by Maria Eugenia Trombini, Mario Jorge Junior and Markus Pohlmann
It is not a new story. Yet it is still shocking. Dam breaks in the mining business happen from time to time, burying many people alive in a mudslide. In November 2015, a dam burst in the city of Mariana in the State of Minas Gerais, Brazil and the following mudslide caused the deaths of 19 people and massive environmental damage to the region. Three years later, in January 25th, 2019, around 130km from the first disaster, in the city of Brumadinho, tailings dam No. 1 at the Córrego do Feijão mine burst and a second disaster took place. Vale S.A, the world’s largest iron ore producer, owned both mines. But neither the billion-dollar penalty nor the safety regulation that became stricter deterred misconduct or guaranteed non-repetition. In 2019, the consequences were even deadlier. 246 people died with still 24 reported missing. However, this time, four months before the accident, the certification company TÜV Süd’s audit report mentioned a factor of safety of 1.09 and its engineers signed a stability declaration to Brazil’s National Mining Agency. Although best practices require a safety factor of at least 1.3 and, preferably, above 1.5, Vale was by that allowed to keep on mining. Their report already noted several draining deficiencies in the dam and according to the Prosecutor’s claims, both Vale and TÜV had long been aware of the risks and did not prevent the collapse from happening.
TÜV Süd dates back to a technical inspection association made up of German engineers and entrepreneurs to assess the safety of steam engines produced in the wake of the industrial revolution. Entities such as TÜV have operated regionally for many years, as non-profit-making monopolies. When Germany unified, it went through a process of liberalization. The certification market changed and the associations became joint-stock companies, free to expand internationally and generate more revenue. In the last 20 years, TÜV Süd has established itself in the Americas and Asia and now has more than 24,000 employees worldwide. The criticism behind this expansion is that striving for growth (the “norm”) has led TÜV to act “more as the external marketing department of companies than as the auditor.” Due to TÜV’s prominent position in the certification market, their seal carries weight, credibility and reputational value. Trustworthiness, impartiality and quality of analysis is their product, so attending to these values are the embedded corporate norm, as their own website states their seal is a “symbol of independent and impartial technical competence, constructing a relationship of trust between suppliers, customers and consumers.”
TÜV tested and certified
But the good old German TÜV label seems to be not as reliable as it was before the expansion of the company. In the past, the trustworthiness and quality of the TÜV certifications were repeatedly questioned by the German federal ministry, for example in the areas of nuclear energy, medical products and software safety. In 2008 the German federal ministry questioned TÜV Süd’s independence in auditing the nuclear power industry, as they were funded by a nuclear plant operator; in 2010 TÜV Süd was suspended from a UN program for giving a positive validation opinion to some projects even though it had concerns about fundamental prerequisites (conflict of interest); between 1997 and 2010, TÜV Rheinland certified the fabrication of breast implants which contained prohibited silicone gel and were convicted to pay damages worth three million Euros; since 2018, the Vivy app has been used by German doctors to save and share diagnostics, lab results and other private patient data. The app was tested and certified by TÜV Rheinland but soon after several security flaws were discovered.
TÜV Süd entered the Brazilian market by acquiring two national companies, the SFDK Laboratório de Análise de Produtos, in 2012, focused on auditing for the food, beverage, beauty and health sectors, and in 2013, Bureau de Projetos e Consultoria Ltda., which had been active since 1988 in the area of consulting engineering, in geotechnical and structural monitoring services, as well as infrastructure and mining projects, involving, for example, tailings dams. The former CEO of TÜV Süd Brasil, its board of directors and the employees are all Brazilian. They answer, however, to regional managers and report to the mother company’s representative. Without questioning the competence of national professionals, it is important to observe an important variable: the foreign quality seal, the normative and cognitive institutions that have shaped TÜV into what it is internationally were not automatically imported, because the company did not install operations in a void, but took advantage of an existing structure and absorbed employees and practices rooted locally.
The intersection of Vale and TÜV is set in a context that could be considered “rigged” or dysfunctional. The reputation and expectation of independence and impartiality is mediated by the institutional and sectorial context in which TÜV operates, which in the case of the mining sector in Brazil is, according to a report elaborated by the Federal Audit Court, concentrated, lacking in transparency and inspected by a body extremely susceptible to corruption and fraud. These elements, combined with the billionaire turnover of the segment, could offer a fertile scenario for organizational deviance. It is correct to assume that Vale S.A. exerts great influence where it operates. At the local level, in terms of economic power, the company’s activities moved around 300 million dollars, which supersedes the revenue of the city government at least six-fold. Revenue from the Financial Compensation for Mineral Exploration (CFEM) paid by Vale corresponded to 10.5% of Brumadinho’s revenue in 2017. Considering only direct jobs generated in the municipality, the mining sector accounted for 21%. At this level, socio-environmental and safety issues tend to fall on deaf ears.
The institutional context
This leads us to state and federal control agencies. Due to scarcity of resources and budget constraints, control agencies in Brazil such as the National Mining Agency (ANM) and the Environment State Foundation (FEAM), need to prioritize and delegate. Due to the lack of resources, however, the mining regulatory agency continues to depend on reports made by companies hired by the mining companies themselves. There isn’t enough technical staff to supervise activities and satisfy safety requirements at the expected level, so public authorities focus on the less stable structures that come to their knowledge, as demanded by the efficiency principle of administrative activity in Brazil. The middle ground solution in regulative terms was to outsource inspection to the inspected company, a design that could compromise oversight from the start. Vale, or any other mining company, would then hire their own independent external auditor, in the case at hand TÜV Süd, regardless of the contractual relationship already existing between the two companies.
