BHP: the big (semi-)Australian

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This was published 14 years ago

BHP: the big (semi-)Australian

By Stephen Mayne

Out-going BHP-Billiton chairman Don Argus has had a big couple of weeks.

On Australia Day, the forceful man known as ''Don't Argue'' was revealed as the only business figure to trade up in the gong stakes from an AO to the top division - the treasured AC.

This correspondent has previously criticised several AC awards to business figures and there is also much to dispute in awarding Don Argus Australia's highest honour.

As I mentioned on local ABC radio on Melbourne, Argus has been involved in more excessive CEO payouts than any other Australian, there was those millions of pallets lost whilst he chaired Brambles and the fact he left behind something of a mess (Homeside anyone?) at NAB which saw the bank slide from undisputed number one to a distant third behind CBA and Westpac.

There wasn't time to tell Aunty's listeners about the mess that also unfolded at wine giant Southcorp whilst he was a director, plus the fact that BHP shares would be north of $60 today if the Big Australian had remained independent of Billiton.

Argus did get some things right at BHP during his 11 years as chairman although arguably the most important move - going offshore to hire the high class American oil man Paul Anderson as CEO in late 1998 - was done whilst Jerry Ellis was still chairman.

Spinning off the two steel businesses also worked well, but there were major stuff-ups in delaying closure of the HBI plant, selling down the Queensland coal holdings to the Japanese for a pittance, paying far too much for Billiton, missing the acquisitions of MIM and North and then the great misadventure in nickel at Ravensthorpe, one of several dud projects brought into the fold with the 2001 Billiton merger.

All of this seems to get forgotten just because of China's super-charged growth and the effect this has had on commodity prices.

However, the greatest paradox of the Argus reign comes from comparing his patriotic words about national champions and the need to resist Chinese takeovers and his record in recruiting Australian CEOs and directors.

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No Australian company has ever had four expat CEOs in succession but that is what Argus has overseen at BHP in the form of Paul Anderson, Brian Gilbertson, Chip Goodyear and now Marius Kloppers. It seems the Australians just weren't good enough.

When Argus joined the BHP board in November 1996, he was one of 10 Australian directors who for the next couple of years made a mighty fine hash of things. There wasn't an expat or a foreign-based director to be seen in the Big Australian's board room.

This situation remained the same with the non-executive directors when Argus succeeded Jerry Ellis as chairman in early 1999, although by then American Paul Anderson was cleaning up the mess as CEO and Melbourne-based directors such as John Gough and Graeme McGregor had departed. Another Melbourne resident, BHP's first ever female director in Margaret Jackson, also quit in 2000 to become chair of Qantas.

Former CRA CEO John Ralph, a doyen of the mining industry who was actually born in Broken Hill, also retired in 2002 shortly after the 2001 Billiton merger which left this Melbourne-based behemoth with only two Melbourne-based directors - chairman Argus and another finance man in David Crawford, who is still showing no signs of leaving after an excessive 16 years on the board.

Malcolm Broomhead was the answer

As patriotic Don Argus completes his 11th year as a domineering BHP chairman and contemplates retirement, on Friday he did something for the first time - appoint a new Melbourne-based non-executive director in the form of Malcolm Broomhead.

It's only about a decade late. Broomhead was the first-rate CEO of North Ltd in 2000 when Rio Tinto and South African giant Anglo American went into a bidding war for the third major iron ore player in the Pilbara.

Rio ended up getting a steal for less than $5 billion and Broomhead promptly departed for Orica where he also performed magnificently. If Argus had played his cards right, BHP would have out-bid Rio for North and there wouldn't have been the need to then spend the next decade trying to buy its operations and everything else in Rio Tinto.

Similarly, with North on board there would have been even less need to do the Billiton deal and Paul Anderson could have solved his desire to return to America early by installing Broomhead as CEO of BHP.

Given that Argus is still hanging around as chairman in the hope his latest merger proposal with Rio Tinto's iron ore operations can be consummated shortly, it is worth contemplating how different the landscape would look today had BHP embraced Broomhead in 2000 rather than 2010.

Whilst Argus has a poor record in appointing Australians to top jobs, he's also struggled to get women into the boardrooms. His first five years as Brambles chair was with blokes only until Carolyn Kay joined in 2005.

And after Margaret Jackson retired in mid-2000, the BHP board room was an over-crowded male-only affair for five years until American Gail De Planque was recruited in 2005. At one stage straight after the Billiton merger it comprised 17 blokes.

As of today, BHP is back to no women on the board because Gail De Planque finished a five-year stint prematurely yesterday to commence medical treatment and her replacement, Carolyn Hewson, doesn't start until March 31.

The departure of former CEO Paul Anderson as a non-executive BHP-Billiton director, also effective yesterday, means that the power balance and corporate memory changes significantly. Argus will be leaving in the next few months to be replaced as chairman by his Michigan-based pal Jac Nasser, who has only served on the BHP board since June 2006.

