A War of Words or a War of Worlds: Brazilian Vale versus North American USWA – by Kim T. Morris (Part 1 of 3)

Kim Morris won third place in the 2011 Arthur W. Page Society and Institute for Public Relations case study competition – business school category.

Her case study entry was on the Vale Sudbury year long strike – A War of Words or a War of Worlds: Brazilian Vale versus North American USWA.  She  is a senior adviser of communications and public affairs at the North East Community Care Access Centre.

Final Case Study

Abstract

In July 2009, USWA Local 6500, the union representing the employees of Vale’s Sudbury operations went on strike. This was to become the longest and most acrimonious strike in Sudbury mining history. Both sides in the dispute were responsible for less than flattering behavior, including leaking of documents, bullying, making racist comments, and even criminal activity. The final result of this strike is a community that has lost respect for both organizations.

This case study offers an opportunity to study how actions taken during a strike impact on the reputation of both parties. It also highlights the communication breakdown between not only both parties but also with their key stakeholders.

Overview

“We are very happy with the results of the ratification vote. The agreement establishes a newworking relationship with our employees and the union and allows us to move forward with our long-term, sustainable growth plans. We look forward to returning to normal production andbuilding the future together with employees.”

Tito Martins, Vale’s Executive Director for Base Metals
Vale news release, July 9, 2010 [1]

In its heyday, Inco was one of the largest and most prosperous mining companies in Canada and, for a time, the world’s largest producer of nickel2. Inco had a strong presence in the community of Sudbury, in North Eastern Ontario. In fact, its Sudbury operations were a large piece, if not the largest, of Inco’s success.

In 2006, Brazil’s Companhia Vale do Rio Doce, now known simply as Vale, bought Inco for about $19.3 billion. Today, Vale is the second-largest mining company in the world with operations in 35 countries and over 100,000 employees on its payroll [3]. Vale is the largest private sector company in South America with a market capitalization of around US$ 150 billion and more than 500,000 shareholders on all continents [4]. Vale’s Sudbury operation represents 3-5% of its total operations.

On July 13, 2009, the United Steelworkers of America (USWA) Local 6500, the union representing the employees of Vale’s Sudbury operations, went on strike. This was to become the longest strike in Sudbury’s history. It was also a bitter battle. Vale and USWA Local 6500 both lost not only money, but also credibility and respect due to several strategies and decisions made by both parties during the almost year long labor dispute.

Companhia Vale do Rio Doce

Companhia Vale do Rio Doce or CVRD was founded in Itabira, Minas Gerais, as a public company by the Brazilian Federal Government on June 1, 1942. In May 1997, Vale had its control transferred from the Brazilian Federal Government to the private sector [4].

Through the first 100 years of mining in Sudbury, the location of the world’s largest nickel deposit ever discovered, International Nickel Limited, better known as Inco, was the North American company that brought its nickel to the rest of the world5. In October 2006, Vale acquired Inco, by now Canada’s second largest mining company, for $18.9 billion, paying Inco’s shareholders $17.7 billion in cash and absorbing Inco’s debt of $1.2 billion. This purchase was the largest acquisition ever made by a Brazilian company. The new company was to be called CVRD Inco.

For CVRD Inco, the acquisition of Inco was the most remarkable event of its
diversification strategy because it turned the company into the world’s second largest mining company and the world’s second largest nickel producer behind Russia. In May 2010, CVRD Inco announced a name change: in order to align the company’s Sudbury division with its other operations worldwide, the company would simply be called Vale [6].

Today, Vale is the second largest diversified metals and mining company in the world, the world’s largest producer of iron ore, and the world’s second largest producer of nickel. Vale also produces manganese, ferroalloys, thermal and coking coal, bauxite, alumina, aluminum, copper, cobalt, platinum group metals, potash and kaolin. Vale is the largest private sector company in Latin America with a market capitalization of around US$ 150 billion and more than 500,000 shareholders on all continents [6].

Vale also prides itself on its social and environmentally responsible practices in the communities where it does business. Sustainable development is at the forefront of many socially responsible activities and Vale invests heavily in different projects and activities in the countries where it is present. In its 2009 Sustainability Report, Vale highlights some of these activities, such as the Brazil Vale Ouro (Brazil is Worth Gold) to support Brazilian athletes as well as different housing and infrastructure projects. Vale is also proud to say that 95% of its employees are covered by collective bargaining agreements, which meet or even exceed legal requirements [7].

Vale’s strength is evident in different performance metrics: in 2006, Vale placed 176th on Forbes’ list of The World’s Most Reputable Companies with a score of 68.35. In 2009, it ranked 28th with a score of 78.18. In addition, for the second quarter of fiscal 2010, Vale reported excellent results with net earnings increasing to $3,705 million from $790 million in the corresponding quarter of 2009 and $1,604 million during the previous quarter. Net operating revenues stretched 45.0 % year over year to $9,930 million from $5,084 million in the second quarter of 2009 and $6,848 million in the previous quarter [8].
Any comparison of Vale’s operations in Sudbury and Vale elsewhere in the world is difficult, if not impossible. Most of Vale’s other mining operations are open pits, worked by relatively unskilled employees. In Sudbury, mine shafts descend to a depth of two kilometers from the surface. In addition, most of the work is now done by sophisticated machinery, and many of the hard-rock miners are technicians who need specific certifications and postsecondary education in order to do their work [9].

