SAM WALSH: RIO TINTO

The company he leads, Rio Tinto – the world’s second-largest mining conglomerate – has lost $31 billion in sharemarket value since the ­middle of 2014. The iron ore that Rio ships by the megaton from northwest Australia has plummeted in value as the company’s main customer, China, struggles through an ominous economic slowdown. The huge open-cut coalmines Rio operates in ­Australia are up for sale amid predictions that coal is in long-term decline. In August, Walsh announced that Rio’s net earnings had fallen off a cliff, dropping 80 per cent. Yet the portly 66-year-old looked positively chipper a few weeks before Christmas as he took to the stage at the business school of the University of Melbourne, his alma mater, to address a gathering of students and old corporate confreres.

Looking dapper in a charcoal suit with a patterned tie and matching pocket handkerchief, he launched smoothly into what has become his set speech, taking in the history of Rio from its roots in 19th-century Spain to its current globe-­bestriding presence in 40 countries where it digs iron ore, coal, uranium, diamonds and other minerals from the ground. He spoke of the environmental award the company recently received for reducing its greenhouse gas emissions; he mentioned the $260 million Rio spent last year on community and social projects; he spoke of its initiatives as the single biggest private employer of Aboriginal people in Australia.

“I had a conversation with the Archbishop of Canterbury recently,” he remarked in his mellifluous, calming voice. “He’s been doing work with the banks and he said to me, ‘Sam, you’re a company with high ethics and strong values – how can we actually spread this into some of the rogue banks?’” Walsh offered his audience a hangdog smile. “We just believe in it,” he averred. “We believe we will be a better business if we’re a ­company that takes the high moral ground.”

One could be forgiven for forgetting that Rio Tinto is the fourth-biggest climate-polluter in Australia, according to the Australian ­Conservation Foundation; or that four of its executives in China were jailed for accepting bribes six years ago; or that its mines have sparked hostile opposition and legal action from communities as far-flung as West Papua, Quebec and the Hunter Valley in NSW. Before Walsh’s appearance at Melbourne University, one of his staff had half-jokingly worried that placard-wielding protestors might assail him at the door. Not a bit of it: the students on hand offered nothing but admiration, and even when the ­fearsome indigenous academic Professor Marcia Langton collared Walsh afterwards for a chat, she was soon smiling and playfully punching him on the arm. Langton was keen to enlist Walsh’s ­support for the blighted Cape York community of Aurukun, which is 40km from a $1.9 billion bauxite mine Rio is planning. Walsh obligingly offered to take up the subject with her later.

It’s not hard to see why the Rio Tinto board would be happy to see Walsh running the company well past retirement age. His performance since taking over the top job in 2013 has been a one-man charm offensive in public, even as he imposed a brutal efficiency drive within the company that has seen budgets slashed and a slew of top executives leave. The result has been that Rio, despite its recent horror-financials, is widely perceived to be healthiest by far of the big global miners. The Times newspaper in London, where Walsh now lives, recently anointed him one of its Business People of the Year.

In person, Walsh is unfailingly polite, almost deferential. The soothing cadences of his speech give him the demeanour of a kindly uncle. ­Expletives never pass his lips – at least in mixed company – and he has a fondness for old-fashioned exclamations like “gosh” and “gee”. Interviewed in Rio’s Australian headquarters, high above the Melbourne CBD, he becomes animated when discussing his conversation with Langton the previous evening about helping the people of Aurukun. “Boy oh boy,” he says, “if we could make a difference in that community, wouldn’t that be wonderful?”

A devout Anglican, a collector of antique milk jugs (he has hundreds) and an aficionado of opera, theatre and classical music, Walsh at first blush seems an anomaly in the hard-hat world of mining. Since moving to London to take up the top job, he has joined the board of the Royal Opera House as well as become pals with the Archbishop of Canterbury, Justin Welby, whom he recently invited to dinner at the London flat Walsh shares with his wife, Leanne. He admits to an utter lack of interest in sport, a fact confirmed by friends such as Leigh Clifford, once the chief executive of Rio and now chairman of Qantas. “I once played a game of golf with Sam,” recalls Clifford, “and I can tell you that it’s not one of his interests or attributes. He told me at the time that he had never played before, and I’m absolutely certain that’s true.”

