Case Study: Samarco Dam Failure

On 5 November 2015, the devastating collapse of two dams owned by Samarco in Mariana, killed 19 people and flooded the Doce River, an important river for the southeast region of Brazil. The 40 million liters of contaminated water and sediment from iron ore extraction that was released polluted the water supply in the Doce River for hundreds of thousands of people and decimated wildlife. The event has been described as the biggest environmental accident in the history of the state of Minas Gerais in Brazil. Before the disaster, Samarco, the operator of the Germano iron ore mine and its joint venture owners BHP and Vale, was identified as a Brazilian success story. In 2014, despite falling international iron prices, it declared a net profit of $1.3bn. In the time since the collapse, the organizations have been the focus of lawsuits with federal prosecutors and civil groups claiming negligence and misleading actions by management in the run-up to the disaster. A central argument against the companies involved is that the failure was connected to a leadership and management approach that focused on cutting costs and increasing production. In the minutes from a board meeting in August 2015, that were included in the legal proceedings, company directors said: Despite the improvements in cost reduction the world is not standing still and further improvements are needed. According to Jos Adrcio Sampaio, coordinator of a task force of federal prosecutors, They prioritized profits and left safety in second place. Concerns raised in court proceedings following the disaster revealed that as the event unfolded devices that had been installed to measure liquid pressure and the water level were either not working, lacked batteries, or had been moved to other dams. Lawyers representing a class action against BHP also argued that safety warning measures in place at the Fundo dam were inadequate; specifically, there was not a proper system to warn people living downstream in the event of a dam failure. There was also no warning siren for example. Although these sirens may not be legally required, when the dam broke, residents were warned by telephone calls or in one case by a neighbor on a motorbike shouting: The dam has burst!There is evidence, however, that safety was important. In August 2012, the board noted Samarcos safety performance urging that the company should maintain its focus on eliminating fatal risks. Indeed since it started operation in 2008, in response to problems with drainage and erosion, Samarco lowered the reservoir and adjusted the drainage system along with associated remedial works. Additionally, six months prior to the collapse, the company carried out a worst-case assessment of the dam, near Mariana in Minas Gerais state, and was warned of a possible loss from a liquefication break with up to 20 deaths, and land, water resources, and biodiversity impacts for a 20-year period with an estimated cost of $3.4bn. In the aftermath of the collapse Samarco, Vale and BHP Billiton have commissioned an investigation by the international law firm Cleary Gottlieb Steen & Hamilton (CGSH). The report published in 2016, described attempts by Samarco to correct drainage problems and highlighted the impact of three small seismic shocks in the area about 90 minutes before the dam failed. The explanation that was provided stated This additional movement is likely to have accelerated the failure process that was already well advanced. Following the disaster, Samarco has dedicated substantial resources to affected communities and to re-starting operations at the mine that is a huge source of employment for the Mariana district. Between 2011 and 2015, Samarco reportedly contributed more than $3bn in local investment, making up more than half of tax revenues in the city of Mariana. In March 2016 the three companies made a deal with the federal and state governments to carry out repair, restoration, and reconstruction programs and have spent more than $1bn on clean-up and relief operations. Samarco and its owners are keen to return to production and in statements to The Guardian, Samarco, Vale, and BHP Billiton said that safety was a priority and that the dam complied with Brazilian legislation.

Please read the case above and answer the following question in 170-200 words for each question.

a. With respect to the priorities identified in chapter 8 on crisis and risk management, review what the company had done to prepare for the crisis and how it managed the situation following the disaster. b. What does the case information show about the difficulties faced by management when balancing cost and sociopolitical responsibilities? c. Identify the responsibilities that would have been taken on by the HRM function during the disaster and the following event. d. Research and present a summary on another company that has experienced a disastrous event (within the last five years). disastrous event (within the last five years)