Leigh Clifford: from 37 years at Rio Tinto, to 11 years chairing Qantas and range of other fascinating corporate roles

• Qantas chair lauds Alan Joyce, Emirates deal and the $190m grounding
• Explains how chairman gets involved in exclusive “Chairman’s Lounge” membership
• Over 37 years at Rio, rates $US2.5b North takeover as a career favourite
• Trump tax cuts and deregulation leave Australia uncompetitive and in need of reform
• Alan Joyce pay rewards thoroughly deserved, not so sure about Geoff Dixon
• Still passionate about industrial relations reform, wishes had done more on coal at Rio

In the early 1970s, the young mining engineer Leigh Clifford spent 6 years working in Broken Hill, including a year under-ground when he was a member of a union affiliated with the modern day CFMEU. By the time the Qantas chairman controversially supported grounding the airline in 2011, he’d come full circle.

Since retiring from Rio in 2007 after 37 years on the books, the last 7 as CEO, Leigh Clifford has gone on lead a remarkable turnaround at Qantas in partnership with CEO Alan Joyce and the executive team which have “shot the lights out”.

Throw in 6 years on the Barclays board, a directorship at US construction engineering giant Bechtel and a senior advisory role at private equity giant KKR, and this Melbourne-based heavy hitter has become one of the most global and influential Australian business leaders.

The remarkable decade-long partnership with Alan Joyce will come to an end soon, with Clifford the first to go, but don’t ever expect the tough-minded former ruckman to mince his words. Enjoy the full 32 minutes of frank exchanges with one of Australia’s straightest-talking and successful chairs.

Welcome to the Constant Investor Chairman Interview Series, I’m Stephen Mayne and this week we’re interviewing Leigh Clifford, the long-serving Chair of Qantas and former CEO of Rio Tinto, who’s also an advisor to KKR and sits on the big US firm, Bechtel’s board.  Welcome to the Constant Investor, Leigh.

Happy to be here.

Leigh, you spent 30 years at Rio Tinto before taking the reins as CEO in 2000.  You spent 7 years as CEO, for 37 years in total.  That’s a very rare model these days.  Talk about that and who were your key mentors as you developed over that 37 years at Rio?

Well, I’m a mining engineer and I started at Broken Hill.  In fact, I spent some of my early time in timber stopes in Broken Hill and I don’t think there are many mining engineers left on this earth who’ve worked in a timber stope.  I got a lot of benefit of those six years at Broken Hill.  I had to do a year underground mining to get your experience for Mine Manager Certificate.  In fact, I was a member of the WAUFA which is affiliated with the CFMEU and probably not high on the alumni list, but nonetheless…

I’d say later in my career, Rod Carnegie, John Ralph, Bob Wilson, were certainly fellows who gave me a good run.  I had worked a lot with Leon Davis and a fellow called Tom Barlow who was my boss for a number of years, who I thought was a fantastic fellow to work for.  He was one of the early players who really took an active role in building Hammersley, but also opening up the Chinese market.

What were your favourite memories during that seven year run as the CEO?  Was it buying North or were there other deals in particular that you were fond of looking back?

Well, North was something we did right at the start and I worked very closely with Chris Renwick.  When we did that Chris Renwick was running the iron ore business and I think it was an outstanding acquisition.  Obviously, a lot of people played their part in that outstanding acquisition and we were able to integrate that with our iron ore business.  There were a few other highlights in those seven years.  I think an interesting one is Haile Creek which had been around since Adam was a boy and one of our fellows really brought together the ownership and we were able to develop that in that time and that became a very successful coking coal mine.

I suppose the highlight was, and I looked it up again this morning, the profit performance in my last year.  If I just reach for the document, profit for the year was $10.45 billion Aussie Dollars, underlying earnings of $9.7 billion and obviously earnings per share, etcetera, that go with that.  So, I was pretty pleased with that.  Frankly at the early stage of my career of CEO, the prices weren’t great and we were under the pump there for a while.  But certainly they’ve started to significantly improve in my latter years, but my real focus was frankly getting the operations humming because you’ve got to have them humming to take advantage of the higher prices.  

