read case seven entitled "the Upper Big Branch Mine Disaster" at page 500 of your book and discuss the costs and benefits to stakeholder of the action taken by Massey Ebergy and its managers.

The Upper Big Branch Mine Disaster On Monday, April 5, 2010. just before 3:00 in the afternoon, miners at Massey Energy Corporation's Upper Big Branch coal mine in southern West Virginia were in the process of a routine shift change. Workers on the evening shift were climbing aboard "mantrips," low-slung electric railcars that would carry them into the sprawling, three-mile-wide drift mine, cut horizontally into the side of a mountain. Many day shift workers inside the mine had begun packing up and were preparing to leave, and some were already on their way to the portals. At one of the mine's main "longwalls." one thousand feet below the surface, a team of four highly experienced miners was operating a shearer, a massive machine that cut coul from the face with huge rotating blades. The shearer had been shut down for part of the day because of mechanical difficulties, and the miners were making one last pass befon the evening shift arrived to take their places. Suddenly, a spark thrown off as the shearer's blades cut into hard sandstone ignited a small pocket of flammable methane gas. One of the operators immediately switched off the high-voltage power to the machine. Seconds later, the flame reached a larger pocket of methane, creating a small fireball. Apparently recognizing the danger, the four miners on the longwall crew began running for the exit opposite the fire. They had traveled no more than 400 feet when coal dust on the ground and in the air ignited violently, setting off a wave of powerful explosions that raced through the mine's seven miles of underground tunnels. When it was over three minutes later, 29 miners (including all four members of the longwall crew) were dead, and two were seriously injured. Some had died from inju- ries caused by the blast itself, others from carbon monoxide suffocation as the explosion sucked the oxygen out of the mine. It was the worse mining disaster in the United States in almost 40 years An evening shift miner who had just entered the mine and boarded a mantrip for the ride to the coal face later told investigators what he had experienced: All of a sudden you heard this big row, and that's when the air picked up. I'd say it was probably 60-some miles per hour. Instantly black. It took my hardhat and ripped it off my head, it was so powerful This miner and the rest of his group abandoned the mantrip and ran for the entrance. clutching each other in the darkness. On the outside, stunned and shaken, they turned to the most senior member of their crew for an explanation. "Boys. I've been in the mines a long time." the veteran miner said "That was) no (roof fall.... The place blew up." By Law Copa 2012 by the the reserved. The case was wesented at the 2012 meeting of the Western Casewors Meeting Gevemos independent testigation Panel Report to the Govenec 26 Tscout of the disaster bied on recon con menol A5.2010, by federal and evestigators and by the Mine Workers Union ergy Corporation At the time of the explosion, Massey Energy Corporation, the owner and operator of the Upper Big Branch mine, was one of the leading coal producers in the United States. The company, which specialized in the production of high-grade metallurgical coal, described itself as "the most enduring and successful coal company in central Appalachia," where it owned one-third of the known coal reserves. Massey extracted 37 million tons of coal a year, ranking it sixth among U.S. producers in tonnage. The company sold its coal to more than a bundred utility, metallurgical, and industrial customers (mostly on long-term contracts) and exported to 13 countries. In 2009, Massey earned S227 million on revenue of $2.7 billion. The company and its subsidiaries employed 5.800 people in 42 underground and 14 surface mines and several coal processing facilities in West Virginia, Kentucky, and Virginia. Massey maintained that it brought many benefits to the nation as a whole and to the Appa- lachian region. The coal industry in the United States, of which Massey was an important part, provided the fuel for about half of the electricity generated in the United States, lessening the country's reliance on imported oil. The company provided thousands of relatively well- paying jobs in a region that had long been marked by poverty and unemployment. Economists estimated that for every job in the coal industry, around three and a half jobs were created elsewhere. The company donated to scholarship programs, partnered with local schools, and provided emergency support during natural disasters, such as severe flooding in West Vir ginia in May 2009. "We recognize that it takes healthy and viable communities for