Sudbury – a thriving mining town

“We’ll think no more of Inco on a Sudbury Saturday Night”

Stompin’ Tom Connors
“Sudbury Saturday Night”
Inspired by Sudbury and its hard rock mining image [10]

The City of Greater Sudbury of 2010 is very different from the small francophone settlement first known as Ste Anne des Pins in the late 1800s. The original town served as a transportation hub and commercial centre for different mining camps in North Eastern Ontario as well as farming communities that surrounded it. It was during the 1883 construction of the Canadian Pacific Railway that history was made when blasting revealed high concentrations of nickel-copper ore on the edge of the Sudbury Basin. Sudbury was born officially in 1893, moving quickly from a town to a city. From that time forward, Sudbury`s economy followed regular boom and bust cycles, in tandem with the rise and fall of nickel prices and demand[11].

Another challenge for Sudbury, also directly related to the mining industry, has been periodic labor unrest. In April 1944, the city’s mine workers were unionized for the first time with the Mine, Mill and Smelter Workers Local 598. The first strike occurred in 1958 – the first of many to come. In an effort that took several years, the United Steelworkers won the right to unionize Inco workers.

In 1978, Inco workers embarked on a strike over production and employment cutbacks. The longest strike to date at the time lasted for nine full months. Sudbury’s economy was so badly damaged that city leaders decided to launch a diversification drive so that Sudbury would no longer be at the mercy of the mines. Through an aggressive strategy, the city tried to attract new employers and industries through the 1980s and 1990s.

This strategy has proved successful for Sudbury. While mining remains an important industry, it is no longer the largest sector. Sudbury has distinguished itself as an economic force in the North East as a centre of commerce, education, government, health care, tourism, and science and technology research. An extensive and internationally recognized re-greening effort in the late 1970s has also paid off and Sudbury is now a major tourist attraction, providing entertainment and leisure activities for locals and tourists from afar. Today, Vale employees account for less than five per cent of the city’s workforce, compared to 25 per cent or more in the 1970s. The 2009-2010 strike had a much more modest effect on the city’s economy than the 1978 strike; in fact, the local rate of unemployment declined slightly during the strike [11].

The longest strike in Sudbury and Inco history

With Inco as the employer, the USWA Local 6500 went on strike in 1966, 1969, 1975, and 1978-79, 1982, 1997, 2003. The longest strike was in 1978-79: 261 days [12].

Vale as an employer has had one strike, 20 years ago, when the company was still state-owned [13].

Impact on Vale’s reputation: local, national and international

On July 13, 2009, the USWA Local 6500, the union representing the employees of Vale’s Sudbury operations, went on strike. The key issues involved company demands to cut costs in order to remain competitive in all business cycles. They hoped to accomplish this by reducing the potential payouts of a bonus incentive program; altering pension plans; limiting transfer rights; and giving management more flexibility in contracting out [14].
From the start, it became evident that this strike was going to be different. A few months into the strike, Vale decided to hire replacement workers to continue operations, the first time Inco/Vale mines had resumed operations during a labor dispute in over 50 years of union representation [15]. This unprecedented move infuriated the strikers and caused relations to deteriorate between the union and the company.

“I don’t think they care about people. There’s nothing but hostility and hatred over there towards their workers. For them, it’s all about exerting power and wealth wherever they operate in the world.” Wayne Fraser, USWA Ontario and Atlantic director [15].

Vale was losing about $7 million a day in production. Still the company proceeded to hire extra security for its mines and other operations, as well as surveillance equipment to monitor the picket lines [16]. The company also brought the union to court several times for alleged picket line protocol violations [17]. One of the most controversial issues occurred when Vale fired 9 workers for various offences, ranging from alleged property damage to threats involving picket line activity, and assault. Indeed, this issue became the major stumbling block in arriving at a negotiated settlement for the last few months of the strike [18].

An unexpected blow to the company’s reputation came in January 2010 from the trade magazine Metal Bulletin. Regarded by some as the bible of the metals industry, the magazine bluntly described Vale’s hard line as an attempt to break the union [19].

In April 2010, another historic event occurred. The First International Meeting of People Affected by Vale took place in Rio de Janeiro, gathering approximately 160 people from over 100 organizations, unions, social movements and communities in 13 countries and nine states in Brazil who had been negatively affected by Vale operations [20].

They had a dossier of complaints and alleged violations of social and environmental impacts caused by Vale projects in eight countries, which they delivered to the United Nations as well as to a Shareholders of Vale General Meeting. The group, of which USWA 6500 is an active member, alleged that Vale’s profits are gained at the cost of massive exploitation of natural resources, and by creating precarious work conditions for its labor force [21].

When a deal was announced on July 8, 2010 between USWA Local 6500 and Vale, there was no celebration in Sudbury. Many workers felt that given the lack of significant progress from the first to final offer, they had lost a year’s wages for nothing. The union leadership indicated publicly that this was the best deal they could negotiate with the company without the strike going on for many more months. In a July 10, 2010 Sudbury Star article, one union member was quoted as saying “Nobody voted for that contract. They voted to go back to work.” [22]

For Part (2 of 3), go to next posting: http://www.republicofmining.com/2011/04/15/a-war-of-words-or-a-war-of-worlds-brazilian-vale-versus-north-american-uswa-%e2%80%93-by-kim-t-morris-part-2-of-3/

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