality, political, and “through-life” risks of each contract. To
manage the combination of risk and competing objectives, defence contractors put in place
robust policies and procedures which are reinforced by regular internal and external audits.
This helps ensure strict compliance with controls and identification of issues.
Companies need to consider not only physical or financial risks, but also reputational risks.
In the automobile industry there have been periodic safety concerns. For example, the
Ford Pinto was a popular subcompact car sold between 1971 and 1980. In 1977, a
magazine article
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claimed the Pinto’s structural design was dangerous for passengers. It
cited a 1973 Ford internal cost-benefit analysis, which concluded that it would be cheaper
to pay off lawsuits resulting from damage and injuries than to recall vehicles for repair. The
article surmised that Ford had been aware of the Pinto security issues for a few years, but
had decided not to act upon them. The memorandum quickly became known as the ‘Ford
Pinto Memo’ and caused huge damage to Ford’s reputation. However, Ford’s senior
management claimed that the memo’s figures applied to the US car manufacturing industry
as a whole, and that the memo was primarily used to petition the National Highway Traffic
Safety Administration (NHTSA) to enhance road safety, by reconsidering low expected
penalties from car accident lawsuits. Following the “Ford Pinto Memo” controversy, the
NHTSA ultimately directed Ford to recall the Pinto in 1978 for safety failures. Nowadays,
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See the report by The Rt Hon The Lord Woolf of Barnes and the Woolf Committee, “Business ethics,
global companies and the defence industry – Ethical business conduct in BAE Systems PLC – the way
forward”, May 2008; http://ir.baesystems.com/investors/.
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Mark Dowie, Pinto Madness, Mother Jones, September/October 1977 issue.