Corporate Responsibility report

a. Management approach

Responsibility for environmental, health and safety performance rests with the management of Howden and ESAB. Charter requires compliance with its EHS Policy, which was re-issued in 2009, as well as implementation of EHS management systems that are externally certified. In 2010, ESAB maintained its group-wide ISO 14001 and OHSAS 18001 certification, and ensured that Terni, a consumables factory in Italy that was acquired in 2009, also complied with these. Howden extended ISO 14001 and OHSAS 18001 certification to all its manufacturing locations with the exception of a new factory in Brazil, which became operational in October 2010. Certification is expected at this factory in the first half of 2011.

Charter has also established a core set of EHS Key Performance Indicators (‘KPIs’) – for safety, energy, greenhouse gas emissions and waste. The Board and the senior management receive a monthly summary of EHS performance worldwide, presenting KPI data, including lost time injury cases, any significant unplanned environmental releases or infringements, results of incident analyses and corrective actions taken. It also reports the number of near misses, progress on key activities and plans for the next quarter, enabling issues most relevant to the business to be prioritised and resources to be focused.

b. Compliance and incidents

During 2010 no major on-site environmental incidents were reported.

ESAB North America’s Hanover facility received a penalty totalling $7.35k (£4.6k) following an OSHA (Occupational Safety and Health Administration) inspection in April. The seven citations have all been complied with.

Following a visit by the Ohio EPA (Environmental Protection Agency) to Howden North America’s New Philadelphia facility, discussions ensued with regard to what permits were required for the paint spraying operations. A penalty of $110k (£59k) was paid as a result of the historic failure to maintain all requisite permits and operations altered to restrict future paint usage to ensure full compliance.

No other fines or penalties relating to environmental or health and safety matters were reported by any Charter companies during the year.

c. Regulatory issues

Charter Limited is registered as a full participant in the UK’s Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.

d. Safety performance

During 2010 ESAB regrets that one of its employees was killed in a road accident in Mexico, whilst travelling from his home office to the Monterrey facility on 19 July. There were no on-site fatalities during the year.

Charter set targets in 2009 for improvements in safety performance. The table on the next page summarises the targets and how Charter performed and the Company is very pleased to have exceeded all the targets set.

Since 2008, Charter has been encouraging sites to report all first aid injuries, near misses and unsafe conditions to enable actions to be taken before more serious injuries occur. In 2010 10,195 such incidents were reported, more than doubling the 2009 figure.

The safety data refers to employees only. Charter also records and investigates lost time injuries to contractors, of which there were six reported in 2010.

Lost time injuries and frequency rate

Since 2007 the total number of lost time injuries (any injury that results in an employee being unable to return to work the following shift/day) has fallen from 232 to 99 in 2010, a 53.3 per cent decrease. The hours worked have increased during the same period resulting in the frequency rate, which is calculated per 200,000 hours worked, falling from 2.31 to 0.79, a 65.9 per cent decrease.

In order to continue to maintain this downward trend, work has been gathering pace on developing a safety culture aimed at achieving zero lost time injuries. Charter’s aim is to embed consistent, visible leadership and commitment from all employees, such that they are mindful of EHS matters, including responsibility for their own personal safety as well as protecting their co-workers and others who could be affected by our operations.

Charter continues to invest in employee training and is planning to extend leadership training and safety observation programmes beyond North America where they have been piloted. These programmes have become an important factor in improving performance.

Days lost and severity rate

Since 2007 the total number of days lost as a result of injuries has fallen from 5,718 to 3,153 in 2010, a 49.5 per cent decrease. Weekends and holidays are included within this total. The severity rate, calculated per 200,000 hours worked has fallen from 57.1 to 25.3, a decrease of 55.7 per cent. However, during 2010 the rate of improvement has decreased for various reasons.

