Are mining CEOs the scapegoats rather than the villians?

Among the spate of CEO changes we have already noted, many observers had remarked that Rio Tinto’s CEO, Tom Albanese had effectively been fired as a consequence of the huge write-down of the company’s investment in major aluminium producer Alcan, coupled with the smaller write down of its Mozambique coal assets acquired from the takeover of Riversdale coal last year.

The Riversdale acquisition was obviously down to an extent to Albanese, but a company CEO has to rely on his management executives and board for pursuing, and approval of, major decisions of this type.

It’s not just a case of the CEO pushing through an investment of the type without receiving plenty of advice first.  In this case the acquisition appears to have been pushed through on the advice of a technical team led by Doug Ritchie who lost his job at the same time as Albanese.

Now, under normal circumstances, Albanese might have survived the Riversdale debacle on its own but one suspects that the Rio Board, faced with deciding to take the Alcan and Riversdale write downs at the same time, also decided that a high profile head would have to roll – and Albanese became the obvious scapegoat even if the board itself was perhaps more responsible for the Alcan takeover than Albanese himself given the timing of his appointment as CEO a mere two months before the Alcan deal was finalised.

There was probably little Albanese could have done to prevent it in this early stage of his tenure as CEO, even if he personally had doubts about the wisdom of the takeover.

Alcan was a peculiar case anyway.  It was facing a takeover by its then bigger rival, and former parent, Alcoa, and was actively seeking a ‘white knight’ to take it out of Alcoa’s clutches.

Meanwhile, BHP was in the throes of preparing a hostile bid for Rio Tinto and, reports suggest, Rio felt the acquisition of Alcan would make it more difficult to digest. 

So it was both a white knight and poison pill situation.  At the time commodity markets were riding high.  It appeared to be a win-win situation for Rio.  Not surprisingly the company’s brand new CEO would have been easily coerced  by the board into continuing with the Alcan takeover.

It all fell apart a year later with the collapse of commodity markets almost bringing Rio Tinto to its knees, and Albanese should perhaps have been given credit for subsequently bringing it back to its feet rather than being dismissed seemingly ignominously without the customary payout.  Such is life.

Of course, the aluminium sector’s continued underperformance, perhaps coupled with increased realisation by institutional investors in particular that the massive mega mergers and huge new and costly mining projects being entered into by the mining majors, were no longer seen as accretive and were drastically, and adversely, affecting their investments, didn’t help the situation.

Before the 2007/2008 market crash these same investors would have been pushing the mining majors to make these mega deals and project investments which were then seen in a positive light. 

Timing is everything and the current spate of major miner CEO demise has largely been because they were unfortunate enough to be in charge during a global turndown in the markets, coupled with unprecedented, and perhaps unpredictable, rises in mining costs affecting company bottom lines as well as pushing new project costs out of sight.

It’s not a case of major miners virtually all selecting incompetents as their CEOs at the same time, but a case of these CEOs all being in the wrong place at the wrong time.

They would not have been put in their positions had they not been top people in their respective fields.  

From the investor point of view CEOs are perhaps supposed to be savvy enough to predict the kind of problems which have beset global mining as a whole over the past few years – but, arguably, these same investors, now calling for heads to roll, would have been equally unhappy if the major miners had not been making some of these same types of acquisition and new project development decisions when markets were all rising and the so-called supercycle was in fast forward mode.

So, spare some sympathy for Tom Albanese, Cynthia Carroll, Aaron Regent, Tye Burt, Richard O’Brien, Marius Kloppers (if reports of his likely replacement are to be believed) and the other high flyers who flew too close to the sun. 

All have been made scapegoats for believing what their top management and boards have proposed and agreed.  In another era they would likely have been considered heroes of the mining sector as their companies might have gone from strength to strength.  As we have remarked before it’s tough being a mining CEO!


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