Mackenzie's clean break is bigger than you think

I have personally known every BHP chief executive (they used different titles) for the last 50 years. During that time there has never been a BHP chief remotely like Andrew Mackenzie. The company is headed for a period unlike anything in the last 50 years of its history and I suspect this is a once-in-100-year change.

BHP shareholders, employees, and Australian governments need to understand what it means to have Australia's largest company change direction and become more interested in productivity and shareholder distribution than expansion. The directional change is in part a response to what is happening in China (China will spoil Australia's energy equation, February 22), the demands of shareholders, and the high cost of capital investment in Australia. The directional change by our largest miner will be followed by others, including Rio Tinto, and heralds a far less expansive Australian mining industry.

And remember the BHP board chose Andrew Mackenzie because they have embraced the plan he put to them as he pitched for the top job. During the last 50 years each BHP chief executive has aimed to leave his successor with more resources. Better productivity and shareholder distribution have always been in the agenda but have been swamped by expansion and other issues. Andrew Mackenzie is aiming at allocating more money to dividends/capital returns plus lower borrowing so new investment projects will have to be very good. Given the high shareholder payouts and lower gearing agendas of BHP, the Big Australian might even find itself short of capital to do what it would have done without hesitation during most of the last 100 years.

But BHP is a company that has forgotten its history so the magnitude of the change is not apparent to most of those at the top. The BHP greats of Essington Lewis, Ian McLennan, James McNeill, and Brian Loton all came up through the ranks and BHP had a training program to produce CEOs. The CEO after Loton, John Prescott, showed after he left BHP that he was very talented but Prescott presided over two major disasters – Magma Copper in the US and the attempt to produce iron in Western Australia with North West Shelf Gas.

I will never forget talking to a distraught Prescott on the day of the horrific announcement of the two failures. Prescott feared he might even have put the survival of his beloved BHP in jeopardy. Prescott left BHP in 1998 and for the next 15 years every BHP chief – Paul Anderson, Brian Gilbertson, Chip Goodyear, Marius Kloppers and now Andrew Mackenzie – all won their spurs outside the company. Andrew Mackenzie has been at BHP for some five years so he will understand the effect of the constant passing over of BHP trained people for the top jobs. Not surprisingly, unions are stronger and middle ranking executives are less ambitious.

After Prescott, Anderson and his chairman Don Argus restored the BHP business to health, sold off the steel operations and then quickly returned to the BHP expansion tradition by acquiring Billiton. BHP's Billiton acquisition was a disaster first because the test of time showed assets were not up to BHP standard. And with Billiton came Brian Gilbertson, who lasted about six months as BHP chief executive. Gilbertson wanted to expand BHP rapidly via takeover and shift the head office to London and Argus and his board rejected the plan. Chip Goodyear, who joined BHP some five years earlier as chief financial officer, became CEO and kept up the expansion tradition with the acquisition of Western Mining Corporation. WMC repaid the outlay in a short time with high nickel returns but WMC's Olympic Dam remains undeveloped.

Marius Kloppers came to BHP with the Billiton acquisition so he was in the McLennan and McNeill growth tradition, making two enormous unsuccessful takeover thrusts (Rio Tinto and Potash Corp) and adding US shale oil/gas and Canadian Potash to BHP's resource mix (both will be big winners).

But while Andrew Mackenzie in his term as chief executive might find a takeover bargain, acquisition is not on his agenda so for the first time in 100 years of BHP history Mackenzie's successor is not likely to have extra base resources. To understand what Andrew Mackenzie will do at the Big Australian you need to understand the people and events that appear to have had the most influence on his executive life. I will discuss them tomorrow.

Footnote: The nearest BHP came to appointing an 'Andrew Mackenzie' as chief executive was when Fred Rich was appointed to the job in the mid 1970s, but Rich died before taking office. Supporting Rich was a 'ginger group' of executives (some of whom confided in me) and they planned to change the BHP culture and, in today's terms, make it more productive. But Fred might never have been able to carry out his plan because his chairman James McNeill did not know of Rich's 'ginger group' and in those days the chairman was really the CEO. As chairman, McNeill was the driver behind acquiring Queensland coal, Escondida copper and John Lysaght steel. Brian Loton took Rich's position but effectively was under McNeill. Not until McNeill stepped down as chairman was Loton in the driver's seat but soon after Loton took the wheel he was consumed in a long battle to stop the late Robert Holmes a Court from taking control of BHP – a battle Loton won.