Whilst Anderson clearly worked well with Argus, his departure is hardly a vote in confidence in the Jac Nasser-Marius Kloppers leadership combination, although the offer of a directorship at oil giant BP was obviously very attractive to Anderson.

The market is a little nervous that BHP-Billiton's capital discipline could be lost with Argus, but you need to remember he was the person who wanted to imperil the BHP balance sheet by merging with debt-laden Rio Tinto at the top of the market. That deal would have been even worse than the Billiton merger.

Some of the newspaper coverage on Saturday noted that with the latest board room changes, BHP-Billiton would finally have a majority of Australian directors - seven out of 12 - for the first time since 2002.

Unfortunately, the numbers don't stack up.

For starters, Malcolm Broomhead and Sydney-based Carolyn Hewson don't formally join for another two months. As of today, BHP-Billiton has 11 directors but only three of them - Argus, David Crawford and John Schubert _ grew up and still live in Australia.

It seems odd to include South African-born CEO Marius Kloppers just because he is a naturalised Australian.

And while incoming chairman Jac Nasser grew up in Australia, he was actually born in Lebanon and has lived more than half his life offshore, including continuously since 1993.

Remarkably, the BHP-Billiton directors didn't make it a condition of Nasser's ascension to the chair that he return from Michigan to live in Melbourne.

In hindsight, it is also surprising that then Treasurer Peter Costello didn't impose such a requirement in 2001 given that his approval of the Billiton merger was conditional on the company having its CEO and CFO based in Australia, as he explained in this fascinating Fairfax Media column last year.

Costello required a majority of board meetings to be held in Australia but remained silent on the question of board composition.

When Argus eventually retires and the two new Australians join the board, there will be five Australian-based directors and five of 12 you could genuinely classify as Australian when you include Nasser but exclude Kloppers.

When Argus first joined the BHP board in 1996 he described it as ''very inbred'' and later reflected that ''when I became chairman I was very determined that I wasn't going to get sucked into the local vortex here''.

This was a remarkable change from the Argus days as CEO of National Australia Bank for nine years in the 1990s.

Back then, the major pre-requisite for an invitation to join the NAB board seemed to be that you were the CEO of a major corporate customer. That was certainly the case with the likes CEOs turned NAB directors such as BHP's Brian Loton, Southcorp's Graham Kraehe, Shell's Peter Duncan, Woodside's Charles Allen, FH Fauldings' Ed Tweddell and Howard Smith's Ken Moss.

Whilst the new international and merit-based approach of Argus at BHP was refreshing in some respects, the downside of such an attitude was that BHP went for the last 12 years without appointing someone who lived in its home town of Melbourne. The chickens have now come to roost on the question of succession at the very top.

Surely Argus recognises the argument that it is always preferable to have your chairman live near the CEO and head office. He certainly claims it worked well for him at BHP. Indeed a number of companies such as Telstra, AMP, Brambles, Lend Lease, Southcorp, WMC, Babcock & Brown, Coles Myer, Commander Communications and Fairfax Media (publisher of this website) have gone through difficult patches over the past decade when led by an out-of-town chairman.

Argus has previously lamented the fact that Perth-based Michael Chaney wasn't able to succeed him as BHP-Billiton chairman, but the former Wesfarmers CEO instead picked up the chair at Woodside Petroleum and NAB after an 11-year stint with BHP.

Whilst the alternative candidate to succeed Argus as chairman of BHP-Billiton was Sydney-based John Schubert, he would have been a lot closer to the action than Jac Nasser in Michigan. The only other Melbourne-based alternative was David Crawford, but if Chaney was blocked from taking the BHP-Billiton chair on governance grounds having served 11 years, Crawford's 16 years of service was never going to fly.

Jac Nasser's three year term as global CEO of Ford wasn't exactly all smooth sailing, but he remains one of the most successful Australians in global business.

Whilst Nasser claims he will spend the same amount of time in BHP-Billiton's Lonsdale Street head office as Don Argus, he really should show that he truly covets the job by moving back home to Melbourne.

After all, once David Crawford eventually goes, BHP will only have one Melbourne-based non-executive director in the form of Malcolm Broomhead. There is no other major Australian company based so far away from its directors and this surely can't be good governance.

Come home Jac and then once Argus is gone, work on building up the Australian talent on the board to the majority position that it should always have been.

Given that a majority of BHP-Billiton's assets, profits and revenue come from Australia, it seems strange indeed that Argus had such an anti-Australian approach to board and management composition.

Not that the people who dish out Australia's gongs seem to have noticed.

, a shareholder activist and publisher of The Mayne Report, contributed this article to . He can be reached on stephen@maynereport.com.


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