Sliding doors at Rio reveal BHP's future

Andrew Mackenzie's position at BHP came about through hard work and a series of serendipitous events, and his time at Rio Tinto holds the key to understanding BHP's direction.

To understand what the Andrew Mackenzie era at BHP will mean for the Big Australian you have to delve deep into the folklore of Rio Tinto.

The Rio Tinto folklore – which I am sure, is correct – never seemed that important until last week, when Andrew Mackenzie became BHP chief executive officer elect.

Yesterday, I showed how different Andrew Mackenzie is to the BHP CEO’s of the last half-century (Mackenzie's clean break is bigger than you think, February 25) Now I want to tell the story from a Rio Tinto perspective because this remarkable Australian business tale starts with one of our most successful homegrown executives, Leigh Clifford, who joined Rio Tinto in Broken Hill in the early days of his career.

Rio Tinto has always looked at BHP’s ore bodies with envy. For example, BHP’s Mount Newman is a better iron ore body than Rio’s Hamersley. But Rio Tinto productivity and efficiency has always been ahead of BHP. Indeed, several decades ago it was Rio Tinto that tried to arrange a merger of the two iron ore operations because Rio believed it could transform BHP’s efficiency. And in those negotiations BHP was shocked at just how far ahead Rio Tinto was.

Its unfair and incorrect to attribute that productivity difference to one man, but a big contributor to moulding the high-productivity culture of Rio Tinto was Leigh Clifford who first transformed coal operations. Part of Clifford’s Rio Tinto strategy was to build much stronger bonds between workers and the company thus lessening the influence of unions. There is no doubt that Clifford’s role in the transformation of Rio Tinto was a big driver in him rising to become chief executive of Rio Tinto in London.

A few doors up from Rio’s office in London is BP, where Andrew Mackenzie was a rising executive. Clifford hired Mackenzie and they became great friends and must have often discussed the productivity differences between BHP and Rio in Australia.

Clifford gave Mackenzie the job of re-engineering one of the least productive parts if Rio Tinto – industrial minerals. Mackenzie did a superb job, substantially reducing the costs and eliminating duplication –exactly what he will do at BHP.

The events of 2007 changed Rio Tinto, BHP and Andrew Mackenzie. In April 2007, Mackenzie’s mate Leigh Clifford stepped down as Rio Tinto chief executive because he wanted to leave Rio before it was too late to do something else. He would also have known that a bid for Alcan was being considered. (Clifford went on to become chairman of Qantas where, with Alan Joyce, he is transforming the productivity of the company.)

Then Tom Albanese (not Mackenzie) was chosen as the new Rio CEO by the then chairman Paul Skinner. By the time Albanese got into the CEO chair the plans for Rio Tinto to bid for Alcan were well advanced.

Back in Australia, when Kloppers became chief in October 2007, BHP’s plan to acquire Rio Tinto, including Alcan, was well advanced. Kloppers' brief was to execute it. But before he did former BHP CEO Paul Anderson gave him some advice: ‘your first job should be to select a potential successor’.

So after Kloppers was anointed, he approached his friend at Rio Tinto, Andrew Mackenzie, probably pointing out that at BHP, Mackenzie would be able to use his BP experience because BHP has both oil and minerals.

But, according to Rio folklore, Kloppers did not tell Mackenzie that BHP was about to bid for Rio Tinto. Mackenzie had virtually decided to join Kloppers at BHP but had not consummated the decision when the BHP bid for Rio Tinto hit the fan. Mackenzie had to move quickly. Rio Tinto legend has it that Mackenzie’s emails were flooded with all the details of the defence. He did not open one email. He quickly resigned but chairman Paul Skinner was furious and he threw the book at Mackenzie putting him on 'garden leave' which means that for many months he could have no contact with BHP. During those months Mackenzie filled his time by learning Spanish to add to his repertoire of language skills. With only a week of 'garden leave' to go Skinner, still furious, threatened to sue Mackenzie when he made contact with BHP.

When Mackenzie joined BHP in 2008, Kloppers gave him his old job as chief executive of non-ferrous metals and quickly the Scotsman began improving its productivity by doing what he had done at Rio Industrial minerals.

If Leigh Clifford had stayed on at Rio it is unlikely Mackenzie would gave gone to BHP. If Mackenzie has been made CEO of Rio instead of Albanese he would not have stopped the Alcan takeover mistake but Mackenzie would never have made the Riversdale mistake in Mozambique because Mackenzie has a detailed knowledge of coal geology.

Andrew Mackenzie is not the same as Leigh Clifford, but they share a belief that in the world ahead you will need to be an efficient producer of whatever goods and services you provide. BHP is in a strong position because Ian McLennan, James NcNeill and Marius Kloppers secured some of the world’s best ore bodies, including US shale gas/oil and Canadian Potash. China is now changing and will not drive another boom so productivity is set to be much more important. The Rio Tinto old timers would say that Mackenzie has been given the job of adapting what his friend Leigh Clifford did at Rio Tinto to BHP. But he will not be able to duplicate it. Events have moved on and BHP’s culture runs deep.

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