February 7, 2019

If the authorities accept that line of reasoning, they could demand additional safety measures and shutdowns across Minas Gerais, where Vale mines about half of its iron ore. Second, it faces still undetermined damages for the Samarco disaster, which could rise as a result of the latest tragedy. Third, Brazil’s top prosecutor has said she will pursue criminal charges against executives: three Vale employees and two contractors have been arrested. State authorities have quickly levelled fines against the company and frozen selected assets. Damages could soar. Fourth is morale. Vale’s employees will mourn the loss of their colleagues, damaging motivation. Executives will be so worried about yet another accident that they lose their appetite for risk. The more listless the company, the more likely financial performance will suffer.

This leads to a bigger question about Vale’s future. Does the scale of the twin disasters threaten it with the sort of fines, lawsuits and damage to its reputation that BP, a British oil company, incurred after the Deepwater Horizon disaster in the Gulf of Mexico in 2010? The total bill for BP came to more than $60bn. There are four reasons to take potential Armageddon seriously. Since the disaster angry Brazilians have noted that, under Mr Schvartsman, Vale offered generous dividends and share buy-backs to investors, helping its share price double since he took over in 2017. They say some of the money should have been spent on safety instead.

February 7, 2019
The Economist

Do the disasters threaten Vale “with the sort of fines, lawsuits and damage to its reputation that BP… incurred after the Deepwater Horizon disaster?”

Reputation risk is the peril of economic damage from angry disappointed stakeholders.

Reputation risks, often mislabeled “brand risks”⏤ need to be managed, and management needs to be overseen through reputation risk governance lest reputational damage or reputational harm result in long-tailed go-forward losses in economic value and/or political power. Because these intangible risks arise from the interplay of stakeholder expectation, experiences, and media amplification, parametric insurances for intangible asset risks, for reputational value, for reputational harm, and for reputation assurance help mitigate risk by telling a simple, convincing and completely credible story of quality reputation governance to stakeholders. This story telling effect is the expressive power of insurance complementing insurance’s better known instrumental power of indemnification.

Risk management, risk financing in insurance captives, and risk transfer through reputation insurances comprise the constituent elements of a comprehensive solution. What’s your strategy?