THE fire at the warehouse of chemicals company UPL in Durban has created an environmental disaster whose scale is still not clear and has put the company into the headlines for all the wrong reasons.
While the facts are not yet confirmed, it’s clear that the incident holds many lessons for directors and regulators across all industry sectors, according to Advocate Fay Mukaddam, Chartered Director and Technical Advisor at the Institute of Directors in South Africa (IoDSA).
“When something on this scale happens, those who are accountable need to take a hard look at what went wrong. Perhaps even more important, though, corporate and government leaders everywhere need to tease out what the lessons are and have the humility to see what they can learn.
“Directors, in particular, bear the ultimate accountability for anything that happens to their organisation, and so should be looking at this disaster very carefully. There are key lessons we should all take to heart,” she said, going on to discuss several of them.
What does leadership actually entail? Organisations need to understand the impact they have, or could have, on the economy and society, and thus what being an ethical and effective corporate citizen means. In this instance, it seems clear that there simply wasn’t a deep enough examination of the stakeholder universe, and what that meant for its business strategy.
At a broader level, both directors and regulators need to consider what leadership means in the context of being a good corporate citizen, she said, noting that King IV pairs ethics and effectiveness when defining leadership, which should be informed by integrity, competence, responsibility, accountability, fairness and transparency (iCRAFT).
Does the board and executive team understand the reputational issues? A company’s reputation can be destroyed in an instant, not so much by a catastrophe but by how the company responds to it—with considerable impact on its bottom line.
“The temptation to take a short-term view and play one’s cards too close to one’s chest will have long-term consequences,” she said. “To drive sustainability, directors must move from a short-term to a long-term value creation view.”
A related issue here is that of crisis communications. How well a company survives a disaster is intimately connected to how well it communicates as events unfold. It seems clear, Mukaddam said, that neither UPL nor the regulator or other parties concerned had an effective crisis communication strategy, leaving an exceptionally broad body of stakeholders largely in the dark about something that could have severe health and environmental ramifications.
Is your risk management up to scratch? For UPL’s directors, a big question has to be whether this risk was foreseeable. One might perhaps argue that social unrest on such a scale was unforeseeable, but even that is highly debatable given the facts of South African life. But there’s no doubt that a catastrophic event (no matter its nature) should have been foreseen, and contingency plans put in place. All directors should be subjecting their risk strategies to minute scrutiny. Do you have mitigation strategies in place should the unthinkable happen?
She said the company’s response was “hugely disappointing from a board leadership perspective,” describing it as a “retreat into a laager, with both company and regulator clearly reluctant to give out any information lest, it seems, they admit liability”.
This gives “the impression that lawyers and insurers are leading the conversation whereas the best interests of those affected should be at the forefront. A constructive and stakeholder inclusive approach that brought together all role-players to fast-track ways to fix the problem would have been infinitely preferable—and would have paid off in the long term.
“In a situation like this, we all want individuals to step forward and take responsibility for putting things right, not to resort to the smokescreen of legalese.”
Mukaddam said the firefighters were casualties of this legalistic approach as they appear to have not been given information about the nature of the chemicals in store, with potentially grave consequences for their own health and safety. This information would have also ensured that the way they fought the fire could have been adjusted to reduce the risk of widespread contamination.
The broader public also was deprived of potentially important information about the health risks it faced as the fire blazed and the contamination spread.
“Directors and regulators alike need to be looking at the UPL disaster to see what they can learn, and at a minimum, I would hope that they are stress-testing their own contingency plans.”