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Stakeholder analysis of Vale’s Brumadinho disaster 2019    

INTRODUCTION

An organization cannot be deemed successful if it does not create value that meet and exceed the expectations of its stakeholders.  In most cases stakeholder value even exceeds the financial benefits that an organization delivers.  In the case of the Brumadinho disaster, stakeholder interests were impacted negatively (Amanpreet and Sumit, 2018, p.335). On 25^th January, 2019, the tailings dam of Córrego do Feijão iron ore mine owned by Vale SA, a Brazilian multinational mining giant, collapsed releasing a sludge full of toxic substances which flooded the area near the dam and covered houses, businesses, people and even animals among others (Pearson and Magalhaes, 2019). The tailings dam was located near the small town of Brumadinho in Brazil. The company was blamed for not implementing dam safety recommendations made after the Mariana disaster. Poor stakeholder engagement was the single biggest cause for this disaster (Pearson and Magalhaes, 2019). This paper explores what happened and what could have been done differently to forestall this disaster.  This paper explores how the company could have engaged stakeholders differently, how effective communication would have led to better stakeholder outcomes and how an engineering manager could manager stakeholder interests better as part of the learning from this case study.

Vale Brumadinho Disaster

Two separate but related disasters which caused unprecedented environmental damage occurred in Brazil about three years apart.   The first incident was the collapse of the Fundão iron ore reject/tailings dam in November 2015 in Mariana. The collapse of the dam expelled toxic sludge which buried villages leaving thousands homeless and killed 19 people. The sludge found its way into the sea causing serious pollution to fish and other marine life (Magalhaes, Pearson and Kowsmann, 2019).  The dam was owned by Samarco which was a joint venture between Vale S.A, a Brazilian mining giant, and   BHP Billiton, an Anglo- Australian mining conglomerate. The second incident occurred on 25^th January, 2019, near the small city of Brumadinho in the state of Minas Gerais about 78 kilometres from site of the first incident. In this second incident the tailings dam of Córrego do Feijão iron ore mine collapsed.  The mine was owned by Vale S.A which also owned the tailings dam which collapsed in Mariana (Pearson and Magalhaes, 2019). The catastrophic collapse of the dam led to confirmed deaths of 259 people with 11 people still missing to date.  Toxic waste and mud from the dam drained into the local river polluting the water, fish and other marine life.  This toxic flow devastated native vegetation, destroyed farmlands and the livelihoods of the local community. Environmental experts hold that the two disasters could have been avoided had the company adopted modern technology, had licensing laws been stricter and state oversight been undertaken (Pearson and Magalhaes, 2019).

Critical Analysis

Stakeholders blamed the company for causing the disaster and severely criticized it for the slow response that ensued. Communication from the company was seen as being unaligned as different spokespersons provided contradicting guidance and issued conflicting messages.  For example, the company failed to inform the public about the risk levels of other tailing dams in the area as well as health risks posed by the toxic sludge (Pearson, Magalhaes and Kowsmann, 2019).  As a consequence, the company had to pay huge fines to various stakeholders, its market capitalization and stock price fell and it had to pay compensation to relatives of those who died. The company also had to set aside huge budgetary allocations to finance clean up exercises and fund corporate social responsibility initiatives in the affected areas to obtain social license. It was also forced to decommission most tailings dams and reported losses during the year (Magalhaes et al, 2019).   Executives in charge of the dam were arrested and even the company president was removed from office and prosecuted. Relationship with key stakeholders was also threatened as the company faced reputational crisis of unprecedented levels. The disaster required effective responses from management to counter and minimize disastrous consequences due to the damage to Vale SA reputation caused by the disaster. Stakeholders incurred massive losses from the disaster in Brumadinho as well as the disaster that occurred in Mariana (Pearson and Magalhaes, 2019).

What went wrong

Faulty design and construction, poor management, poor stakeholder engagement, insufficient regulation of Brazil’s mining, poor oversight and lack of preparation by the mining company were some of the causes blamed for the collapse.   There was also an allegation that liquefaction was also to blame (Pearson and Magalhaes, 2019).  The public criticized the company for its slow response to the disaster which was also seen as being unaligned as different spokespersons provided contradicting guidance and issued conflicting messages which was confusing.  For example, the company failed to inform the public about the risk levels of other tailing dams in the area as well as health risks posed by the toxic sludge (Pearson et al, 2019).

