Business Ethics

Minor case Study of an organizational business ethics

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Introduction

Bento Rodrigues dam disaster occurred on 5th November 2015 when an iron ore tailing dam suffered a ruinous failure. This incident is described as the worst environmental disaster in Brazil’s history. The dam is a property of Vale and BHP which is a joint venture of Samarco. Total 17 deaths were witnessed and 16 people were injured in the accident. The cause of the death is getting invested by government agencies. Human and environmental disaster took place due to this event and the disaster released 60 million cubic slurry containing iron ore and toxic materials. Homes, people, property was annihilated in this terrible disaster. Present report describes about ethical issues related with the disaster. In addition to this, report provide details about various issues that lead towards causing the disaster.

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1. Ethical issues related to Bento Rodrigues dam disaster

Collapse of mining dam has created serious threats for lives and lands by destroying property and causing damage to human lives in the nearby village. The dam was constructed to hold back water and residue that was generating from mining operations of Samarco. Bursting of dam structure contaminated the water of Doce River and Atlantric Ocean. BHP Billiton firm concentrate on ethics and environmental policy and use various measures for implementing them but occurrence of Bento Rodrigues dam disaster has shown that there was lack of concern in implementing effective policies for safeguarding interest of people and environment. The Samarco firm used lesser process safety standards which created problem for the surrounding environment in the form of disaster. A proper risk taking management system could have helped in saving the disaster (Hartman, Laura Pincus, Joseph R. DesJardins, and Chris MacDonald. 2013. But negligence of the firm for taking corrective measure at right time, created this catastrophe.

Samarco is responsible for legal and ethical issues arising from the dam disaster. The hard driven profit aspect of the firm was responsible for causing this disaster. Stakeholders of Samarco that got affected due to this incident are shareholders, local community people, creditors and employee of the firm. Company is responsible for the disaster and it need to give justice to people who lost their lives and homes in this terrible incident (May, Larry, and Jill B. Delston. 2015). The investigation done by Brazilian police concluded that the dam wall liquefied and collapsed after becoming saturated. The report also described that monitoring and control process of Samarco firm was not sufficient and safety measures taken by the firm were inadequate.

Environmental prosecutors have alleged negligence in the operation and monitoring of the dam. According to them it was an avoidable preventable disaster. It was a wrong decision of Brazilian government to give permission for increasing dam height to Samarco firm. The company has revealed after investigation that it was storing waste from a nearby dam that amount to 5% of the total waste. The disaster caused danger for the aquatic life by killing thousands of fishes and contaminating the water by iron ore and toxic minerals made it undrinkable. It is difficult and challenging for nearby community to habitable after this catastrophe (Collis, Jill, and Roger Hussey. 2013). Government of the state did not paid attention to their safety policy and it resulted in five dam breaks in the last decade. Safety criteria set by the government were not adequate and it caused Bento Rodrigues dam disaster.

The national department of mineral production which is a institution set by government for checking safety related to construction of dam did not visited Rodrigues dam because the institute found the dam as low risk structure and considered it safe without doing any physical inspection. It shows lack of safety concern and negligence in duty by government officials. People of the local community had no idea about the size of potential danger that the dam can cause to their lives. Court documents have revealed that Samarco firm was aware of environmental impact of mine but in pursuit of larger profit they failed to build an effective dam structure.

2. Ethical problems faced by me as a shareholder of the BHP Billiton.

Ethics is necessary for running a business in successful and legal way. Different ethical perspective offer a different approach for looking at a situation. Utilitarianism view is aligned with economics and free market outlook that influence thought process about business and management (Myers, Michael D. 2013). The major focus of this approach is on rules rather than results with focus on finding best possible results by measuring the utilities involved.

The utility approach works with a belief that any action or activity is correct if only the sum of utilities produced by the it deliver the greatest good to the society. In this case company worked with an objective to maximize its profit and it ignored the potential danger that mines and dam caused to the environment and people. The approach of the firm was not utilitarian and it caused degradation in market reputation of the firm which resulted in decrease in the share price of the firm. The stock market reflected the impact of this disaster on its share holders and Creditors of the firm were affected the most as Samarco's traded bonds initially lost approximate 50% of their value and due to this shareholders lost a major portion of their capital and now they are having very less chance to get back their capital due to weak financial position of the firm. Rate of return will be very low for them and it will also cause problem for the firm as to compensate for the damage it needs to make changes in its debt and dividend policy (Moore, Barrington. 2016).

It is failure of Samarco company's risk management system which lead towards causing this disaster. The firm assumed that all values can be reduced in monetary value but the damage caused to human health and environment can not be assessed in terms of cost-benefit analysis and economic profit and loss.