our com- pany to continue to grow and succeed." Massey declared in its 2009 report to shareholders. But critics saw a darker side of Massey. The company was one of the leading practi tioners of mountaintop removal mining, in which explosives were used to blast away the lops of mountains to expose valuable seams of coal. The resulting waste was frequently dumped into adjacent valleys, polluting streams, harming wildlife, and contaminating drinking water. In 2008, Massey paid $20 million to resolve violations of the Clean Water Act, the largest-ever settlement under that law. In an earlier incident, toxic mine sludge spilled from an impoundment operated by the company in Martin County, Kentucky, con Laminating hundreds of miles of the Big Sandy and Oyo rivers, necessitating a $50 million cleanup. Worker safety was also a concern. An independent study found that Massey had the worst fatality rate of any coal company in the United States. For example, in the decade leading up to the Upper Big Branch disaster. Peabody Coal (the industry leader in ons produced) had one fatality for every 296 million tons of coal mined: Massey's rate was one futality per 18 million tons--more than 16 times as high L. Blankenship At the time of the Upper Big Branch mine disaster, the chief executive officer and undisputod boss of Massey Energy was Dan Blankenship. A descendant of the McCoy family of the famous warring clans the Hatfields and the McCoys, Blankenship was raised by a single mother in a trailer in Dcome, a railroad depot in the coalfields of West Virginia. His mother supported the family by working 6 days a week. 16 hours a day, ang convenience More and gas station. Michael Shnayerson who wrote about Blankenship in his book, Coal Rhe reported that the executive had absorbed from his mother the value of hard work as well as concept for others who might be les fortunate. "Anyone who didn't work as hard as she did deserved to fail. Shayenion we Sympathy appeared to play no part is het reckonings 2015 Blankenship graduated from Marshall University in Huntington West Virginia, with a degree in accounting. As a college student, he worked briefly in a coal mine to carn money for tuition. In 1982, at age 32, he returned to the coalfields to join Massey Energy, taking a job as an office manager for a subsidiary called Rawls. Soon after, Massey announced it intended to spin off its subsidiaries as separate companies and re-open them as nonunion operations. The United Mine Workers, the union that then represented many Massey work- ers, struck the company. Jeff Goodell, a journalist who profiled Blankenship in Rolling Stone, described the young manager's technique for defeating the union at Rawis: Blankenship crected two miles of chain link fence around the facility, brought in dogs and armed guards, and ferried nonunion workers through the union's block- ades. The strike, which lasted more than a year. grew increasingly violent--strikers took up baseball bats against the workers trying to take their jobs, and a few even fired shots at the seahs A volley of bullets zinged into Blankenship's office and smashed into an old TV. For years afterward, Blankenship kept the TV with a bullet hole through it in his office as a souvenir. The union's defeat at Massey (by 2010, only about 1 percent of Massey's workers were union members, all of them in coal preparation plants rather than mines) contributed to the overall decline of the United Mine Workers in the coalfields. In the 1960s, unions represented nearly 90 percent of the nation's mine workers: by 2010, they represented just 19 percent. Blankenship quickly moved through the management ranks. In 1990, only eight years after he joined the company, he became president and chief operating officer of the Massey Coal Company and in 1992 was promoted to CEO and chairman. (The company was renamed Massey Energy in 2000 when it separated from its parent, Fluor Corp.) By some measures. he was a successful CEO. Between 2001, the first full year of Massey's in-dependent opera- tion, and 2009, annual revenue increased from $1.2 billion to $2.7 billion. During this period, employment rose from around 3,700 to 5.800. Blankenship more than doubled the compa ny's coal reserves, mainly through acquisitions of smaller firms. Massey shareholders, like all investors, were bulleted by the extreme volatility of the stock market during the 2000s. Nevertheless, an investor who purchased $10.000 worth of Massey stock in December 2004 would have a holding valued at $12.800 in December 2010 a rate of retum close to that of the coal industry as a whole during this period. As CEO, Blankenship developed a reputation as a hands-on, detail-oriented manager. He lived in the coalfields and ran the company out of a double-wide trailer in Belfry. Kentucky.just over the West Virginia line. He signed off on all