A key contributing factor to the decreasing rate of improvement in the severity rate is the long absence from work associated with musculoskeletal injuries, an issue which has not, so far, been tackled as successfully as others. There are also wide variations in the way injured workers are treated in the various countries where Charter has operations, which can affect the ease of rehabilitation.

Where Charter can influence severity performance, action is being taken. For example, Charter has already completed a £1million capital expenditure project on a semi-automated packaging line for 50lb cans of electrodes in ESAB Hanover USA. Further ergonomic programmes are planned for 2011.

Health and safety performance data

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e. Health and safety awards and recognitions

Howden’s UK Construction and Maintenance Division retained its British Safety Council 5-star rating for its safety practices on customers' sites.

Energy performance data

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Greenhouse gases performance data

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Waste performance data

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Corrections to ESAB environmental data presented in the 2009 Annual Report

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f. Environmental performance

To measure the impact of its operations on the environment, Charter uses as KPIs energy consumption and greenhouse gas (‘GHG’) emissions, for both direct and indirect energy usage, and waste sent to landfill. To provide an indication of changes in the environmental efficiency of our operations the KPIs are normalised by turnover.

ESAB also has the volume of water used in its operations as a KPI and report their performance on their website. Since Howden do not use water in production processes, it is not set as a KPI for them and so it is not consolidated by Charter.

As a result of the timetable for production of this Annual Report, the latest full year for which environmental data is available is 2009, and this is summarised below. More up to date and comprehensive information for ESAB and Howden is available on their respective websites.

The tables opposite show substantial reductions in 2009 in all KPI measures of environmental impact – energy consumption, greenhouse gas emissions and waste sent to landfill. These reflect partly lower levels of operational activity. However, even when normalised by turnover, the target of a 5 per cent reduction was exceeded in all three KPIs.

This demonstrates the success of initiatives to reduce environmental impacts, including some of the projects that arise out of the roll-out of LEAN manufacturing processes. Such processes involve a systematic approach to identifying and eliminating waste through the continuous improvement of the manufacturing process. Charter expects to see further environmental efficiency gains in 2010 and 2011 as the impact of numerous projects started in the second half of 2009 are seen.

g. Quality & product integrity

ESAB products are used in a wide variety of engineering structures across the world, requiring the highest levels of technology and manufacturing precision to provide assurance of weld integrity. In addition to ESAB’s internal quality management, many of its products are certified by external laboratories to provide the highest possible level of confidence.

ESAB is committed to objective disclosure of the quality and safety of our products, including real or perceived hazards relating to substances in the product, the product itself, or product use. During 2010 safety data sheets have been updated to include national occupational exposure limits and packaging and labelling reviewed to ensure they meet the requirements of the UN’s initiative for global harmonisation of the classification and labelling of chemicals.

In 2010 ESAB’s quality management team was strengthened with the appointment of a group quality director who is implementing global standards to ensure that its products continue to meet the high specifications demanded by its markets. ESAB hopes to achieve a Group ISO 9000 standard in the next 18 months.

a. Human resources management

The human resources (‘HR’) agenda through 2010 has been to develop management capability. In 2009 Charter designed a comprehensive HR plan, which it has continued to implement across the organisation. It has been positively received by employees and managers across the world. Managers are showing greater confidence in their abilities in performance management, Lean production, policy deployment, financial and business judgment, communication and engagement, coaching and development, employee relations, planning and budgeting.

Significant investment in Charter’s future was made in 2010 through training and development, both to improve productivity and to maintain the respect and trust of retained employees. Charter’s people development programmes were seen as key retention tools during a very challenging year. As signs of recovery appeared, managers were equipped with employee engagement skills to motivate and drive performance.

b. Employee numbers

The average number of persons employed by Charter in 2010 was 12,313 (2009: 12,451) and was 12,407 at the year end (2009: 11,982).

c. Non-discrimination

Charter and its subsidiaries recognise and value diversity in the workforce and are equal opportunities employers. All recruitment, selection, reward, deployment, development and promotion decisions are made solely on the basis of individual qualifications, skills, experience and merit, regardless of gender, race, colour, nationality, ethnic or racial origins, marital status, sexual orientation, age, religion or disability. Charter’s Equal Opportunities policy was re-communicated in 2010.

