Governance and Leadership of Project Management - Case Study Example

A Description and an Evaluation of the Project Governance Structures and Leadership Approaches Currently Adopted by Samarco Introduction Samarco is a mining company whose headquarters are in Brazil. The company is equally co-owned by BHP Billiton – an Anglo-Australian company, and Vale S.A. – a Brazilian company (Samarco 2016). Samarco’s main operations revolve around iron ore mining, processing and turning the ore into pellets, which are then shipped to the market (Samarco 2014, para.1). Samarco extracts the ore from open pits and places it on a conveyor system, which takes the raw material to concentrators for processing. In the concentrators, the iron ore is crushed, ground, de-slimed, and taken through a floatation process where its chemical and physical specifications are adjusted and the product turned into slurry. Iron ore content is then separated from the slurry and transported through pipelines. Next, the iron ore slurry is filtered and the necessary products added to it for strengthening. In the end, finished iron ore pellets are obtained and shipped to different customers in the worldwide market (Samarco 2014, para. 5). During separation, other by-products realised include waste rock and tailings, which Samarco stores in dams or dumps that are controlled and monitored constantly to ensure that they meet particular environmental legislation. The collapse of one such dam in Brazil led to an environmental crisis, which affected the Doce River (Rio Doce). A project to rehabilitate the river for purposes of recompensing the communities and restoring the environment to its pre-disaster state was launched and is still ongoing at the time of writing this paper. This paper discusses the project governance structures starting from the board level and portfolio and programme management. Moreover, the paper links projects and corporate strategies, and also looks at governance of individual projects particularly the management of the River Doce recovery project in the aftermath of the 2015 Fundao dam collapse. The paper will also evaluate the leadership offered by the management of Samarco in the project as well as the company’s relationship with stakeholders. Board level The board of directors at Samarco has an advisory committee structure that advises the board in regard to six main areas namely strategy, finance, remuneration, remediation, legal issues and audit and compliance. Three of the six committees are also subordinated by three subcommittees each. The strategy committee, for instance, receives advice for the business and continuity; risk management; and the communication/stakeholder management subcommittees. On its part, the remediation committee receives advice from three sub-committees namely the infrastructure, environment, and social-economic assistance subcommittees. The finance department is subordinated by the accounting, insurance and treasury and tax subcommittees (see figure 1). Figure 1: The corporate governance structure at Samarco Source: Samarco (2016) Samarco appears to have adopted a team production approach, which conceptualises a firm as a connection of team-specific assets. According to Gabrielsson, Huse and Minichill (2007, p. 23), when the team production approach is used to understand the leadership of boards in the corporate environment, it highlights the contribution made by a sum of separate outputs. Such include information, knowledge and skills. In other words, the team production approach acknowledges that working in teams may enable the board to attain greater productivity since different team members (in Samarco’s context the committees and sub-committees) complement each other. As Kaufman and Englander (2005, p. 10) further observe, the team production approach gives emphasis to stakeholders’ representation by the boards. As a result, any indication of risk or strategic information that could add value to an organisation is easily detected or unearthed. Portfolio and programme management After the collapse of the Fundão dam, Samarco embarked on several programmes. One such programme was to investigate the reasons that contributed to the failure and recommend best practice going forward while another sought to rehabilitate Rio Doce. In a news release by BHP Billiton (2016a, para. 2), it was revealed that rather than handle the two projects internally, Samarco had opted to commission external consultants for the job. Notably, the Fundão dam collapse painted Samarco in bad light as far as dam construction and risk management practices were concerned. Therefore, to redeem the company’s image, the right projects for post-disaster management had to be commissioned, particularly because of the cross-project dependencies, issues, solutions, risks and requirements in all the dams that Samarco had. In theory, a project is a temporary undertaking that is meant to create particular results, services or products (PMBOK Guide 2013, p. 15). A programme on the other hand is more diverse and may include several interrelated projects meant to achieve the same objectives. Investigating the dam collapse as a strategy for providing details that would also inform future project management decisions as well as the rehabilitation of the Rio Doce are, for example, processes under the same programme since they are meant to achieve particular objectives which are of strategic importance to the firm. On its part, a portfolio contains several programmes or projects that may be related or non-related and which are managed together (PMBOK Guide 2013, p. 17). Of the three, portfolio management has the biggest scope, while project management has the smallest scope. At Samarco for instance, portfolio management is handled as a centralised function, where the management identifies, gives priority and authorises different projects and/or programmes depending on their level of importance and contribution to the organisation’s programmes (BHP Billiton 2016a, para. 5). Samarco’s portfolio management in the aftermath of the Fundão dam incident included the confirmation of the structural integrity of all dams, processes that include a review of the designs, construction and operations of all dams and the rehabilitation of the river including regular water testing and treatment of sediments (BHP Billiton 