After making $10 billion in one year and having all that cash, what’d you think of them spending USD$44 billion cash buying Alcan?  Would you have done that?

Look, Alcan was something I was quite interested in.  They had very good smelting assets.  The price was about $106 and it was all cash and it seemed to take a long time before some rationalisation was undertaken selling some of the non-core assets.  But they do have very good smelters in Canada because they’re powered by hydro power, so I think over the long haul you’ll find those smelters are very attractive, but it certainly was an extremely high price and that surprised me to be honest. 

What about some of the current governance issues.  Obviously you can’t go to the detail, but there’s been negative publicity about facilitation payments and people getting charged and things like that.  How did you manage those governance issues which always hit the mining industry of, when you’re in developing countries there’s pressure on to grease the wheels and things like that – were you a real hard-liner on, we never go near this stuff?

We had a sort of a code of conduct which was called the way we work and I remember once being asked regarding tax in Indonesia that this could be assisted greatly if we did something – I can’t remember the details – and I made it very clear that that’s not something companies like us can do.  It’s against the law in Australia, the UK and the US.  We’re all subject to those laws.  I don’t know the detail of what’s happened in Guinea.  Frankly, I know the players and I think they’re very reputable.  I mean, I know the Rio Tinto players and I think they’re very reputable people, and the payment in the context of the size of the issue didn’t surprise me, to be honest.  But, the devil will obviously be in the detail.

In regards to Mozambique, where there was a suggestion that things should have been written down earlier, I’d have to say that these things are never clear cut.  I remember a time in about the middle of my career of CEO, the auditors were talking to us about writing down Kennecott and we wrote it down by about $4-500 million.  A couple of years later that mine made after tax profits of $1.8 billion and I think they had to write it back, so these things are never clear cut, there’s always a range of issues and it’s never definitive – because, you’re making assumptions. 

BHP aggressively chased Rio during the Argus/Kloppers period, which was a little bit after your time in terms of the some of the major mergers and things proposed.  Did you ever think that the two mining majors would serious get together and what was your view on the merit of that?

Over time there had been a bit of courting that went on and some of it in my time.  You could see the logic for some of it in terms of cost improvements, particularly in iron ore, but in a couple of other areas, but they didn’t come to anything.  I’d have to say there’s real concern on a part of the customers about the sort of the dominance or perceived dominance that a combination would have, so I think it’s going to be pretty hard to bring about something like that in the future.

Let’s talk about Qantas.  You moved back to Melbourne from London in 2007 when you retired from Rio and pretty much immediately you became Chair of Qantas after that failed private equity bid at $5.45 a share.  What was the process that led to your appointment?

Well, when it was announced – I think it was late 2006 that I was retiring, I got a number of approaches and I could have stayed in the UK or gone to the US for that matter and a number of approaches in Australia.  What I was interested in doing was coming back to live in Australia to take non-executive roles and to visit the UK.  I happened to be in Finland at a friend’s wedding when I got a call about Qantas and that quite appealed to me.  You’d say, what did I know about airlines?  I’d flown on plenty, but there are some similarities.  Long term capital commitments, big capital commitments and cyclical industries.  Anyway, it quite appealed to me and I said, “That’s fine, I’m interested, but here are stipulations.  One, it will be non-executive; and two, I’ll be based in Melbourne.”  And they seemed happy with that and I came back.  

They went external for you and you helped reshape the Qantas board.  You’re now into your 70s and you’ve been there for 11 years.  Is your successor likely to be an internal appointment?

Look, what I’d say is that we are very mindful of board renewal and I will go before Alan.  When we’ve got something to say I’ll let you know.  I’m not saying you’ll be the first to know but you’ll be amongst the first to know.  At this stage, the important thing is that we evaluate potential candidates and you’ve always got to be alert to it because you never know when a beer truck’s coming around the corner.  It’s been something we’ve been talking about for several years.

