THE DISTILLERY: Fair shake of BHP

The new management structure for BHP Billiton ushered in by incoming chief executive Andrew Mackenzie dominates the pages of Australia’s leading business scribes. The new boss has underlined the miner’s immediate future as a more frugal operator, headlined by his own lower chief executive pay, and its potential as a more friendly company for shareholders, as well as his philosophical differences in management with the outgoing Marius Kloppers and the new rising stars of BHP Billiton.

That’s right, we’re already talking about who could be next in line to lead the world’s largest mining company. It’s like elections in the world’s most powerful nation. Once someone wins the US presidency, the media starts speculating about who the successor might be.

The Australian’s John Durie says it’s not just a message from Mackenzie, but also from chairman Jacques Nasser, about the seriousness with which the miner is reaching for cost reductions.

“Mackenzie stresses his aim is to get the most out of what he has, rather than chasing new opportunities and, having taken an effective 25 per cent pay cut, he is serious about restraint. Having unveiled a new management team, it is clear that when they take their seats they will be getting less than their predecessors, and so it will go down the line. Just whether the board will also take a pay cut remains to be seen, but given BHP pays compensation for long journeys in first class seats, one would think there was some room to move.”

The Herald Sun’s John Beveridge points out that Kloppers’ expansion attempts were limited by a range of factors, adding that shareholders stand to benefit from BHP Billiton’s change in stance.

“This changing emphasis at BHP is actually a very welcome development that has been mainly brought about by three things: necessity, innovation and a radical change in the investor mindset. Necessity is the most obvious of the three as falling commodity prices reduce profits that are available for future investment.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd argues that BHP shareholders need all the encouragement they can get, with a number of issues putting downward pressure on the share price.

“All the technical charts, including the closely followed moving averages, show BHP is caught in a downward cycle of negative sentiment. But given the right macro-economic conditions, Mackenzie should be able to deliver what he is promising – higher returns to shareholders. It would not be unrealistic to expect significant capital management in the years ahead and a lift in the stock’s dividend yield. The smashed share price has lifted the yield close to 4 per cent but the consensus forward estimates are for a yield of about 3.5 per cent. Mackenzie, backed by chairman Jac Nasser, could well break new ground in terms of BHP’s dividend payout ratios.”

Of course the changes reflect more than the company’s shifting strategy and attitude towards the register, it’s also an insight into how Mackenzie will run BHP Billiton from the top. The Australian Financial Review’s Matthew Stevens gives his impression of the Kloppers-to-Mackenzie handover.

“For all his reputation as an occasionally isolated and slightly exotic figure, Marius Kloppers enthusiastically embraced a collegiate committee style of management that was very much the product of his predecessor, Chip Goodyear. The forum of Kloppers’ generalship was the group general management committee, which was populated by very senior executives, three of whom spoke for broad product groups and all of whom effectively stood as gatekeepers between the chief executive and BHP’s global spread of operations. To some degree, Kloppers, like Goodyear, regarded his role as being the first among equals. One of those equals, of course, was Mackenzie. But, with only three notable exceptions, the rest of Kloppers’ most senior cohort have either been delivered other duties or been moved on. Mackenzie has effectively removed one very elite layer of chief executive management and replaced it with a collection of asset-based operators who will be called presidents, not chief executives.”

Fairfax’s Malcolm Maiden explains how when Kloppers got the job five years ago he reached out to another giant in the history of BHP’s history for some advice about his executive appointments.

“Kloppers also recalled that soon after he was appointed in 2007, former BHP Billiton chief executive Paul Anderson told him to think about who would replace him, and hire accordingly: Kloppers put a call in to Rio Tinto where Mackenzie was working, and offered him a job. The sweeping management changes that Mackenzie announced on Thursday address both of those issues, and the tougher environment he is facing is underlined by the separately announced details of his remuneration package. It is between 20 and 25 per cent less valuable than the one Kloppers has, setting a post-boom benchmark that will feed down through BHP’s ranks.”

The Australian’s Barry Fitzgerald notices that BHP Billiton’s rising stars pre-Mackenzie of Mike Henry and Graham Kerr have kept their spots at the top of the mining giant with the new boss.

“They now have some competition from additional rising stars, so identified because of Mackenzie’s decision to elevate them. First up there is Peter Beaven, a South African accountant with investment banking experience who has replaced Mackenzie as copper president. Then there is Danny Malchuk, a civil engineer from Chile who steps up from BHP’s fast-contracting minerals exploration division to become president of aluminium, manganese and nickel – the toughest gig of the lot at BHP. Rounding out the new rising star list is Dean Dalla Valle, a local boy with an electrical engineering degree from the University of Wollongong who gets to be president of coking and steaming coal – another tough gig, but again a valuable proving ground of his credentials for the top job in the long haul.”

While not specifically on the BHP Billiton appointment, The Australian’s Bernard Salt has looked at attributes of modern chief executives of Australian companies, pointing out that it's irrelevant whether or not they're Australian.

“The chief executives operating the most powerful corporations in Australia should not be viewed as ‘Australians’ or ‘foreigners’, but as global corporate citizens. In fact, it would be rare if a top-level chief executive had not spent a considerable part of their career working and producing results overseas.”

Meanwhile, The Australian’s Asia-Pacific editor Rowan Callick brings word from the Global Food Forum in Melbourne yesterday that the time is ripe for Australia to start utilising its strategic importance to Asia as a food bowl.

While the managerial changes at Australia’s largest company are undoubtedly the story of the day, the Distiller would just like to point out how little attention Australia’s new commodity boom – agricultural commodities – is getting compared to the widely expected end of the hard commodity boom and how our biggest companies are handling it.

In other company news, Fairfax’s Elizabeth Knight notes the how Richard Goyder wants to keep Target in the Wesfarmers tent, but the continued underperformance of the discount department store can’t be allowed to continue.

And finally, The Australian’s economics correspondent Adam Creighton sums up his opinion of the annual meetings of Australia’s prime minister and premiers with this opening line:

“Today’s Council of Australian Governments meeting in Canberra is aptly abbreviated to COAG, short for coagulate, which is what the wasteful gabfest among premiers and prime minister does to the lifeblood of Australia’s federation.” 

Clear on the point, you can’t deny him that.