The High Cost of Poor Stakeholder Management on Brazil’s Energy and Mining sectors

In 2015, the tailing dam from Fundão – built to work as a reservoir for mining byproducts – located in the city of Mariana, Minas Gerais state, collapsed, killing 19 people and releasing around 40 million m³ of toxic waste, devastating native vegetation, polluting the river known as Rio Doce, destroying cities and local communities. The dam belonged to Samarco, a Vale and BHP Billiton joint venture, whose operation has been almost completely ceased since the disaster. The company was heavily criticized for its slow and unaligned response to the tragedy, with examples such as failing to provide information about health risks posed by the mud and about risk levels of other nearby dams.

The dam burst was attributed to a severe lack of preparation and oversight by the companies managing the project, as well as to insufficient regulation of Brazil’s mining sector. In addition to the social and environmental complexity of Fundão burst, when analysing the crisis of corporate image and reputation, Vale found itself in an intricate position. Critics focused particularly on the executives’ posture and preparation to this level of disaster.

There were different spokespersons sharing unaligned key messages and contradicting guidance. A short press release was published one day after the tragedy and executives visited the site only six days after the collapse. Besides, Samarco did not have an emergency plan with alarm system, evacuation routes and effective training with local population.

While the investigation and prosecution of Mariana’s tragedy was still ongoing, another dam collapsed in January 2019, this time at the Corrego do Feijão mine in the city of Brumadinho, also in Minas Gerais state. Despite the promises from Vale of “Mariana, never more” and installation of syrens to warn population of any incidents, another mining dam collapsed. The mudflow caused more than 240 deaths and at least 30 people are still missing.

After what happened in Mariana, messages from Vale classifying Brumadinho as an accident had a very negative impact on public opinion. The participation of the company in the Brumadinho Parliamentary Investigation Committee, installed to investigate the disaster, was condemned as well. In public statements, Vale’s CEO recognized the urgency to change mining dam technology and structure, but stated that the company should not be condemned by the single tragical event. Public perception worsened after investigation about the disaster showed that the company had been warned about instability of the dam three months before the collapse and that syrens did not ring on the day of the burst.

Going beyond an analysis of the social and environmental consequences of Mariana and Brumadinho’s tragedies, when it comes to reputation and public perception, Vale went from a high-standards globalized company to one that puts local communities at risk, with low attention to regulation, transparency and preparedness to react to crisis.

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Know your stakeholders

Most companies recognize the importance of knowing its external stakeholders, the problem starts when they have to properly map who those are, what are their underling interests, how they should be approached and what’s their level of power and influence on the success or failure of these projects

Knowing in advance each stakeholders’ position, their underlying interests and power to influence while also respecting each individual privacy (and the laws regulating it) is crucial for building dialogue and consensus on delicate situations, while also winning support from a wide range of actors who might not otherwise act in favor of the project.

Open communication channels

Most energy and mining projects take place far away from HQ, with managers often hundreds or thousands of miles away from the brewing issues. Local staff has the natural tendency to filter risks and sweeten the pill, until issues escalate and become unmanageable.

Some companies tend to mitigate these gaps by opening hotlines where workers and civil society have the opportunity to denounce abuses and raise flags to potential crisis. But this information is normally reverted back to local staff, who might have incentives to downplay threats and filter proper communication.

Therefore, key internal stakeholders must open direct communication channels with strategic external players, so that they will also be aware of any problem that might otherwise go unnoticed. Naturally, this channel needs the necessary discretion and filters so that central management is not bombarded with unchecked information. Done properly, open communication and early engagement with strategic stakeholders is the best way to have relevant early-warnings and align expectations before the issues escalate.

Expect the best, prepare for the worst

Even when companies play by the book and implement best-practices on a wide array of areas, they must implement procedures that guarantee a continuous risk-assessment of evolving issues, drawing action-plans for the most threatening and probable ones.

Responsibilities and attributions need to be clear and well understood by all involved so that, if a crisis hits, the response is quick and appropriate. What to say is almost as important as what to do, hence action plans need to be followed by proper Q&As and press releases so that all affected understand the company’s stance and miscommunication and misunderstandings are avoided.

Most executives have so much on their plates that they tend to avoid dealing with non-urgent issues. Though understandable, if you avoid potential problems, they will most likely come back to hunt you. And when they do so, lack of proper planning is likely to be followed by oversteps, clumsiness and mistakes that turn convertible issues on paralysis, bad exposure and, sometimes, tragedy.

The continuous quest for the Social License to Operate

Building and maintaining a license to operate among local and strategic stakeholders is critical to long-term success. Companies must identify and get ahead of the big issues and risks, structure stakeholder dialogue and craft social investment programs that are effective, affordable and sustainable all throughout the lifecycle of projects, from planning to permitting, construction, operation and closure.

Going the extra mile to properly assess the interests and risks of those most affected helps companies allocate compensations in a smart and effective way and allows them to showcase (to the right audiences) the actual benefits of their projects, gaining the so called “Social License to Operate”, ie, the recognition from civil society, government and NGO’s that the benefits outweigh the costs, and that those are properly mitigated and compensated to the actors that actually bear them.

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