hires, all the way down to janitors. One manager expressed amazement when he learned that the CEO would have to approve a tankful of gasoline for his truck. Managers were required to fax production figures to Blankenship every half hour. Red phones connected mine managers directly to the CEO. "If the report was late or the numbers weren't good, or the mine was shot down for any reason." Shnayerson reported the red phone would ring. The terrified man ager would pick it up to hear Mr. B demanding to know why the numbers weren't right." Blankenship told an interviewer, "People talk about character being what you do when no one else is looking. But the truth of the matter is character is doing that which is unpopular if it's right, even if it causes you to be vilified VE xls Jeff Goode The Dark Lord of Cowl Cling Stone Dec. 2010 "Master 2003 port,Shaholder info Michanowie Worca, por me per Ofec. 80 . SOLA with an imp. Norber 16, 2008 Plan Change in Stock Option Incentive Pension Total Year Salary Bonus Awards Awards Value Other(") Compensation 2009 933,369 300,000 3,869,819 - 11,549,156 573,618 609.875 17,835,837 2008 1,000,000 300,000 390,000 2,160,000 6,022.447 691,415 357.129 11,020,991 2007 1,000,000 300,000 604,800 1,700,000 5,257,576 111,794 386,480 9.361,000 Note: "Other includes personal use of company challenge of corporate jet housing and related costs and Services Source: Massy Energy 2010 Prowy. Compensations and Analysis and Compensation of Named Executive Officers As CEO Blankenship maintained a laser focus on productivity. In 2005, he sent a memo titled "RUNNING COAL" to all Massey underground mine superintendents that stated: If any of you have been asked by your group presidents, your supervisors, engi neers, anyone else to do anything other than run coal (ie, build overcasts, do construction jobs, or whatever you need to ignore them and run coal. This memo is necessary only because we neem not to understand that coal pays the bills. A week later, after this memo had been widely circulatod, he followed up with another one which referred to the company's S-1, P-2 (safety first, production second) program He wrote: "By now each of you should know that safety and S. 1 is our first responsibility. Productivity and P-2 are second." Live Compensation I Blankenship was well compensated for running Massey. As shown in Exhibit A his total compensation in 2009 was almost $18 million, this was up from SIT million in 2008 and $9 million in 2007. Blankenship's base salary in all three years was close to Si million. By far the greatest proportion of his total pay came from a performance-based incentive sys- tem established by Massey's board of directors. In its filings with the SEC, the board described its philosophy of compensation this way: We compensate our named executive officers in a manner that is meant to attract and retain highly qualified and gifted individuals and to appropriately incentivite and mouvate the named executive officers to achieve continuous improvements in company wide performance for the benefit of our stockholders A Missioned by a penon bonectory and The her Basel Som Menschewandte Food Movie Comedy Send Red det www.soccerfonden idad Gabby Chambe comed and 000 2000 501 9 The calculation of incentive plan compensation was based on achievement of specific targets in these areas: EBIT (earnings before interest and taxes) Produced tons Continuous miner productty (feet/shift) Surface mining productivity (tons/man-hour) Environmental violations (% reduction) Fulfillment of contracts Nonfatal'days lost due to injury and accident (% reduction) Identification of successors Employee retention Diversity of members 15% 15% 5% 5% 10% 15% 10% 5% 15% 5% Source: Massey Energy 2010 Proxy Note: A cortinuous miner is alge machine that extracts coal underground Accordingly, the compensation committee of the bourd established an incentive plan for Massey's CEO. (Similar plans were in place for other senior executives as well.) The plan sct specific performance measures for "areas over which Mr. Blankenship was responsi- ble and positioned to directly influence outcome." These areas, and the proportion of his incentive compensation based on them, are shown in Exhibit B. By one estimate, in the 10 years leading up to the disaster Blankenship received a total of $129 million in compensation from Massey. "I don't care what people think," he once said during a talk to a gathering of Republican Party leaders in West Virginia, speaking of himself in the third person. "At the end of the day. Don Blankenship is going to die with more money than he needs.10 Regulation of Mining Safety and Health Coal mining had always been a hazardous occupation. Methane gas, an odorless and col- orless by-product of decomposing organic matter that was often present alongside coal. was highly flammable. Methane