I hope the ASX will be the first to know on that one, Leigh. 

I said you’ll be amongst the first to know!

Yes, no, good.  Appointing Alan Joyce was probably your most important decision.  You did that within a year of becoming the Chair.  The scoreboard’s obviously been fantastic with a stock price around $6 today.  What do you think are his key skills as the CEO of Qantas?

I think firstly, Alan is extremely strategic and he’s numerate, but what I like is his analytical capability, the fact that he understands the airline industry very well and he’s decisive.  What I saw was someone who had a vision of what was needed and with support of the board he was prepared to go about it and implement.  He gathered around him a team to do so.  I felt he was – well, he was the standout candidate of anyone in Australia and I interviewed people in the US and there was someone in the UK who would have been my second choice but Alan was the person we needed and that was the unanimous view of the board.  

Alan’s pay last year was $24.5 million, including some vesting of some long-term incentives.  A lot of people say that that’s absolutely delivered as planned, that the incentives have paid 99% in favour of the REM report, things like that.  Do you ever feel a bit reluctant about the fact that you’re only paid $670,000 a year in fixed cash and your CEO’s got $24.5m in one year, albeit, much deserved?

Look, I’m okay.  I had a pretty good run in my time as CEO and I think we’ve got to recognise the CEO is the guy or the lady running the business and I’m quite comfortable with how Alan performed.  He and the management team shot the lights out, but yeah, I’m okay where I am, don’t worry.

Do you think Alan’s more deserving of that $24.5m than say, Geoff Dixon’s $11 million in his final year?

I wasn’t entirely comfortable with the structure of how Geoff Dixon’s final pay was determined, but it was a fait accompli when I came.

You’ve bought back more than 20% of the shares in Qantas over the last two years at an average price certainly up until October last year, an average price of $3.90.  Probably one of the most successful and well timed buybacks we’ve seen from any major company given the stock’s gone from, what?  95 cents in late 2013, to a peak of $6.53 last year.  I want to ask you about the franking credits debate.  You’ve got 100,000 shareholders.  You’re not a big dividend payer, you’re paying unfranked dividends, although you are working through your tax losses.  Obviously the way you’ve returned value to shareholders has been through capital management with capital returns and buybacks and now more recently, some dividends.  What comes next?  Because you will start paying some corporate tax in Australia as well and what do you think about this proposal with the franking credits from Bill Shorten?

I think, to be honest, we would like to increase the dividend payment because there are a lot of what I would call retail shareholders who have supported Qantas.  But, by the same token we have a lot of shareholders who do not like unfranked dividends.  The franking debate is a little bit separate and we’ll have to make our decisions when and if that comes to pass.  I would rather have a greater proportion of our return to shareholders as dividends as distinct from buybacks, but at the moment that’s the option that we think is best suited to us. 

What’s your view on the corporate tax debate in Australia?  Should we have the corporate tax cut?  Are corporates paying their way?  And can you talk about the unique Qantas element of this which is your aircraft leasing, which some critics would say is structured in a way that is very tax efficient, if you like?  Is the way those aircraft leases – does that contribute to the fact that Qantas hasn’t been a net corporate tax payer for many years?

In the past there might have been a greater proportion of leased aircrafts than there are now.  We own a large proportion of our aircraft directly.  If circumstances were such that we were in a cash constrained environment, we might increase a proportion of plains that are leased.  The situation is the rate at which we can depreciate planes is not competitive with the rest of the world and I think we would like to depreciate our planes far faster.  It’s interesting if you look at what’s gone on in the US.  With the changes that Trump is bringing in, Americans will be able to write off equipment – I think it’s for a couple of year or the next three years – at 100%.

