Why GlencoreXstrata's Tony Hayward appointment is a risk

WASHINGTON - JUNE 17: BP Chief Executive Tony Hayward testifies before the Oversight and Investigations Subcommittee during a hearing on "The Role Of BP In The Deepwater Horizon Explosion And Oil Spill" June 17, 2010 in Washington, DC. BP agreed yesterday to place $20 billion into an escrow account managed by a third party to pay out claims resulting from the oil spill and also said it will not pay out additional dividends to shareholders for the remainder of the year.> on June 17, 2010 in Washington, DC. (Photo by Alex Wong/Getty Images) *** Local Caption *** Tony Hayward
Alex Wong

Commentary:

(MoneyWatch) Risk runs rampant at Glencore.

A company has a track record of accidents and fatalities. It brings in new management and everyone expects root-and-branch improvement. Instead, the accidents get worse.

That is how you might have summed up BP in the five years between the resignation of John Browne and the resignation of his heir, Tony Hayward. But it might also become -- if the company and its leadership aren't very careful -- the history of extraction giant GlencoreXstrata.

Like BP, the new company was forged in the white heat of M&A: A process that always makes complicated companies more complex, exacerbates internal rivalries and makes sheer operational day-to-day work a great deal more difficult. While a few organizations have learned to integrate acquisitions well, most of these deals fail, at least in part because the combined organization becomes so political, factional and rife with internal demons.

That is exactly what we are seeing now at GlencoreXstrata. There was infighting during the deal negotiation and as soon as it was completed. Glencore already has a challenging safety record: Poor at reporting on safety, it finally reported 56 fatalities in the period 2008-2010. Roger Moody, of the London Mining Network, while acknowledging that this is a dangerous industry, has labeled Glencore "one of the most dangerous mining companies listed in London." Meanwhile, Xstrata has been under investigation for environmental violations too.

And now the company has, as its chairman, Tony Hayward, who was CEO of BP at the time of Deepwater Horizon, leaving in ignominy after he failed to transform BP from a dangerous company into a safe one, leading to one of the world's worst environmental disasters. The $8.2 billion which BP put aside to cover compensation cases after the accident has now been identified as probably too little; instead, the future of the entire business is now deemed to be at risk. Whether or not all of the claims are warranted merely distracts from the fact that there would be no claims had the rig been run better.

Why would any business wish to appoint as its Chair the man whose leadership has brought BP to the point where it fears for its own viability? Extraction businesses are accustomed to dealing with risk but of all the appointments that might have been made, this suggests a love of danger that might give anyone pause. Riven with political infighting and disgruntled shareholders, GlencoreXstrata now has a Chairman who is the poster child for arrogance, narcissism and the destruction of shareholder value. Investors should take note: Extraction industries don't have a great track record in caring about the little people. And that may well include the people who own their stock.

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.