explosions had contributed to the deaths of more than 10,000 miners in the United States since 1920. To mine safely, methane levels had to be constantly monitored, and ventilation systems had to be effective enough to remove it from the mine, Coal dust itself-whether on the floor or other surfaces, or suspended in the air was also highly flammable. The standard practice was to apply layers of rock dust (crushed limestone) over the coal dust to render it inert. In addition to the ever-present danger of fire, miners had long contended with the threat of collapsing roofs and walls, dangerous mechanical equipment, and suffocation. Miners often developed coal workers' pneumoconiosis, commonly called black lung, a chronio, irreversible disease caused by breathing coal dust. (Black lung was preventable with proper coal dust control.) and Roberti. Ari 9. 2010, who Health and safety in the mining industry had long been regulated at both the federal and state levels. Over the years, lawmakers had periodically strengthened government regula tory control, mostly in response to mining disasters. . In 1910, following an explosion at the Monongah mine in West Virginia in which 362 men died, Congress established the U.S. Bureau of Mines to conduct research on the safety and health of miners. The Federal Coal Mine Health and Safety Act, known as the Coal Ad-which passed in 1969 after the death of 78 miners at the Consol Number 9 mine in Farmington, West Virginia-greatly increased federal enforcement powers. This law established fines for violations and criminal penalties for "knowing and willful" violations. It also provided compensation for miners disabled by black lung disease. The 1977 Mine Act further strengthened the rights of miners and established the Mine Safety and Health Administration, MSHA (pronounced "Em-shah") to carry out its reg. ulatory mandates. The law required at least four full inspections of underground mines annually Then in 2006, after yet another string of mine tragedies focused public attention on the dangers of mining. Congress passed the Mine Improvement and New Emergency Response Act, known at the MINER Acr. This law created new rules to help miners survive underground explosions and accidents. States like West Virginia that had significant mining industries also had their own reg. ulatory rules and agencies. Although MSHA was empowered to inspect mines unannounced and to fine operators for violations, the agency had limited authority to shut down a mine if a serious problem was present or if the operator refused to pay its fines. Criminal violations of mine safety laws were normally considered misdemeanors rather than felonies, Over time, fatalities in the industry had declined. All the turn of the 20th century, around 300 to 400 miners died every year in the nation's coal mines: by the 1980s, this number had dropped to less than 50. Injuries and illnesses had also dropped. In part, these declines reflected tougher government regulations. They also reflected the rise of surface mining (mostly in the western United States), which tended to be safer, and the emergence of new technologies that mechanized the process of underground mining. The unionization of the mining industry had also given workers a greater voice and the right to elect safety repre- sentatives in many workplaces. Big Branch Mine Massey had bought the Upper Big Branch mine in 1993 from Peabody Coal. It was a par ticularly valuable property because its thick coal seam produced the high-grade metallur pic coal favored by utilities and the steel industry. Two hundred employees worked there on three, round-the-clock shifts. In 2009. Upper Big Branch produced 12 million tons of cool about 3 percent of Massey's total. The mine, like all of those operated by Massey was notsunson The regulatory record revealed a widespread pattern of safety violations at the Upper Big Branch mine and an increasingly contentious relationship between its managers and government regulators. As shown in Exhibit C. government inspectors had issued an increasing number of violations over time, with a sharp spike upward the year before the y or More Siteydent Meydan ox 500 Penalties and Amount Paid, 2000-2009 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Number of Citations 240 398 221 175 238 143 173 271 197 515 Assessed Penalty ($) 55,325 48.761 64,726 41,934 48,371 32,577 191,249 253,984 239,566 897,325 Amount Paid ($) 55,325 48,761 64,726 41,405 48371 32.576 84,411 61,745 105.965 292,953 SOUTO MSHA data, reported in the appendices of Industrie Homicide Report on the upper Big Branch Mine Disaster disaster. These data also showed that around 2006, management had begun to contest reg- ulatory penalties rather than pay them. The state investigation reported the story that at one point Massey's vice president for safety an attomey-"took a violation