I think that that combined with the tax changes and what appears to me to be quite significant deregulation in terms of the approval processes for projects, etcetera, combined with middle class tax cuts, it seems we’re getting a stimulatory effect in the US.  That was my impression when I was there a couple of weeks ago.  I think in terms of Australia’s tax rate, 30% for corporations – and I know there’s a suggestion that will go down gradually for smaller businesses.  I’d have to say that that’s not competitive. 

We’ve got to recognise that there will occur circumstances where corporations will have an opportunity to invest in either Australia or the US, the UK, in their particular business and frankly the tax rate in Australia is not going to encourage that investment.  I saw an example that was given – I think it was Incitec, about a chemical plant they were building in Louisiana.  Not only was the approval process rapid, but obviously the tax rate’s far more competitive and furthermore, they had cheap energy in the form of gas.  We’ve got to face the facts that sometimes when businesses have the options for alternative locations, they will invest where the environment’s the most attractive. 

You have to admit though, it’s not a great political environment to be running that sort of argument, is it?  If you look at Jeremy Corbyn and just the general attitude globally to business, I mean you’ve been on the Barclay’s board, you’ve seen it in mining, you’re seeing it with airlines.  It’s a tough ask politically, isn’t it?  To give multinationals a tax cut? 

Well, whether it’s multinationals or Australian corporations I think the situation is people release that jobs are created by corporations making investment.  I’d have to say, what I think has helped in The United States is the fact that not only the corporate tax rate coming down, but middle class tax cuts have been implemented and I think that’s an important part.  Because there’s got to be something for everyone in these deals. 

Over your 11 years on the Qantas board, tell us about your favourite two or three decisions you’ve made at board level?  Where does the grounding sit in?  Was that a key wakeup call in terms of the unions?  The Emirates deal, a lot of people say that was pivotal.  What do you rate as the most important decisions you’ve made obviously apart from appointing an excellent CEO at the start?

I think putting a capable person in Alan was a great decision.  Quite often in the early days I had to make it clear that I had his back and there were a number of players who were very critical of Alan and some in the media saying he ought to go.  I’d have to say that was not a specific decision but something I did.  I’d also have to say that when we decided to ground the airline it was dramatic, there’s no question about that and it cost us $190 million dollars.  I was stopped in the street by people saying, “I’m glad you did this…  We have not lost a day through industrial disputes since.”  There’s been a lot of noise from various players but it brought home to people the fact that we needed to make significant change and we’d have to do so.

I’d have to say the Emirates deal, which Alan and I talked at length about the international business, particularly the Kangaroo Route and its challenges, but the Emirates deal was something which we looked at.  I know we looked at a few others but that has been transformational in terms of not only the economics of the Kangaroo Route, but the offering to customers in terms of where they can go in Europe.  Instead of flying to London and then jumping on a plane and flying back to somewhere in Continental Europe.

One other unique element of the Qantas Chairman’s role is your involvement with the Chairman’s Lounge Membership list.  I was in the Chairman’s Lounge the other day for the second time in my life and the person who took me in there told me that Margaret Jackson, your predecessor, had approached them directly and offered it personally.  How much do you get involved in yes or no, in terms of who’s who and who’s not in terms of the Chairman’s Lounge membership?

I get involved at the edge.  This is a commercial undertaking.  We are offering to people not for a reward for good service to the community, but it’s a commercial undertaking.  People who fly a lot with us are looked after or they’re corporations who have arrangements with us.  I tend to get involved when someone has been for a number of years not flying very much and the decision made by management is that they’re to be downgraded.  Once they get that letter on occasions they contact me and I look at the circumstances. 

Also, we have some individuals who just, for instance, they themselves travel a lot and they travel up the front of the plane and they’re important customers and we make a decision sometimes to add them to the Chairman’s Lounge.  Most of the problems that I encounter have been when people have been downgraded and they’ve probably written to Alan first and then they come through to me.

And how many decisions have you been involved in where the decision has changed or you’ve actually made a decision on that.  It’s very unusual for a chairman – it’s one of the few examples where a Chairman can get a little bit operational.