Stakeholders who were involved

 The overall sustainability of an organization is closely linked to the value that organization creates for its stakeholders. No organization can achieve long term sustainability if it does not meet and exceed stakeholder expectations. Any individual, group of people or organization that could be affected or could affect a project is a stakeholder (Amanpreet and Sumit, 2018, p.335). The stakeholders of the tailings dam of Corrego do Feijao iron ore mine included employees, customers, suppliers, management, investors, the local community and the government. Each stakeholder had interests that were different from those of the other stakeholders (Kaczorowski, 2016).  The interests of each stakeholder are shown in the table 1 below. The dam disaster affected the interest of each of these stakeholders differently.

Table 1: Different stakeholders involved discussed along with their Interests and Power

(Amanpreet and Sumit, 2018, p.335)

Table 2: Salient Stakeholders

Impact of the disaster on Stakeholders

There are many strategies that organizations use to be socially accountable to their stakeholders and one of the most common ones is undertaking corporate social responsibility activities. Corporate social responsibility activities enable an organization to obtain the social license needed to carry out business activities.  The Vale Brumadinho tragedy happened a few years after a similar incident occurred in Mariana. The two incidents severely damaged any good reputation that the organization had cultivated with its stake holders (Pearson and Magalhaes, 2019).   

All the company’s stakeholders were affected by the Vale Brumadinho disaster.  Investors were severely affected as the company’s stock fell by about 20% wiping $ 20 billion from its stock market value after the incident. Any possibility of investors earning dividends was wiped out by the disaster (Yang, Sajani, Chathuri, Mehrdad, Xiaolong and Guomin, 2018).  Earnings per share fell to negative 0.33 for the financial year ending 31^st December 2019 which was a big drop when compared to 2017 and 2018 as shown in Figure 1 below.

Figure 1: Earning per share 2017 to 2019

(Vale annual report, 2019)

In the financial year 2019 the company made a loss of $ 2,180 million and incurred impairment costs and disposal of non-current assets of $ 5,074 million.

Table 3 : Trend performance

(Vale annual report, 2019)

Employees were severely affected by the disaster. Most of the dead were employees who were caught unaware while having lunch in a cafeteria that was located next to the dam. The local community was also affected since it lost some of its members and homes, agricultural land and livelihoods were destroyed (Magalhaes et al, 2019). The government lost tax revenues that it used to earn from various sources due to operations of the company in the affected area. The government was also blamed for not enforcing mining regulations properly which also affected its reputation.  Organizations should prioritize the needs of their stakeholders for them to survive and gain competitive advantage.  Lack of sufficient stakeholder engagement and poor communication led to the Brumadinho disaster (Pearson and Magalhaes, 2019).

Stakeholder Management in the face of Reputational crisis

Reputational crisis occurs when a tragic event like this disaster compel stakeholders re-evaluate their impressions, opinions and beliefs about an organization. Vale SA management should have addressed the reputational crisis that arose from this disaster from a public relations perspective.  A public relations perspective is concerned with addressing a reputational crisis by identifying steps to plan for crisis during normal activities and using the most effective communication methods in a crisis to engage different stakeholders (Comyns, and Franklin-Johnson, 2018, p.160). To understand this perspective, it is critical to analyse the triggering event, stakeholder interpretation and reaction versus management interpretation and reaction.  The triggering event was the dam disaster which led to the collapse of the company’s market value, fall of share price, loss of life, loss of company’s assets and pollution to the environment (Comyns et al, 2018, p.180).

Stakeholder reaction depends on how they view various aspects of the triggering event that led to the reputational crisis. In this case there was overwhelming information alluding to the fact that the company did not learn from lessons of previous disaster in Mariana. The company had installed warning sirens which failed to give warning signals to enable people move from the path of the toxic sludge.  The reaction to an event also differs depending on how severe the impact was on each particular stakeholder (Lewis, 2019).  The reaction of managers is not a direct reaction to stakeholder reactions but a response to what they think the stakeholder reactions are.  The legitimacy, power and urgency of various stakeholders determine how managers will interpret and evaluate the reactions of different stakeholders (Jonas, Julian, Sörhammar and Moeslein, 2018, p.400). 

Managers reaction can either be to bridge or buffer the organization from the event. When management buffer they attempt to keep the environment from interfering with the internal affairs of the company while trying to influence it in their favor (Mcclelland, 2016).  Bridging involves trying to adapt the organizational operations to conform with stakeholder expectations of it.  Managers using the buffering strategy admit little or no liability and as such allocate little resources to the event.  Bridging strategy involves early and visible involvement in correcting the situation i.e. clean up, participating in recovery operations and opening channels of communication to stakeholders (Mcclelland, 2016). Stake holder engagement and reputation crisis management model can be illustrated in Figure 2 below.

