Corporate succession in sharp relief

Some of the most powerful business leaders in the world have been shown the door recently in changes that went down as smoothly as butter in a hot gun barrel. The contrast with the parliamentary Labor Party's latest leadership meltdown is stark and, perhaps, instructive: changing political leaders is harder because the process is less malleable, and less easily camouflaged when it becomes poisonous.

Some of the most powerful business leaders in the world have been shown the door recently in changes that went down as smoothly as butter in a hot gun barrel. The contrast with the parliamentary Labor Party's latest leadership meltdown is stark and, perhaps, instructive: changing political leaders is harder because the process is less malleable, and less easily camouflaged when it becomes poisonous.

There had been speculation that BHP Billiton chief executive Marius Kloppers' use-by date was up from at least August last year, when the group wrote $US2.8 billion off its $US20 billion shale gas excursion into the United States. There were, however, no signs before BHP's December half-year profit announcement on February 20 that the board had worked its way to a conclusion.

It had, and when BHP Billiton chairman Jac Nasser walked onto the stage that day with Kloppers and the new CEO-designate, Andrew Mackenzie, it was a veritable love-in. Kloppers said he could not think of anyone better to take over, and said one of his first acts as BHP's new chief executive in 2007 was to ring up Mackenzie and offer him a job.

Rio Tinto's beheading of its chief executive, Tom Albanese, in January was more rushed, coming as it did after something that was unexpected - a second, $US14.6 billion write-down of the disastrous $US38 billion Alcan acquisition that Albanese led in 2007 - and something that was genuinely shocking given Rio's resolve to stop impulse buying in the wake of the Alcan debacle: a $US2.9 billion post-tax write-down of a $US4.2 billion acquisition of the Mozambique coalminer, Riversdale, in 2011.

It was nevertheless a seamless change. Rio announced the write-downs, Albanese's departure and the appointment of the group's highly respected iron ore boss, Sam Walsh, as CEO in a single announcement. Walsh had been on the board since 2009, and he was immediately on-message, with promises to rein in costs and sell assets.

There are exceptions to the rule that large corporations manage their boardroom affairs and leadership changes discreetly. The board of Coles Myer waged war openly with board member and largest shareholder, Solomon Lew, in 2002, for example, and the board of NAB was in disarray in 2004 after the bank disclosed a $360 million loss on rogue currency trading.

Big corporations in the main keep their power struggles behind closed doors, however, and they do because they are simultaneously flagships for free enterprise and virtual dictatorships internally.

Board members are elected by shareholders and they ultimately answer to shareholders. But once a director is elected he or she is part of a unit that, in its specialised areas of responsibility, exercises almost untramelled power. The equivalent of the board for the Labor government is the 103-member parliamentary caucus: its members are also elected and judged at the polls, but it is much larger entity and much more difficult to control.

The tightly drawn company board selects the chief executive, and in the best corporations does so through a process that is led by the chairman, assisted by a nominations committee, guided by headhunters and built on largely generic succession planning architecture. Directors might differ among themselves about who should take over, but the tightly scripted process disciplines and contains the debate.

There is no risk of lateral interventions of the kind Simon Crean launched on Thursday, no self-nomination, no internal rules that can force a spill and, crucially, next to no chance that details will leak.

Corporate leadership decisions are also unanimous when they are finally taken by the tightly drawn director cadre. An abstention is about as far as a dissenting director will go, and the voting breakdown is never reported anyway.

Thursday's re-election of Julia Gillard as Prime Minister was also unanimous after Kevin Rudd decided against running, but that was an exception to the usual rule that leadership spills in Canberra make divisions and factions in leadership votes explicit.

The corporate succession process is also self-replicating, and self-reinforcing. New CEOs are told, for example, that one of their jobs is to create a deep pool of potential internal succession candidates: Kloppers put his call in to Mackenzie in 2007 after being told by BHP board member and former BHP CEO Paul Anderson that he needed to begin thinking straight away about who should eventually replace him.

Labor's leadership struggle reached shambolic proportions on Thursday. It felt a bit like a battle inside a car that had already gone off a cliff, to see who should get to hold the steering wheel. Political leadership changes will never be as tightly controlled as corporate ones. In the CEO succession business, company directors are the faceless, powerful men.

mmaiden@fairfaxmedia.com.au

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