Well, I wouldn’t have called it operational.  I don’t know how many, but let’s say I get a lot of requests to appoint people, I get a lot of requests to reverse the decision that management’s made and sometimes depending on the circumstances I might do that, but it’s not common.  Usually it’s management have made a decision, I’m a reluctant to intervene.  But there can be unusual circumstances too.  One very, very good customer didn’t travel for a couple of years because this person had some knee operations and couldn’t travel and fell off the list.  Well, I intervened in that case. 

Let’s talk briefly about Barclay’s.  You were on the board of that from 2004 to 2010, so you saw the boom and then you saw the bust.   Any reflections of that and also of the context of the Royal Commission into banks in Australia?  We’ve got the world’s most profitable banking oligopoly, some would call it.  I’ve heard other people say, by Jingo, if you had the UK regulatory environment, there’s no way the Aussie banks would be making that much.  Tell us about your views on those issues?

Firstly, I’d have to say in Barclay’s when I got involved.  I was very cognisant of the fact that Barclay’s had two activities, if you like, retail commercial bank – it had cards and it had wealth management too – but retail commercial bank and it obviously acquired the majority of a bank in South Africa.  Then they had an investment bank which was a pretty good investment bank.  In fact, they built up Barclay’s capital very successfully.  The problems that occurred at the GFC were primarily related to issues in the investment bank and they weren’t alone in that regard.  I know if you look on the continent and Germany in particular, there was retail and commercial banks that got into strife. 

But if you look at Royal Bank of Scotland and some of the US banks, it was the investment banks that got into trouble and we know what transpired there.  In Australia at the moment, the issues aren’t due to, if you like, the challenge to the strength in the balance sheet of the banks.  I think  Australia was extremely fortunate to have such strong banks.  And we’ve still got very strong banks and probably they’re even stronger.  But the issues relate to treatment generally of small customers as I understand it.  That’s what’s getting the air play and will in the course of the Royal Commission, so they’re somewhat different.

I think the important thing is, we’ve got strong banks and we’ve got to ensure that the confidence in the banking system in Australia is maintained and I’m sure the government and the Royal Commission is conscious of that.  That doesn’t mean there’ll be issues that come out of the treatment of smaller customers.

Leigh, in 2008 Barclay’s took a 12 billion pound loan from the Qatar Holdings, an investment company owned by the State of Qatar.  There’s been some issues that have arisen subsequently on that.  Did you learn a few new things when those matters were reported in the press or were you as a director of Barclay’s reasonably across the issues?

I can’t comment on that.  I think as you’re aware, that is before the courts in a couple of instances and I’m reluctant to comment on that.  What I would say is that Barclay’s didn’t have to take government support to maintain the integrity of the bank and but I wouldn’t want to comment at all on that.

I guess there’s one other segue into a court related issue.  I’ve read in the press that you’ve been involved in litigation with Newcrest over some tenements at Cadia, so it’s sort of a private investment vehicle you’ve got with a few other people with background in the mining industry.  Is that still going on and what is the play there, where the former CEO of Rio Tinto is in the courts privately fighting another mining major? 

I think you’ve stretched it a bit there.  Firstly, there’s no issue remaining on that and the company of which I’m a shareholder took some action, but I’m just a shareholder.

Right, okay.  Let’s talk about KKR.  You’ve been a senior advisor to KKR, the world’s most famous private equity firm for the last nine years.  How does that work?  How do you get paid?  Is it a fixed fee?  Is there incentive payments?  What sort of deals have you worked on over the last nine years advising KKR?

Firstly, it’s a fixed fee.  I’m one of a number of advisors around the globe.  I knew KKR before I got involved and they asked me to take on this advisory role.  I’d have to say in the early days a lot of it was related to opportunities in the resource industry and quite often I felt like Dr No, I was discouraging investment in particular opportunities, but there’ve been a few that we’ve progressed.  My involvement isn’t in the sense of, in the thick of the spreadsheet and the go or no go on the deal, more providing some technical input or what’s the structure of the market, what does this deposit look like?  I got involved in when we bought a holding in Oz Minerals and a few others that didn’t come to fruition in Canada and the United States. 

