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Management in Practice

How Can Companies Take Responsibility for Major Accidents?

The worst industrial accidents can take lives and leave toxic legacies that last for decades. What does it mean for a company to take responsibility for such a nightmare event? Naomi Hirose ’83, president of the Tokyo Electric Power Company (TEPCO), the operator of the Fukushima Daiichi nuclear power plant, discusses his company’s efforts since the 2011 tsunami and nuclear meltdown.

The worst industrial accidents turn into a sort of cultural shorthand that casts a lasting shadow over companies: Three-Mile Island, the Exxon Valdez, Rana Plaza, the Deepwater Horizon oil spill, Fukushima.

Handling disasters is complex. Firms must respond to the effects of the crisis on human life and the environment while demonstrating accountability within legal and social frameworks. At the same time, they must manage ongoing business operations and revive what may be a severely damaged brand.

A critical aspect of the response is to be seen as taking responsibility. Gita Johar of Columbia University’s Graduate School of Business, writes in the MIT Sloan Management Review, “Companies have to manage consumers’ attributions of blame, as well as their thoughts about the future of the brand, by providing them with a clear narrative that answers their questions about the crisis.”

Something as simple as an expression of regret can have a real impact. “Various studies suggest that apologies can prevent lawsuits from being filed altogether, and increase the likelihood and speed of settlement for those that do arise,” notes Jeff Helmreich, assistant professor of philosophy and law at the University of California Irvine, in the Cornell Journal of Law and Public Policy.

Failing to take responsibility can result in ongoing conflict. Three decades after a leak of poisonous gas at Union Carbide’s plant in Bhopal, India, there are still active protests. The effects of the accident linger, and many feel that the company was never held accountable. Last year, the New York Times wrote in an editorial:

It’s been called the worst industrial accident in history, and it’s not over. Thirty years ago, during the wee hours of Dec. 3, 1984, a catastrophic gas leak from a pesticide plant in Bhopal, India, killed at least 5,000 people, and sickened thousands more who later died or became permanently disabled. Up to 600,000 people were affected in all. Toxic pollution from the accident severely contaminated the soil and groundwater around the site, poisoning new generations who suffer from high rates of cancer, birth defects and developmental problems. The site needs to be cleaned up, but disputes over who should pay, and where and how the toxic waste should be disposed of, has led to tragic inaction.

After years of legal wrangling, Union Carbide eventually paid $470 million—far less than the $3.3 billion in damages sought by India—and acknowledged “moral responsibility.” But that settlement did little to settle the issue. Union Carbide, now part of Dow Chemical, continued to insist that the gas release was the result of sabotage. And India sought for years to prosecute Union Carbide’s chief executive, Warren Anderson, who died last year having avoided extradition.

BP’s initial response to the 2010 Deepwater Horizon spill, which killed 11 people and poured millions of gallons of oil into the Gulf of Mexico, was severely criticized for tone-deaf communication and attempts to hand off responsibility. The problem may have been compounded by the fact that the firm had been branding itself as “Beyond Petroleum,” highlighting its exploration of renewable energy and its commitment to corporate social responsibility (CSR).

Catherine Janssen, professor of marketing at the IESEG School of Management, noted in Business Horizons: “Given stakeholders’ higher expectations toward them, CSR companies need to realize that they will need to go above and beyond the established courses of action to resolve crisis situations effectively. Their responses to crises should be an exemplar of, and a demonstration that they live up to, their values.”

In July 2015, the company signed a tentative agreement to settle all remaining state and federal claims. BP put the total cost for the incident at $54 billion—a massive sum, but one that allowed the company to remove the uncertainty of pending legal action. “The company can now focus on future growth and moving on,” said Brian Gilvary, BP’s CFO, according to the Wall Street Journal.

In March 2011, a magnitude 9.0 earthquake hit Japan, followed by a tsunami that inundated the cooling systems of the Fukushima Daiichi nuclear power plant’s reactors, leading to a meltdown. It was the worst nuclear accident since Chernobyl in 1986. While no one died as a direct result of the accident, the surrounding area remains evacuated, and the technical challenges of containment and cleanup continue to stretch the capabilities of the plant’s operator, Tokyo Electric Power Company (TEPCO), and the nuclear industry.

Naomi Hirose ’83, TEPCO’s president since 2012, talked with Yale Insights about the company’s response to the incident. “A huge devastating accident took place, unfortunately,” Hirose says. “Even if a tsunami caused the accident, we are the operator of the Fukushima nuclear power plant and we do take responsibility.”

For TEPCO, taking responsibility means compensating those impacted by the accident—in Japan, there is no cap on liability in such cases—as well as decontaminating and decommissioning the power plant. The government has provided loans to TEPCO for compensation, and the company expects to be paying back those loans for the next 20-50 years.

In order to meet those obligations, TEPCO must compete within the Japanese electric market, which is in the process of being deregulated. “To take responsibility for everything we did in Fukushima costs a lot of money,” Hirose said. “In order to take responsibility in Fukushima we need to be competitive and earn a lot of money.”