The organizational context
It is often assumed that the competitive pressure on an organization translates itself into rules of interpretation and action of its personnel, which suggest the circumvention of obstructive or cumbersome formal rules. When actors of the TÜV Bureau had to select a course of action in regard to Vale in 2018, the company was not in a favorable place in terms of economic success. In the Group´s annual report, references to the “unsatisfactory development of business at individual subsidiaries in Brazil” alluded to the crisis among the segment. The number of employees of the TÜV Bureau dropped from 372 to 169 over the years.
Despite the reduction in headcount, the professionalization of the team, nonetheless, increased. The rate of graduate personnel went up in a consistent pattern from 2015 – 2017, a strategy to face the difficult times counting on the support of a few but qualified members. Interestingly enough, it seems that not only formal education, but also time in the organization became a criterion for the remaining team members if we look at tenure of the members investigated for having participated in the Brumadinho dam collapse.
Because the availability of socialization practices is associated with membership, job tenure is an indicator of organizational commitment. The distribution of employees in terms of seniority in both companies indicates that four out of five subjects had long tenure in the time of the events. Both companies shared a trait of high socialization among its employees that allow unwritten rules in the organization to be internalized and may establish the necessary personal trust for deviations. This is also supported by the fact that within and between the two companies an “inner circle” becomes recognizable, in which the personal confidence necessary for the deviations from the rules could arise. This “inner circle”, this subculture was further consolidated through joint activities and publications. The joint publications and investigations are a good indication of the well-established interaction between Vale and TÜV Süd, even outside the actual working relationships. In two cases it even happened that two persons had taken over contracts for both Vale and TÜV Süd: the first in the Cachoeira Mine and the second on the Itabiruçu Dam. Three employees of TÜV Süd together with two co-authors of Vale also carried out a scientific study. All five also looked into the stability of the dam in early 2019 and explored the question of who was responsible for the collapse. This close networking in an “inner circle” is another explanatory factor for why one was satisfied with a comparatively poor result when testing the stability of the dam.
To assess the receptivity of an organization to change one must bear in mind the conjunction of environmental conditions in its periphery and the asymmetrical interaction between entrants and veterans. First, TÜV Bureau´s reliance on the business partnership with Vale and pressure to perform discouraged turnover and advised commitment with an established course of action. When one of the project engineers stated “the un-drained tests are not yet passing (FS<1.30)” the geotechnical factor of safety (FoS) 1.30 was still the paradigm, only after the technical division discussed with the “Corporation”, as referred in the e-mails, the audited 1.09 factor become sufficient to attest stability.
Finding which calculation allowed inspectors to interpret the Brazilian regulation as not applicable to Brumadinho is beside the point when they went as far as to attest that exceeding the “error tolerance” limit of 1.0 would suffice for the stability declaration, aware that 1.0 is the failure threshold level. The weight of the mining company in setting the field was too heavy for TÜV to oppose in the given case; however, their imperative approach was mentioned as an obstacle to the overall credibility of safety services formulated in the question: “Whenever it doesn’t pass, Vale will involve another company, until they have a beneficial outcome for them?”
Despite personal acquaintance and pertinence to common networks within the enterprises and across them that could account for the opportunity structure of wrongdoing, no evidence of individual benefits has been identified so far. It might be that, consistent with what has been posited in other corporate crime studies, close social networks were unnecessary to circumvent formal controls and procedures once “organizational trust among the loyal employees served as a functional equivalent.”
The lawsuit against the certification enterprise was filed by Minas Gerais’ Public Prosecutor’s Office based on an anticorruption act that provides corporate liability when they obstruct the activities of the public administration. The prosecution charged TÜV SÜD as objectively responsible for its acts against a government authority. In May, the request was granted and a temporary restraining order issued, determining that 60 million reais ($15 million) of TÜV SÜD’s assets be frozen and its activities concerning dams and other environmental services in the Brazilian market suspended. With the support of documents accompanying the process indicating that the situation of the dam was critical in regard to the safety factor for liquefaction, arguments for the ruling established that: There is evidence that employees of TÜV Süd, at various hierarchical levels, aware of the critical nature of the project, articulated themselves to cover up the real situation of the dam that broke down, with the aim of maintaining contracts signed with Vale. The presiding judge acknowledged employees of TÜV acted not for personal gain, but in conformity with organizational goals.
However, the fundamental problem of lack of independence of the audit agencies remains persistent as long as the regulations of the Brazilian supervisory authorities do not move towards an independent, impartial security clearance. Until then there will always be dam collapses in the mining business.
ANM Decree n. 70.389/2017, on Dam Safety
Brazil Federal Constitution
Brazil – Law 6.938/81, Environment Nacional Policy
Brazil – Law 9.605/98, Environmental Crimes
Brazil – Law 12.529/2011, Antitrust
Brazil – Law 12.846/2013, Anticorruption
Brazil – Decree 6.514/2008, Environmental administrative sanctions
Brazil – Law n. 12.334/2010, Dam Safety
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