BHP Billiton offers a lesson in crisis management

The mining company has serious questions to answer about the Brazilian mudslide. But its sure-footed response to the the disaster has shown up some other firms.

Aerial view after a dam burst in the village of Bento Rodrigues, in Mariana, Minas Gerais state, Brazil on November 6, 2015. The mining company Samarco, which operates the site, is jointly owned by two mining giants, Vale of Brazil and BHP Billiton of Australia. (CHRISTOPHE SIMON/AFP/Getty Image)

On 5 November, an iron ore mine’s waste reservoir ruptured in the Brazilian state of Minas Gerais. A torrent of mud swept down the valley and wiped out the village of Bento Rodrigues. Nine people are confirmed dead so far, with 19 still missing. Almost 600 have lost their homes and a total of 2,000 could ultimately be affected.

Such disasters are, of course, devastating for the affected communities. But they can also sweep away corporate reputations – or at least contaminate them.

The iron ore mine was jointly owned by Brazil’s Vale and BHP Billiton, the world’s largest mining company. BHP shares took an instant 6 per cent hit as analysts fretted about the potential damage to its corporate image.

But BHP’s crisis management has, say experts, been textbook. The chief executive, Andrew Mackenzie, immediately came out to speak to the media at BHP’s headquarters in Melbourne, saying his thoughts were with the devastated local community. He then flew to the site of the disaster in Brazil, where he offered an apology to affected residents.

“BHP’s response was generally very rapid. It has said, ‘We’ll address this’,” explained Timothy Devinney, of Leeds University Business School, adding that he wasn’t particularly surprised by this sure-footed response.

“The large companies – the BHPs, the Rio Tintos, the Vales – are generally much better at this. It’s the more under-resourced companies [that fall short], where they don’t have the capacity to have risk-management protocols in place.”

The rapid apology was important. Gary Davies at Manchester Business School contrasted BHP’s response with that of Exxon in the wake of the Exxon Valdez oil tanker spill off the coast of Alaska in 1989. “They said the captain [of the tanker] was drunk, rather than saying we actually employed the captain and maybe we should put our hands up and accept the blame,” he explained.

Professor Davies also cited the response of the maintenance company Jarvis, which was found culpable in the wake of the Potters Bar rail crash in 2002 – and initially sought to blame “sabotage” – as a dreadful example of corporate crisis management.

Professor Davies and his colleagues have carried out research into how and when people lose trust in organisations, and he believes the results are instructive. “Mistakes tend to come fairly low down the pile,” he said. “The things that are most likely to lose trust are bending the law and not telling the truth.”

Earlier this year, Thomas Cook admitted that its failure to apologise was one of the grievous mistakes in its handling of the deaths of two children from carbon monoxide poisoning on one of its holidays in Corfu in 2006. Thomas Cook’s management are widely believed to have listened to advice from lawyers that apologising to the children’s family would concede legal liability.

“A lawyer’s instinct is often for the corporate entity to resist saying sorry because it’s considered to be some kind of admission and may damage the entity’s position in any ensuing litigation,” said Dan Tench at the law firm Olswang. ”I think that’s an excessive legal hesitancy. First, in many cases an apology is unlikely to damage significantly the entity’s legal position. Second, the financial liability in dispute, when properly considered, may be small relative to the potential reputation damage.”

Sensible management teams recognise that a company’s reputation is the basis of their future profitability. Professor Devinney pointed out that any fines that are ultimately levied on BHP by the Brazilian government over the mudslide won’t make a material difference to its business.

“What matters more is the next set of operations,” he said. “If they go into Brazil again and open another mine, or if they do so in Western Australia, these things [reputation] matter. What’s going to happen when they try to get the permits?”

Another thing BHP got right was not attempting to pass off responsibility to its local subsidiary, Samarco, which operated the iron mine. Professor Davies said that that approach didn’t work for British Airways during the chaotic opening of Terminal 5 at Heathrow in 2008. BA’s management tried, in vain, to blame the airport’s faulty luggage processing system for the debacle. “It wasn’t BA’s fault but it was their responsibility,” said Professor Davies.

Crisis management experts take different views over whether a chief executive should be turned into the public face of the company in the wake of a disaster, as BHP’s Mr Mackenzie has been and as Talk Talk’s Dido Harding was in the recent hacking scandal. Another example was provided by Sir Richard Branson, who cut short his holiday in 2007 – after a Virgin train derailed in Grayrigg, Cumbria – to travel to the crash site and talk to the media in person. Some believe this is not always the best approach.

“Putting up very high-profile, very senior people right at the beginning of a crisis can be an effective strategy – but sometimes it can make it harder from a reputational point of view,” said Mr Tench.

“If you just have a bad news story, particularly one which is ongoing, there is a danger that putting up a senior person as a spokesman just adds momentum to the story. With the BHP situation, it would appear they knew the extent of the problem, which allowed the chief executive to bring some closure to it. It very much depends on the nature of the crisis.”

The character of the chief executive can also be important, as BP found to its cost when its former chief executive Tony Hayward angered many Americans during the BP Gulf of Mexico spill in 2010 by saying, somewhat petulantly: “There’s no one who wants this over more than I do. I’d like my life back.” He apologised after it was pointed out to him that 11 people had died in the accident. But the damage was already done.

Another crashing failure of corporate crisis management came after a massacre of 41 striking miners by police in South Africa in 2012. The London-based Lonmin, which owned the platinum mine, threatened strikers, who had seen their colleagues mowed down, with the sack unless they returned to work rapidly.

Some crisis consultants say many of these kinds of PR disasters spring from the sheer distance between modern chief executives and their workers and customers. “The sad truth is it often takes a disaster for some of them to meet their public,” said one. “They’re so far removed from them – it brings it home to them and they’re not really equipped for it.”