The Company and its subsidiaries give full and fair consideration to applications for employment made by disabled people, having regard to their aptitudes and abilities. Should employees become disabled during employment, they would be considered for any necessary retraining and available work within their capabilities. For the purposes of training, career development and promotion, disabled employees are treated in the same way as other employees.

With one exception no reports have been received of any breaches of anti-discrimination laws in all relevant jurisdictions concerning matters of gender, ethnic origin, age, religion, sexual orientation, or disability. There is one alleged breach of gender-discrimination law, which arose in Scotland and is currently in the process of being investigated internally.

d. Training & development

Charter businesses invest in employee skills and capabilities through a variety of programmes, including training and succession planning. Charter continues to invest in developing skills across both ESAB and Howden.

The rationale for continued investment in training and development of its people remains a priority for ESAB as the need to drive business excellence and performance continues. ESAB has three talent groups:

• Leadership talent – senior people believed to have the capability, ambition and performance to lead a significant part of the business in the future (~100 people).
• Developing talent – managers with the capability, ambition and performance to move to more senior roles in future (~170 people).
• Technical talent – individuals who have considerable skill and knowledge in welding, cutting, process and systems (~160 people).

ESAB’s talent management process put nearly 100 executives through its key developmental programmes including: 21st Century Leadership Development; Developing Excellence and the Technical Talent Expo. Since September 2009:

• 60 executives have been through 21st Century Leadership programmes
• 32 managers have been through developing talent programmes
• 24 individuals attended ESAB’s first technical talent Expo
• four post-course projects have been completed, with two presented to the CEO
• 12 Brunel University assignment briefs from ESAB’s Developing Talent Programme have been published
• over 75 individual development plans are being worked on and over 100 mentoring sessions have taken place, using senior ESAB executives as mentors.
• online training continued, with 1,731 hours delivered to nearly 800 users.

There have been two significant business outcomes from the talent processes so far. Firstly there has been a tangible improvement in individual engagement and commitment to ESAB. Secondly, succession and senior appointments are now better informed.

ESAB’s Lean manufacturing programme has continued with Bootcamps in Mor (Hungary), Chennai (India) and Monterrey (Mexico), involving 64 people. One non-manufacturing Lean Bootcamp took place with 23 attendees. Howden has run three Lean Leadership Courses during 2010 with 54 attendees and a Lean Bootcamp was held in Weihai, China, which trained 21 attendees. These continue the drive to implement Lean principles throughout Charter.

The Howden Academy has continued as a three-week induction course for new engineers. Two additional Howden Academies were run this year, attended by 68 engineers.

The Howden Management Development programme, which was piloted in 2009, was rolled out in 2010 to South Africa, China, Germany, France and Spain, with 60 managers attending. This is an eight-day programme which aims to equip managers with key skills and tools to develop themselves and their teams.

Howden’s Talent Management Programme has continued and following 100 per cent completion rate for Senior Management appraisals, over 110 managers were identified as either ‘core’, ‘key’ or ‘developing’ talent within the business. All key and developing talent have been assessed and a development plan linked to succession planning is currently being finalised.

The Engineering Career ladder was piloted in South Africa, aiming to identify skills, behaviours and competencies and deliver development plans for engineers. This will be rolled out in China next and then globally throughout Howden over the coming three years.

During 2010, Howden North America implemented a Management Mastery Program (‘MMP’), which is designed to include basic management skills with an expectation that all Howden North America managers and supervisors will participate, regardless of background or experience. The pilot cohort was held in May, followed by the senior management cohort in June/July. Howden will complete three additional cohorts by the end of Q1 2011.

e. Employee communications and relations

The Company’s policy is to encourage effective communication and consultation between employees and management. ESAB has continued with its Monthly Cascade, an internal newsletter, which is now widely established as the primary vehicle for global employee communication. Throughout the year, regional business reviews have confirmed its use as a briefing tool in every operation visited. Managers developed a much deeper understanding of the importance of communication and major change projects have incorporated greater communications content than ever before.