written by an inspector, looked at her people, and said. "Don't worry, we'll litigate it away." Appealing the citations not only allowed the company to delay or avoid paying it also blocked tougher sanctions, such as shutting down the mine. Miners testified that they were intimidated or disciplined if they complained about safety. When one foreman told his men not to run coal until a ventilation problem was fixed, he was suspended for three days for "poor work performance." Another miner, who was killed in the blast, had told his wife that a manager had told him when he complained about conditions, "If you can't go up there and run coal just bring your lunch] bucket outside and go home." The father of a young miner who was still a traince when he was killed at Upper Big Branch related his son's experience to investigators. The young man had told his father that when he had expressed concerns about safety to his supervisor, be was told. If you're going to be that scared of your job here, you need to rethink your Miners who were hurt on the job were told not to report their injuries, so an NFDL (non-fatal day lost) would not be recorded. A former Massey miner who testified before a Senate committee explained. "If you got hurt, you were told not to fill out the lost- time accident paperwork. The company would just pay guys to sit in the bathhouse or to stay at home if they got hurt. Investigators found that the company had kept two sets of books at UBB, one for its own record keeping and the other to show inspectors. "If a coal mine wants to keep two sets of books, that's their business, the administrator for MSHA Inter commented. They can keep five sets of books if they want. But they're required to record the hazards in the official set of books. Conditions that were recorded in the company's own books - but not the official sct included sudden methane spikes, inoperative safety equipment, and other dangers career- Uw, op op 31 UW.00.00.78 Owen Mededors investigate The New Yone 2011 Hier or nity to The mine also had a system in place, set up by managers that an inspector was on the way-a clear violation of the law. A miner who survived the explosion later told Congress, "The code word would go out we've got a man [government inspector) on the property.... When the word goes out, all effort is made to correct the deficiencies. A surviving miner testified: Nobody shuts one of Don Blankenship's mines down. It has never happened. Every- one knows when mine inspectors are coming you clean things up for a few minutes. make it look good, then you go back to the business of running coal. That's how things work at Massey. When inspectors write a violation, the company lawyers challenge it in court. It's just all a game. Don Blankenship does what he wants. After the disaster. Blankenship stated, "Violations are unfortunately a normal part of the mining process. There are violations in every coal mine in America, and UBB was a mine that had violations." Disaster In the months following the tragedy at Upper Big Branch, three separate investigations- conducted by the federal MSHA. a commission established by the governor of West Vir- ginia, and the United Mine Workers-examined the causes of the fatal explosion. All came to the same conclusion: that a spark from the long wall shearer had ignited a pocket of methane, which had then set off a series of explosions of volatile coal dust that had raced through the mine. Such events could only have happened in the presence of serious, sys- tematic safety violations. Among the problems cited by the investigators were these: Rock Dust. Investigators found that the company had failed to meet government stan. dards for the application of rock dust. As a result, explosive coal dust had built up on surfaces and in the air throughout the mine. The state commission reported that the Upper Big Branch mine had only two workers assigned to rock dusting, and they typically worked at the task only three days a week and were frequently called away to do other jobs. Moreover, their task was often impossible because the mine's single dusting machine, which was about 30 years old, was broken most of the time. Federal investigators later determined that more than 90 percent of the area of the mine where the explosion occurred was inadequately rock dusted at the time of the explosion. They also found that the area of the longwall where the explosion began had not been rock dusted a single time since production started there in September 2009. The presence of large amounts of floating coal dust in the mine was also suggested by medical evidence. Seventy-one percent of the autopsied victims showed clinical signs of black lung disease, caused by breathing airborne coal dust. Nationally, the rate of black lung disease in underground coal miners was around 3 percent Ventilation. Investigators found that the Upper Big Branch Mine did not have sufficient ventilation to provide the miners with fresh breathable air, and to remove coal dust as well as methane and other dangerous gases. Upper Big Branch, like many mines, used a so-called push-pull system in which large fans at the portal blew fresh air into the mine, and a fan on the other end pulled air out. The state UMW, op. . 