2016a, para. 7). To successfully do the reviews, Samarco relied on in-house expertise as well as externally sourced specialists. In literature, it has been argued that portfolio management can be perceived as a platform for bargaining and negotiating as a firm tries to make rational decisions and structural reconfigurations (Martinsuo 2013, p. 795). As a result, a firm gets new insight and perspectives on the dilemmas it may face and is therefore able to resolve them, hence the success of portfolio management (Martinsuo 2013, p. 795). In the end, it appears that the Samarco was able to get new insight that enabled the company to manage the crisis following the 2015 dam collapse in regard to operations and perceptions relatively well. It can be argued that sourcing expert input from both internal and external sources enabled Samarco to have an optimal mix of resources, which have enabled the firm to choose and prioritise different activities in its attempt to rehabilitate Rio Doce. However, as Meskendahl (2010, p. 808) observes, the success of portfolio management is not based entirely on the selection and prioritisation of projects and programmes. Instead, it should be based on determining whether the right decisions were made when identifying the projects and programmes and whether such action has contributed to business success. Notably, BHP Billiton has reportedly lost millions of dollars as a result of compensations and damages as well as river rehabilitation activities after the Fundão dam incident. Therefore, it can be said that the short-term outcome of portfolio management at Samarco, particularly in relation to post-disaster management, has not been successful. Whether the portfolio management will lead to business success in future is a matter that can only be speculated upon, particularly considering that not much business and risk forecasting has been done. Linking of project and corporate strategies According to Dinsmore and Cooke-Davis (2006, p. 27), organisations use projects to accomplish “their strategic intent through business change”. Moreover, some organisations also use projects to deliver profitability to the shareholders, and bring beneficial change that benefits not only the shareholder but also the stakeholders at large. For Samarco, the main shareholders are BHP Billiton and Vale. The stakeholders of the company, on the other hand, include governments and communities as well as employees of the company and the customers of the iron ore supplies provided by the company. Ideally, all projects initiated by a company should generate corporate value as a way of contributing to the corporate strategy (Dinsmore & Cooke-Davis 2006, p. 28). Maylor (2010, p. 50) further argues that the vision that a firm has acts as the anchor to the firm’s corporate strategy, and as illustrated in figure 2 below, the project portfolio, programme and projects are then done based on the likelihood that they have to contribute to the vision that a firm has. Figure 2: Linking corporate vision to tasks Source: Maylor (2010, p. 51). Used in context, Samarco’s vision is perhaps best espoused in its mission and values, which suggest that the firm seeks to enhance its iron ore production and supply through the optimal use of natural resource for purposes of generating social and economic development, while respecting the environment. Arguably, the firm has already failed in one of its objectives to respect the environment (albeit in an accidental incident) and the Rio Doce recovery project is an attempt to accomplish the missed objective. According to Samarco (2015, para. 4), some of the actions that the company took included working with communities to rescue fish from the contaminated river and transferring them to other water bodies in the region. An additional way that Samarco is living up to its objective (which is part of its larger vision to utilise the earth’s resources for social economic development) is by cleaning waterways as part of its post-disaster management project (Samarco 2015, para. 4). By the very nature of the Doce River recovery project, the key committees that were mainly involved include the strategy and remediation committees (see illustration of the link to strategy in figure 1). The strategy committee has a vital role because it advises the Samarco board on such issues as disaster management (including post-disaster management); stakeholder management and communication; and business continuity. On the other hand, the remediation committee advises the board on such issues as environment, infrastructure and socio-economic interventions. As is evident from the project however, Samarco realised that its internal capacity to independently handle the Doce River recovery project was limited and as a result, the company hired external help. In the end, one can argue that the firm still managed to link its project to corporate strategy because as Vale (2016, para. 15) indicates, the water quality in the river has been tested and the results show that it has returned to its pre-disaster state. Moreover, the company provides water to the affected areas, which relied on the Doce River. The company also succeeded in rescuing most of the flora and fauna that had survived the accident (Vale 2016, para. 17). Governance of individual projects In literature, project governance is defined as the combination of processes, principles and structures, which are used in the management of projects (Ahola et al. 2014, p. 1324). A different definition offered by Muller (2011, p. 87) argues that project governance also includes the policies, responsibilities and value systems that work together to enable a project achieve particular objectives as envisaged by an organisation. Governance sets restrictions in a project by identifying the project objectives, enabling the achievement of the objectives, and controlling the progress of the project (Muller 2011, p. 87). Evidently, Samarco’s governance of the Doce River recovery project can be regarded as effective considering that the firm provided the resources needed to work on the project. As well, the company sought input from different stakeholders including government institutions, environmentalists, communities and consultants who had diverse knowledge on different aspects of the project. Notably, there is an established