Howden continues to use the Team Brief newsletter, which is issued every two months, in addition to the important activities of works councils to ensure a two-way flow of information. This augments local newsletters and communications/team meetings. Further, in order to assess effectiveness and identify improvement opportunities, Howden will begin a thorough review of its internal communications in Q1 2011 with recommendations and an action plan being developed in Q2 2011.

The Company wants to work with product suppliers that meet its own standards of safety, environmental and quality management. ESAB has a Code of Ethics for purchasing and has in place a self-assessment procedure through which about 1,900 suppliers have been surveyed since 1997. The selfassessment questionnaire, which includes a list of banned and hazardous substances, must be signed by suppliers, as well as a declaration of legal compliance. Non-compliance is addressed by the ESAB local business units.

During 2010, the self-assessment programme has been strengthened with the introduction of on-site environmental, health, safety and quality audits for finished goods suppliers. Four audits were completed in 2010 and further audits planned for 2011.

As part of shaping its business in a sustainable and competitive way, Howden is continuing with its strategy to build constructive relationships with sub-contractors in low cost countries, particularly in India and Russia. In so doing, Howden aims to ensure that high ethical standards are observed, taking into account guidance issued by relevant trade associations and other organisations.

In line with this commitment, standard procedures for vendor audit of suppliers and sub-contractors have now been rolled out to all Howden Business Units and appropriate training for its supply chain staff is being provided to enable effective policy implementation. A procedure for supplier performance and assessment, which includes aspects of EHS, is in the development stage and is being piloted in Howden UK and North America.

The Charter Code of Conduct was re-communicated across the businesses during 2010. Charter has appointed a Compliance Officer with global responsibilities to ensure that Charter businesses not only comply with relevant legislation but also implement fully the requirements of our Code of Conduct.

Charter reviewed and revised its Anti-Bribery and Corruption (‘ABC’) policy which was communicated to all Charter, ESAB and Howden employees. This is now being followed by a multi-stage training programme to ensure ongoing compliance.

Senior Charter, ESAB and Howden Directors, as well as senior managers in countries considered to have the highest potential exposure, received face-to-face training during 2010. Following on from the success of the e-learning program for Competition Law, which was launched in 2009, an e-learning module has been developed on ABC in ten languages. This is being rolled out initially to all office-based individuals as a priority in 2011. It will reach 35 per cent and 54 per cent of ESAB and Howden employees respectively. Risk assessments have been undertaken and used as the basis of prioritising further face-to-face training for those working in higher risk territories and/or job functions. All new employees will go through the training as part of their induction process.

A whistleblowing process, which involved the implementation of a new third-party reporting mechanism called ‘MySafeWorkPlace’ was approved at the end of 2010 and launched in January 2011. This is a confidential and anonymous telephone hotline and web-enabled reporting service that makes it easy to report financial irregularities, harassment, theft, substance abuse, unsafe conditions, or any other violation of the Code of Conduct. It provides a convenient mechanism and protected environment for letting the right people within the organisation know about concerns so that action can be taken where appropriate.

19 events involving allegations of fraud, theft or other possible breaches of the Code of Conduct were investigated in 2010, of which nine were reported via our whistleblowing system. Of these, 11 resulted in dismissal, resignation or formal warnings, seven required no further action, and one is still under investigation.

Many Charter businesses support local charities through fundraising or other forms of assistance. In addition, local voluntary initiatives and community investment serve to build stakeholder relations and enhance our reputation as an employer of choice and a good ‘corporate citizen’.

Details of charitable donations are reported in the Directors' report.