Carroll carries the can for years of unwise decisions
July 10, 2009
By David Gleason
She has a haunted look about her. That's how she appears in the most recent photographs. And it's hardly surprising - ever since she took over from Tony Trahar as chief executive of Anglo American, Cynthia Carroll has been in the cross hairs of many shareholders, analysts and journalists.
And now she and Anglo are targeted by none other than Mick Davis, the acquisitive chief executive of Swiss-domiciled Xstrata. It's a fascinating story, one that probably has a few chapters in it yet.
It has its origins in two potentially fatal decisions. The first was that taken by the founding Oppenheimer family to exit the mining house launched by Sir Ernest in 1917 and to concentrate its efforts and resources instead in diamonds, De Beers specifically. The second was Julian Ogilvie Thompson's decision to follow Gencor into exile and, simultaneously, to shed Anglo's long-established position as a conglomerate in favour of a narrower, more tightly focused agglomeration in base metals.
The first event was an internal family affair. Much as it is criticised or supported, we'll never know the real reasons beneath it. But the effect was slowly to remove one of Anglo's most powerful defences.
The second is, however, another matter. Anglo came under increasing censure, largely from London analysts who carry a disproportionate weight among investors, because put quite simply, conglomerates became unfashionable. However much cogent argument can be assembled to support the concept of limited focused firms, there is an equally impressive case to be made for those with widespread portfolios.
Anglo's growth as a conglomerate was a result of an inward-looking state and its apartheid. It didn't evolve out of a planned strategy, and after the Sharpeville massacre of 1960 and the prompt erection of impenetrable exchange control barriers, there was nowhere else for Anglo to go other than to keep reinvesting in South Africa.
More than anything else, this was a major disservice to South Africa's mining industry, then the world leader: it hobbled the houses and handed a free ticket to international competitors. By the time democracy arrived in 1994, the race for mining assets across the globe had long since been run.
Within Anglo, the argument supporting its conglomerate positioning was that it was unlikely that everything would crash simultaneously. And that certainly holds true with the latest meltdown: although commodities such as iron ore, coal and copper have crashed, gold has performed well. But gold, of course, is an area Anglo has visibly and deliberately deserted.
So Anglo has paid a heavy price, first for 50 years of obtuse government policies, then in the attempt to establish itself as a serious player in a highly competitive global arena, and finally in its anxiety to fall into line with the conventional wisdom that adamantly shunned conglomerates.
And all of this was distilled into a board of directors that had to be seen to be distant from South Africa. This is serious stuff: it is tantamount to an attempt to deny its history, origins and corporate memory. When, in a fit of ill-tempered treason, it dumped chief executive Trahar and disposed of another executive director, Barry Davidson, it finally looked what it was: an orphan in an increasingly tough world.
I was never happy about the appointments, first, of Mark Moody-Stuart as chairman and then his choice of Cynthia Carroll to replace Trahar. Here are two people who know little, if anything, about the corporate character of their firm.
Anglo's board has been described as incompetent and the morale of its key executives as depressed. I have it on good authority that Carroll was considered by her previous employer, Alcan, to have reached her ceiling. She is out of place at Anglo.
Then along come Mick Davis and Xstrata. He is an intriguing fellow as he is so driven, though by what I'm not sure. He is certainly clever and a workaholic: his reputation at Eskom, where he rose to become its executive director of finance at an impossibly young age, was of a man in a hurry.
When Gencor's Brian Gilbertson called, Davis was ready and waiting. The rest is history: after Billiton was subsumed into the maw of BHP, Glencore came along with Xstrata on a plate. This is what Davis wants - to be the untrammelled leader of a great company - and he learnt at the feet of Gilbertson, the master.
Of course, Glencore isn't exactly covered in smelling salts. It was founded in 1974 by Marc Rich and Pincus Green after Rich pulled off an astonishing coup during the Arab-imposed oil embargo. In 1983 Rich was indicted by Rudi Giuliani on charges of trading illegally with Iran and for tax evasion. He was on the FBI's Ten Most Wanted Fugitive list for many years until controversially pardoned by then president Bill Clinton hours before leaving office. Rich sold out of Glencore, cited on a variety of charges in various countries, in 1993/94.
This is the firm that is Xstrata's top shareholder. And interesting about Xstrata is the way it has grown in the last five years. Davis has pulled off astonishing coups. But it would be more comforting for investors to count on solid organic growth.
And as analyst Piet Viljoen observed in a talk with me last week, Davis has raised a lot of money in the market but has been a net destroyer of wealth along the way.
It is the extent of the hurry Davis exhibits that is unnerving. In 2006 he captured Canada's Falconbridge, an important nickel and copper producer; last year he set his cap at Lonrho, which escaped only because of intervention of the global financial crash; now he's having a go at collecting Anglo. His drive appears boundless.
Meanwhile, many Anglo shareholders are mortified that Carroll canned the dividend they had come to expect last year. Conveniently, they have all forgotten that Davis passed Xstrata's final dividend last year too. They are angry, but not just about money. They are concerned Anglo has lost its way, that there appears no entrepreneurial spirit, and that it looks rudderless.
I concur with this view. Assuming the merger Xstrata seeks doesn't come off, where does Anglo go? It needs to rediscover the truism that diversified assets provide protection; it needs to accept that base metals are not the alpha and omega of mining; it has to reinvigorate its bosses and encourage the same entrepreneurial spirit that Davis has in oversupply. I doubt that any of this is within Carroll's reach.
But sweeping away boards and chief executives isn't easy. The occasions on which shareholders achieve this in meetings are rare. This is why former Anglo executive directors are giving their support to Davis and Xstrata. In Graham Boustred's case, he gave intemperate voice to his view - but he was always prone to do that. In his case, nothing has changed and he was indeed a formidable rainmaker in his day.
Shareholders are saying Xstrata's assets may be less attractive than Anglo's but assets count for just so much. Leadership is what is needed - and, in their view, Carroll is all at sea. What's more, she's a woman and though that shouldn't count, in this world it still does. The best way to achieve this cleansing of Anglo's Augean stables is through a merger. Let Davis and his team take over and it will turn out much better.
There's no guarantee of that. And you can be sure that Carroll and Moody-Stuart will mount a powerful defence.
David Gleason worked at Anglo American for 22 years, at one stage as personal assistant to chairman Gavin Relly.
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