governance hierarchy for projects at Samarco, which includes the board at the apex, the different committees and subcommittees as identified in figure 1, and the portfolio and programme managers in that order. As indicated by Wood and Stapledon (2016, p. 15), a foundation for handling all programmes and projects related to handling the aftermath of the Fundão Dam accident would be set up, and its different interventions validated by the relevant committees in Samarco’s corporate governance structure. Conceivably, Samarco has done well in defining the objectives of the project and providing the resources needed to make the project a success as indicated by Wood and Stapledon (2016, pp. 13-14). However, it is not too obvious what the organisation is doing to control the progress of the project considering the diversity of the stakeholders involved in the process. Leadership According to the International Project Management Association (IPMA) (2016, para. 4), leadership in project management is essential because it promotes the objectives of the project by empowering the human resource; encouraging them; supporting effective teamwork; and encouraging the development of positive relationships. Although it is not immediately clear who the individual leader of the Doce River rehabilitation project is, it is clear from the information provided by BHP Billiton (2016b, para. 4) that the project is an initiative pioneered and led by Samarco with the support of its shareholders – i.e. BHP Billiton and Vale. The rehabilitation of the river is just one project under a framework agreement that has 41 environmental and socioeconomic programmes intended to offer restorative justice to the affected communities and the environment (BHP Billiton 2016b, para. 4). In theory, it is indicated that the critical qualities of a successful project leader include team building; good relationship management; organisation, self-confidence; openness; and a clear definition of project success, which acts as the basis for future evaluation and re-strategising (DuBois et al. 2015, p. 30). Samarco’s management is seemingly open and self-confident, and appreciates input from different stakeholders. Therefore, the company’s leadership on the project can be deemed to be relatively effective. Relationship with stakeholders Relationship with stakeholders only occurs when a firm has succeeded in identifying, managing and engaging the stakeholders (Walker, Shelley & Boume 2008, p. 1). According to Watt (2012, para. 2), stakeholders are the individuals or entities that care about or have an interest in a project. The project sponsor (in this case Samarco) is a stakeholder, and so are the company’s shareholders (Vale and BHP Billiton), customers, suppliers, and even the government. Internal to an organisation, the project manager, project teams, and departments are also stakeholders. Notably, relating well with the stakeholders is essential for project success (Watt 2012, para. 2). At Samarco, it is somewhat evident that the project management team understood the necessity of engaging well with different stakeholders. Immediate engagement with the Brazilian government, environmental bodies, communities, as well as the consultant who was commissioned to work on the project unquestionably created the necessary infrastructure for Samarco to base its project. Engaging the company’s shareholders – i.e. BHP Billiton and Vale undoubtedly enabled Samarco to have the financial support needed to finance the project. Finally, an engagement with the consultant who is managing the Rio Doce rehabilitation project possibly ensures that the project’s aims, mission and purposes are progressing as initially envisaged and that they are in line with Samarco’s larger corporate strategy. Overall, therefore, it appears that the firm has an effective relationship with its stakeholders. Conclusion The governance and leadership of Samarco’s Rio Doce rehabilitation project is arguably not something that aligns with textbook cases that appear in literature. The rehabilitation project was made necessary by an accident in which Fundão dam collapsed and spilled iron ore and chemicals to the Doce River, occasioning harm to local populations and the flora and fauna whose life was supported by the river. Despite the unconventional nature of the project, however, it can be argued that Samarco has offered effective governance and leadership in the project, notwithstanding the pressures from different stakeholders. Notably, the corporate governance structure of Samarco has given guidance on who handles such projects when they occur, thus making it easy for the responsible committees and subcommittees to govern and lead the post-disaster project, which is meant to provide some form of restorative justice. References Ahola, T, Ruuska, I, Artto, K & Kujala, J 2014, ‘What is project governance and what are its origins?’ International Journal of Project Management, vol. 32, no. 8, pp. 1321-1332. BHP Billiton 2016a, Frequently asked questions (FAQ), viewed 9 October 2016, . BHP Billiton 2016b, Update: Samarco, viewed 9 October 2016, . Dinsmore, PC & Cooke-Davis, TJ 2006, The right projects dine right, Jossey-Bass, San Francisco, CA. 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Meskendahl, A 2010, ‘The influence of business strategy on project portfolio management and its success – a conceptual framework’, International Journal of Project Management, vol. 28, no. 8, pp. 807-817. Muller, R 2011, ‘Project governance’, CEPIS Upgrade, vol. xii, no. 5, pp. 87-90. PMBOK Guide 2013, A guide to the project management body of knowledge (PMBOK guide) 5th edn, Project Management Institute, Philadelphia. Samarco 2014, ‘Production process’, Annual Sustainability Report 2013, viewed 9 October 2016, < http://relatoweb.com.br/samarco/www/en/processo-produtivo.html>. Samarco 2015, What steps are being taken by the company to recover Doce River? Viewed 9 October 2016, . Samarco 2016, About corporate governance, viewed 9 October 2016, . Vale 2016, Samarco, viewed 9 October 2016, . Walker, D, Shelley, A & Boume, L 2008, ‘Influence, stakeholder mapping and visualisation, Construction Management and Economics, pp. 1-19. Watt, A 2012, Project management, viewed 9 October 2016, . Wood, I & Stapledon, G 2016, Samarco update, BHP Billiton, viewed 9 October 2016, . Read More