Kloppers a casualty of new era of austerity
The global miners are turning their focus from expansion to keeping control of costs, writes Elizabeth Knight.
A senior BHP Billiton executive recounts a story about being ensconced in a meeting at the group's head office tower in Melbourne when the chief executive, Marius Kloppers, strode in, removed the phone pod used for conference calls from the centre of the round table and put it in a cupboard. The participants were dumbfounded.
Another staffer recalls Kloppers, who sits atop a staff of 40,000 in 25 countries, swooping down unannounced to tidy up the computer cords behind his desk.
The soon-to-retire head of the world's largest mining company has a mantra: accountability and simplicity. He has been outed before for the militaristic-like neat freak obsession that trickled down to every layer of the organisation - no eating hot food at the desk and one framed photo per employee.
On May 10, Kloppers will work his last day at the helm of BHP Billiton, cruise home to his suburban home in Melbourne, kick off his black leather slip-ons and place them (neatly) in the assigned cupboard. He will then turn his attention to the Higher School Certificate.
The youngest of his three children is about to face this academic challenge. His contribution to his daughter Gabrielle's performance may be more about time management than math. "We manage by policy but not detail," Kloppers says.
But this week was all about the management of his legacy. Since announcing he would vacate his position as one of the world's most powerful executives, it's been back-to-back briefings and meals with with analysts and investors, flanked by his successor, Andrew Mackenzie.
His scorecard has been picked over and compared with peers. His greatest achievements and worst moments have been trawled through. Jaws have hit tables at the $75 million value of his valedictory pay packet.
The one thing Kloppers, who is often described as the smartest person in the room regardless of the size and calibre of the crowd, didn't have control over was the timing of his departure. He would rather have seen out the year but the board had different ideas. The heady era of the resources boom is over and BHP's chairman, Jac Nasser, decided now was the time for fresh blood.
During his time Kloppers had attempted $200 billion of acquisitions and billions more investment in new projects. Mackenzie, a Scotsman, is tailor-made for the BHP's new phase - consolidation, watching the pennies and working the assets harder. Importantly, he has operational experience in energy as well as minerals.
Rarely has the ground been so meticulously prepared for the departure of a chief executive, or a corporate machine worked so hard to prepare the ground for the changing of the guard.
The process began in November with a leak to the Financial Times newspaper, citing headhunter sources, proclaiming with certainty that the search for a successor to Kloppers had begun.
Aghast as the company claimed to be at such a notion, there was no real attempt to deny it. There was equal finger-wagging by the BHP machine at suggestions this could be connected to the company's $2.84 billion impairment charge in August over its recently acquired shale assets in the US. The board was well prepared for this barrage of criticism. Such was its desire to distance Kloppers from single-handed blame that Nasser took the unusual step of backing him up in a statement, saying he supported the actions of the chief executive and agreed it was the right investment decision for BHP.
The task ahead was to convince investors. In this endeavour there has been mixed success.
Nasser didn't have to read the tea leaves to know how unpopular the $20 billion shale oil/gas asset was in the eyes of analysts and investors. It was a major factor in Kloppers' declining score in last year's Corporate Confidence Index - a confidential ratings report based on views of analysts and investors. The price of the gas these assets contain has experienced a minor improvement but some of BHP's investors remain sceptical. This has been despite the fact that the media has been warming to the investment, taking the view that it could ultimately change the geopolitical landscape around the world supply of energy.
The pressure to inject fresh managerial blood only increased towards the end of last year when the prices of its two major products, iron ore and coal, went into a downward spin.
Kloppers, like his peers, had promoted caution and warned of some price moderation. But none had seem the commodities rout coming. The pack had collectively gazed through the same rose-clouded crystal ball.
There has always been an intense rivalry between Australia's two resource giants, BHP and Rio Tinto. Be it size, performance, the quality of assets, stock prices or shareholder returns, these two are forensically compared. They have now lined up on a new measurement - the replacement of their CEOs.
Kloppers' resignation, coming hot on the heels of the departure of the Rio boss, Tom Albanese, is not just coincidental.
Nasser denies it had any bearing but fresh governance brings with it the opportunity to reposition priorities around everything from capital expenditure, exploration and balance sheets to dividend policy.
But the unceremonious ousting of Albanese gave Rio a fresh slate, in the same way as the removal of the heads of two other mining majors, Xstrata and Anglo American, had done a few months earlier.
But where Rio and Anglo sold the changes as an opportunity for an overhaul, BHP's new boss Mackenzie is labelling his task as pursuing the same strategy but with extra vigilance.
The deference in approach between BHP and Rio is chalk and cheese.
Where Albanese was busy packing framed photos of his family in cardboard boxes while the announcement of his removal was being made, Kloppers was presenting the half-year results to the market with Mackenzie at his side.
The company had even produced a video of the outgoing and incoming chief executives together, all smiles and unity.
It was a BHP love-in full of effusive praise for Kloppers, humility from Mackenzie and backing vocals from Nasser.
Of Mackenzie, Kloppers talks personally: "You showed faith in me ... which was beyond anything, and you know I consider you in a very real sense - not just in theory but in practice - the guy I will go to if I'm asking advice for my kids."
Nasser swooned: "Under Marius' leadership we've seen BHP grow to one of the most valuable companies in the world, and that isn't an opinion, it's there in the results."
The chief financial officer, Graham Kerr, had the task of presenting the details of the half-year result, which included a 38 per cent fall in earnings before interest and tax, further exacerbated by $2.7 billion of impairments on BHP's alumina and nickel assets.
Clearing some of the underperforming assets out of the BHP portfolio at an acceptable price will be Mackenzie's job.
But where Albanese had been turfed as a result of a $14 billion write-down in its aluminium division and the ill-fated coal purchase in Mozambique, Kloppers' mistakes were, by comparison, negligible.
It will be years before an informed judgment can be made on BHP's shale gas punt. The $40 billion attempt to acquire Potash Corp was not considered a cross on Kloppers' scorecard but the inability to seal the deal attracted some criticism.
Far more controversial was Kloppers' $147 billion attempt to buy Rio Tinto. "What a fantastic deal that would have been for the time that it was launched, when I think from memory the iron ore price was about $40 [per tonne]. What a terrible deal that would have been in the global financial crisis. We engineered a way that we would have had a choice, and we exercised that choice," Kloppers said.
As luck would have it, European competition regulators knocked it back. Kloppers says it was more a case of disarming the gun than dodging the bullet.
His near six-year reign is marked by this aggressive acquisition strategy, which for some of his time was enabled by riding on the wave of record commodity prices, while some was seizing the opportunity provided by a strong balance sheet and struggling competitors to try to add to the company's stable of large tier one assets.
The world over the past six months has changed and BHP's strategy has evolved.
Mackenzie and his new counterpart at Rio, Sam Walsh, have a new agenda - a new imperative. It's not about spending, it's about saving.
Neither BHP nor Rio talk about acquisitions now. Sam Walsh delivered a homily last week, when releasing Rio's results, about getting back to basics, accountability and operating like a small business.
While expressed differently, Mackenzie delivered the same message this week. It's about focused investment on the large established assets and cost reductions.
It's about bleeding the assets harder and reducing the expenditure and using it more judiciously.
This is the new battle ground.
Exactly which of the BHP's executives Mackenzie chooses to help him in this task is unknown. There will be a reshuffle and senior roles will go or change. Those occupying the key management roles will be sweating on them over the weekend.