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In contrast to utilitarian perspective, deontological approach belives that ethical action arises from doing one's duty in responsible and accountable manner and these duties are payable universally to all human beings (Ellerman, David. 2015). This approach concentrate on equality of all human beings without doing any discrimination on economical, social and cultural basis. It defines that any course of action adopted by the firm should be universal and good for all people for small and long duration. The wrong decision of firm to increase dam height proved worse for local people, surrounding environment and to the organization itself. The major purpose for which the dam was erected is to accommodate the waste generating due to extraction of iron ore from the mines located in the region. For gaining more benefits of mining activity Samarco firm increased wall height of dam and the dam busted due to excessive waste stored at earthwork. Company had knowledge of technical problems in dam structure and decision of the firm to avoid this problem created a long term effect. The share of the firm get down to 30% after the dam disaster and it was a serious issue for shareholders of the firm. Brazilian government launched a claim against Samarco worth 20 Billion to make the company compensate for the disaster. Vale and BHP are suffering due to collapsing iron ore price and slowdown in mining industry. BHP's share slumped from $24 to $19 due to this catastrophe. Virtue theory emphasizes on values of virtuous quality and pay lay attention to formal rules and regulations of the firm (Cowton, Christopher J., and Joakim Sandberg. 2012). Courage, truthfulness, generosity, gentleness and justice are defined as major virtues to be followed while running any functional activity of the firm (Morris, Sara A., and Robert A. McDonald. 2013). The evidences revealed by police and courts prove that it was negligence of the firm towards doing its duty in a responsible manner. Leads

3. Ethical perspective that can provide solution to the problem

There are different kind of ethical perspectives that provide guidelines for defining policy of an organisation. The Bento Rodrigues dam disaster happened due to profit seeking approach of Samarco firm. Utilitarian perspective explains that underestimating the cost of certain decision can create a big problem for the firm and the same happened in the dam disaster (Eriksson, Päivi, and Anne Kovalainen. 2015). Technical team of the firm has given clear indications of potential danger related to increasing dam height but company avoided the suggestion to increase its profit from mining activity. Samarco should have followed all the recommendations given to it by its technical team to avoid this disaster. The dam was under construction for increasing its heights when the landfills stored in its base reached to its maximum capacity and the reservoir reached its limit point which created structural damage and the dam began to leak following a rupture and it released a large volume of toxic waste in nearby river valley. Taking a decision by inspecting overall impact of it will help the firm in preventing this kind of situation. This approach define that long term effect and short effect of a decision should be analysed by the firm before starting any plan of action (Richardson, Henry S. 2013).

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Virtue theory approach believes in showing gentleness for others and following this methodology company took the initiative and sent its 600 employees to help people in the affected area and the workers helped the homeless people by supplying food and water. CEO of the firm promised to give full support by providing physical and financial resources to the affected people. In January 2016 some internal documents regarding dam construction were leaked from the firm which reveal that management of the firm was aware of the possibility that there is problem in dam construction and it can collapse by increasing its height but company avoided this to continue its mining activity. This negligence of the firm proved harmful to stakeholders of the firm and created havoc for surrounding people and environment. Company could have taken proper measures to avoid this disaster by taking a effective decision (Craft, Jana L. 2013). Company should take its decisions by doing justice to its surrounding people and environment it will help in taking better decision to the firm. Company should not underestimating the harm or damage that any certain decision can cause danger for the biodiversity (Leonidou, Leonidas C., Olga Kvasova, Constantinos N. 2013).

Conclusion

As per the above file it has been concluded that business ethics play a important role in promoting a peaceful society for sustainable development. It assist in giving justice to people and environment while conducting any operational activity of the business and helps in developing a effective and responsible institution which protects and promote sustainable use of natural resources by ensuring smooth running of consumption and production activities. Business ethics help in ensuring healthy and peaceful life for all human beings.

Recommendations

Following are the recommendations for Samarco firm to prevent damages and disasters in the firm-

  • Executive pay and bonuses given to employees of the company can be linked to their safety records which will help in ensuring a effective risk management in the firm.
  • Company should take responsibility for developing a risk management system in the firm and monitor its dam and other construction companies by using electronic equipments such as drones, radar, laser monitoring system that will help the firm in warning for structural problem.
  • Management team of Samarco and the local executives who are the key decision makers would clearly have the most direct culpability in any wrongdoing happened in the company and they should be given proper guidelines for monitoring and controlling operational activities of the firm.

References

  • Collis, Jill, and Roger Hussey. 2013. Business research: A practical guide for undergraduate and postgraduate students. Palgrave macmillan.
  • Cowton, Christopher J., and Joakim Sandberg. 2012. Socially responsible investment.
  • Craft, Jana L. 2013. "A review of the empirical ethical decision-making literature: 2004–2011". Journal of Business Ethics 117(2): 221-259.
  • Ellerman, David. 2015. The democratic worker-owned firm: A new model for the East and West.
  • Eriksson, Päivi, and Anne Kovalainen. 2015. Qualitative Methods in Business Research: A Practical Guide to Social Research. Sage.
  • Hair, Joseph F. Essentials of business research methods. ME Sharpe, 2015.
  • Hartman, Laura Pincus, Joseph R. DesJardins, and Chris MacDonald. 2013. Business ethics: Decision making for personal integrity and social responsibility. McGraw-Hill.
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