Four of the five largest diversified mining companies in the world will change CEOs this year. Many of the other large players in the industry go through a similar transition. Why do the boards of these companies want to see a change at the top now?
The typical tenure for a CEO at a listed company is five to eight years. The common wisdom is that, as industries go through cycles and as companies experience phases of development, a new leader will bring the change of vision and change of management style required to keep a company agile. Each leadership transition brings a break of continuity, which might temporarily reduce effectiveness and efficiency of decision making, but which also helps to not get stuck in bad habits and which prevents the leadership from running out of good plans. Looking at the outgoing cohort of the industry’s high-profile CEOs, three out of the five have indeed been at their position for a period between five and eight years, with the other two, Mick Davis at Xstrata and Roger Agnelli at Vale, leading their companies for a longer period.
The specific situation and performance of each company drives the timing of executive changes and the profile of the new CEO the shareholders want to see:
A key driver of the replacement of Vale’s Roger Agnelli by Murilo Ferreira in 2011 was the fact that the Brazilian government and recently elected president Rousseff wanted to strengthen their grip on the company, which had developed into a global player during Agnelli’s reign, with various resulting conflicts between company and government.
The departure of Mick Davis as CEO of Xstrata is fully driven by the merger of the company with Glencore. Although initially Davis was announced as the future CEO of the merged company, these plans were changed when Glencore had to increase its offer for Xstrata. Glencore’s CEO Ivan Glasenberg will take the leading role of GlenStrata instead.
The exit of Tom Albanese of Rio Tinto, Cynthia Carroll of Anglo American and Marius Kloppers of BHP Billiton all has something to do with less than fortunate choices during their period as CEO. Especially the high price paid in various acquisitions has destroyed a lot of value for the shareholders of their companies.
However, none of these departures can be seen as a total loss of confidence in their capabilities by their boards.
Albanese’s replacement at the top of Rio Tinto this month might be the most surprising for its timing. However, the fact that his two most important acquisitions, Alcan and Riversdale, did not work out as planned was no surprise. His replacement by Sam Walsh, the chief of the company’s iron ore business, was a safe and easy choice.
Around Carroll’s departure at Anglo American the underperformance of the company versus peers has been highlighted. However, many analysts praise Carroll’s work and think the underperformance could have been much worse without her. The trouble in getting the Minas Rio project in Brazil on steam and the issues in the South African industry might have been more important triggers to look for a new leader. The new CEO, Mark Cutifani, built the experience and respect in the South African industry as CEO of AngloGold to help Anglo manage this situation, with the additional benefit of not being South African himself.
Kloppers’ exit at BHP Billiton appears to be carefully planned. It is hard to blame the CEO for the failure of attempts of acquisition of PotashCorp, Rio Tinto and the failed Pilbara Joint Venture. The new CEO, Andrew Mackenzie, brings a lot of experience in the oil and gas business, where Kloppers made his largest mistakes by acquiring gas assets at the top of the market.
Getting in someone with a fresh vision and closing chapters from the past are important drivers of executive appointments, but the larger economic picture plays an important role too. Probably the most important factor in the timing of CEO-transitions at this point is the change in industry outlook. The old batch of CEOs started their job in the boom period before the financial crisis, guiding companies that were frantically looking for growth opportunities. Then these same leaders had to steer their companies through the highly volatile environment of the global financial crisis and the debt crisis. This year the outlook of the industry is likely to stabilize to some extent, making it important for the world’s leading natural resource companies to chart a new course for a lower growth era. Just the right time to have a new visionary leader take the helm.
The focus of the CEO position is likely to shift somewhat from growth and crisis management to operational delivery. The new CEOs will have to care about the details of the operations and appear to be selected with this requirement in mind, all having serious tenure in the industry. Time will tell which of the new CEOs will manage to navigate his company best through this new phase of the industry.
By Wilfred Visser
Wilfred Visser is the author of theBusinessofMining.com, a mining business blog bringing together the technical and the business sides of the mining industry. He works in the M&A group of a mining company included in the S&P500 and has a background in strategy consulting. Wilfred holds both a MSc. Mining Engineering from Delft University of Technology and an MBA degree from a top-tier business school.