I’d say my role is where I’m sort of called upon when they’re looking for input on either my knowledge of the individuals or I might know the Chairman, those sorts of things.  Or in the resource industry, the particular commodity or market they might be contemplating.

Finally, there’s Bechtel, a major US listed company, a big construction…

No, no, it’s not listed.  Bechtel is private.  120 years old this year and it’s private.

Okay, well tell us about your role as Director of the privately owned giant, Bechtel.  How’d that happen and how intensive is that a commitment for you?

Well, I really enjoy it because Bechtel is an engineering and construction company which is involved in the resources area, as well as in infrastructure and you might be aware they’re currently active in the infrastructure area in Australia at the moment, but they also built three LNG plants in Curtis Island and are just finishing the Wheatstone Project for Chevron in The United States.  I’m a non-executive director.  They’ve had a lot of activity in Australia and I’m sure that the management team appreciate that someone familiar with the Australian environment and I really enjoy it because if you like it’s in an area that I have some familiarity and I’ve known the Bechtel organisation for a long, long time and I find it quite interesting. 

Excellent, Leigh Clifford.  Well, I always finish off with our chairs by asking the favourite deal that they’ve been involved in over their careers, which was a great deliverer for shareholders – you can mention a couple if you like – and also any corporate regrets you might have had of something you wished in hindsight hadn’t happened?

Well, I’d have to say the favourite deal was the acquisition of North.  I think it was around $2.5 billion US Dollars or thereabouts and I know a couple of years later, after I left, it contributed several billion to the annual profit.  If I look back and I sort of watch the business now, because I’ve still got a fair bit of skin in the game in Rio Tinto, I look back and I should have sold some of the peripheral assets.  One that stuck in my mind was the talc business which is an interesting business and I remember the guy who ran Imerys came to see me and offered $300 million, and some years later they sold it for $300 million.

Sometimes these things can be quite a diversion and if something goes wrong it’s only a small proportion of your business but 100% of your reputation.  Another was Palabora, which was very important in the 70s for Rio Tinto and I know they’ve sold that since and I probably should have sold that.  There was a few that I should’ve trimmed down and I notice the team’s doing that at the moment.  I’m not so sure about coal but nonetheless, that’s the decision they’ve made.  They were some of the regrets.

I think the other regret, I was involved in the coal industry in the very early stages and I think we probably didn’t push the industrial relations changes hard enough, but then we were constrained by the coal industry board and the coal industry tribunal, that was one regret that I’d had.

Iron ore, you got a lot of changes through WA, but you’re right, the Eastern Seaboard coal in particular was a different world, wasn’t it?

It was a different world.  I remember saying to a guy one day, “A juggernaut’s going to run through this industry at one stage.”  And I think eventually did.  But I think Rio Tinto took a very active role in changing workplace dynamics and that stood them in very good stead.

Final question, Leigh.  You’re on the electoral roll in the City of Melbourne.  I remember we caught up on a planning issue in your street at one point a few years ago when I was a councillor.  We’re looking for a Lord Mayor at the moment, we’ve lost our Lord Mayor.  Have you thought about having a run?

No, I haven’t thought about having a run.  I’d have to say, public office is not something that I think I’m designed for.

A bit too tough and rugged you think for the niceties over public office?

I don’t think that.  I don’t think my style would necessarily sit well, anyway.

Leigh, I must say, your style has been terrific for shareholders whether it’s Rio or Qantas, so thanks for all your efforts over an excellent career and thanks for talking to the Constant Investor.

Happy to.  All the very best, thanks.

That was Leigh Clifford, the current Chairman of Qantas, former CEO of Rio, advisor to KKR and a director of Bechtel.  This is the Chairman interview series for the Constant Investor and we’ll see you next time.