Figure 2: Stakeholder management model during reputational crisis

Strategies to Improve Stakeholder Engagement

Preparing a stakeholder engagement strategy is very critical in gaining support from various stakeholders.  Had Vale S.A prepared and implemented a stakeholder engagement plan, the Vale Brumadinho disaster would not have occurred and even if it had, managing the effects of the disaster would have been less costly and much easier.   The first step that Vale SA should have used to improve stakeholder engagement is classifying its various stakeholders.  Stakeholders should have also been classified as either internal or external to the project (Harris, Schipani and Hume, 2019).

The organization should have determined the power, interest and legitimacy of each stakeholder.  The level of influence of each stakeholder should be established before commencing a project.  Stakeholders who are very powerful should be managed closely to keep them satisfied and interested (Yang et al, 2018, p.700). After this exercise, the management of the Brumadinho dam should have identified the information needs of each stakeholder group and the frequency with which the information should be provided.   The legitimacy, power and urgency of various stakeholders determine how managers will interpret and evaluate the reactions of different stakeholder groups to an event (Jonas et al, 2018, p.400).   Failure by Vale SA to develop a stakeholder engagement plan led to a reputational crisis after this disaster occurred.

Opening channels of communication with Stakeholders

Open communication channels encourage a two-way flow of information which creates value to each party involved. Vale should have opened communication channels which would have enabled employees and civil society groups to raise red flags on potential crisis and report any abuses.  Since Vale’s company headquarters are located in the city while mines are located in remote areas, field staff tend to hide potential problems which could blow up to major disasters (Ahmed, 2017, P.20). Opening communication channels would have alleviated this problem. A good stakeholder engagement plan is underpinned by transparency in communication.  A good communication channel encourages continuous engagement and feedback.  Different stakeholders require different communication channels (Comyns et al, 2018, p.180).

Maintaining continuous communication between engineers and top executives at head office was very important in the case of the Brumadinho dam project (Harris, Schipani and Hume, 2019).  The local community needed to be kept informed about the risky aspects of the dam which was not done. It is therefore very critical to identify, open and maintain continuous communication channels which was lacking in the Vale Brumadinho disaster (Yang et al, 2018, p.700).

Developing a plan to Engage key stakeholders

After key stakeholders have been classified, a stakeholder engagement plan should be prepared.  The level of interest and power of each stakeholder should be determined as the first step in that process.  The level of ability of each stakeholder to affect the project should be the guiding factor in this process (Yang et al, 2018, p.700).  Stakeholder engagement should be guided by the matrix in figure 3 below;

Figure 3- Stakeholder power/ interest matrix

As relates to the Brumadinho disaster powerful stakeholders who were highly interested in the project needed to have been managed closely. The government was highly powerful and its interest was low so the company should have kept it satisfied. The community could have had high interest and low power and hence needed to be kept informed.  If Vale S.A had prepared and implemented a stakeholder engagement plan, it would have found it much easier to monitor and satisfy key stakeholders (Yang et al, 2018, p.700). 

What the company could have done differently

The disaster could have been averted if the company took several measures which are tabulated below

(Harris et al, 2019)

Conclusion

It is a foregone conclusion that unless a company delivers value to its stakeholders in cannot obtain competitive advantage and achieve long term survival.  There was lack of proper stakeholder engagement in the case of Vale Brumadinho disaster.  Key stakeholders were either insufficiently updated on the disaster or ignored. Some of the stakeholder groups whose interests were severely affected included employees of the company, investors, the community and the government. The company used bridging strategy which involved accepting responsibility and allocating resources to address the moral, humanitarian and pollution concerns that arose. The company has spent colossal amounts of money to pay compensation to relatives of those who lost their lives, obtain stakeholder support and social license to continue operating, pay legal fees, address pollution concerns among others. All this would have been avoided had the company put in place a stakeholder engagement plan before it started the dam projects. Stakeholders would have informed the company about any adverse developments in the dams before the tragedy occurred.   The stakeholders would have also reacted differently to the reputational crisis that occurred. Stakeholders would have supported the company in addressing the reputational crisis and the company would not have spent the amounts of money it spent and continues to spent.