77 Jeff Goodetop . investigation found that this system did not work very well at Upper Big Branch. The fans were powerful enough, but the plan was not properly engineered. The push-pull ventilation system at Upper Big Branch had a design flaw: its fans were configured so that air was directed in a straight line even though miners worked in areas away from the horizontal path. As a result, air had to be diverted from its natural flow pattern into the working sections Because these sections were located on different sides of the natural flow pattern, multiple diversionary controls had to be constructed and frequently were in competition with one another Poor ventilation had likely caused methane to build up near the longwall shearer, providing the fuel for the initial fireball, investigators found. Equipment Maintenance. Investigators concluded that water sprays on the long wall shearer were not functioning properly, and as a result were unable to extinguish the initial spark After the disaster, investigators closely studied the longwall shearer where the initial fire had started. They found that several of the cutting teeth on the rotating blades (called "bits") had worn flat and lost their carbide tips, so they were likely to create sparks when hitting sandstone. The investigators also examined the water nozzles on the shearer, which normally sprayed water onto the coal face during operation to cool the cutting bits, extin- guish sparks, and push away any methane that might have leaked into the area. They found that seven of the nozzles were either missing or clogged. Tests found that the long wall shearer did not have adequate water pressure to keep the surface wet and cool. As a result, any small sparks thrown off during the mining process could not be extinguished. In short, a series of interrelated safety violations had combined to produce a preventable tragedy. The United Mine Workers called the disaster "industrial homicide" and called for the criminal prosecution of Massey's managers. For its part, Massey had a completely different interpretation of the causes of the events of April 5. An investigation commissioned by the company and headed by Bobby R. Inman, its lead independent director, said that the explosion was caused by a sudden, mas- sive inundation of natural gas through a crack in the mine's floor--an Act of God that the company could not have anticipated or prevented. The company report stated: the scientific data that (Massey has painstakingly assembled over the last year with the assistance of a team of nationally renowned experts so far compels at least five conclusions. First, a massive inundation of natural gas caused the UBB explo sion and coal dust did not contribute materially to the magnitude or severity of the blant second, although an ignition source may never be determined the explosion likely originated in the Thilgate 21 entries, but certainly not as a result of faulty shearer maintenance, thin the company adequately rock dusted the mine prior the explosion such that coal dust could not have played a causal role in the accident fourth, the mine's underground ventilation system provided significantly more fresh air then required by law and there is no evidence that ventilation contributed to the explosion and fifth. MSHA lus conducted a deeply flawed accident investigation that has been predicated, in part. upon secrecy, protecting its own self-interest, wit. ness intimidation, obstruction of company investigators, and retaliatory citations ovemo's independentistation Panel op L, 61 httpww.smo.com downlod Most In a conversation with stock analysts six months after the disaster. Blankenship stated that he had a totally clear conscience and that he did not believe Massey had contributed in any way to the accident." 1. What were the costs and benefits to stakeholders of the actions taken by Massey Energy and its managers? 2. Applying the four methods of ethical reasoning (utilitarianism, rights, justice, and vir tue), do you believe Massey Energy behaved in an ethical manner? Why or why not? 3. Who or what caused the Upper Big Branch mine disaster, and why do you think so? 4. What steps could be taken now to reduce the chances of a similar tragedy occurring in the future? In your answer, please address the appropriate roles of mining companies (and their directors and managers), government regulators and policymakers, and the workers and their union in assuring mine safety 510