Behind Walsh’s avuncular demeanour and old-world hobbies, however, is a tough, demanding workaholic who has spent half a century mastering the mechanics and systems of heavy industry, working from the ground up. Walsh took over Rio at a perilous time in the company’s history: the mining boom was fading and the company had been left exposed by rash investments such as its $US38 billion takeover of the Canadian miner Alcan. After arriving in London from Perth – where he’d been running Rio’s iron ore division – he threw himself into the new job with the energy of a man 30 years younger. Gabrielle Iwanow, a young executive Walsh was mentoring, worked alongside him in this period and recalls that her day would start in the ­pre-dawn hours in London with 50 emails from ­Australia and end at midnight with a new influx of messages from Canada and the US. The 19 hours between were filled for Walsh with updates from operations around the world and brainstorming sessions about how to pull the company through the tough times ahead.

The plan Walsh came up with was to slash $5 billion from Rio’s costs by closing down ­marginal operations and imposing punishing budget cuts on his managers. Preston Chiaro, who recently retired as Rio’s head of technology and innovation, says Walsh made it clear that executives who failed to meet the new targets were risking their jobs. “He’s very tough,” says Chiaro. “Sam gives people a chance to meet their targets and will give his advice if things are not going to plan. But at the end of the day, if Sam saw that you didn’t have the right stuff he wouldn’t hesitate to find someone else.” The steady exodus of senior executives from Rio lately needs little more explanation. “Is it unreasonable?” asks Chiaro rhetorically. “Well, a little bit. But there’s a reason for the unreasonableness.”

The praise that Walsh is enjoying for his Rio turnaround has also revealed another of his paradoxical qualities: beneath his surface humility he has a vigorously healthy ego. Some business journalists mocked him for saying that his tenure at Rio would one day be “a Harvard case study”, but Walsh insists that Harvard is now actually doing such a study. In conversation he drops the names of the high and powerful he has met – Chinese president Xi Jinping, Indian Prime Minister Narendra Modi, World Bank president Jim Yong Kim, International Monetary Fund chief Christine Lagarde – with ease. “I think Sam believes that if you don’t blow your own trumpet no one else will,” remarks one former colleague. It’s not hard to detect the pride of someone who started at the bottom of the totem pole and has spent half a century slogging his way up.

The more personal side of that story can be hard to penetrate because Walsh is taciturn about such things. When he casually mentions that he has made 87 trips to Japan in the past 30 years as an example of the globetrotting demands of his work, one wonders how he has juggled career and family. Walsh has three adult children, two of whom work at Rio – a son in the London human resources department and a daughter who is a schoolteacher and now works in community relations with Rio in northwest Australia. His oldest son, Ben, is a senior ­financial services executive in Melbourne. But no one from Walsh’s family would contribute to this profile. “They are not normally used to being in the public spotlight,” he explains.

On paper, Walsh’s early life reads like textbook Melbourne Establishment: the son of a senior Commonwealth public servant, he was raised in a churchgoing family in the blue-chip suburb of Brighton and attended private Brighton Grammar. Rock’n’roll rebellion was not on his adolescent agenda – Walsh still sounds nostalgic when he talks about his days as a choirboy and boy scout. But the seemingly privileged background is somewhat deceiving; his father, who suffered a heart condition that required multiple surgeries, died from a coronary in 1964, leaving behind a wife who had never signed a cheque and three of their five children still living at home. As the oldest of the trio, 15-year-old Sam was thrust into the role of family treasurer, helping his mother with bills and taxes.

By his own admission, Walsh was an indifferent student, his academic performance doubtless hindered by the shock of his father’s death and the burden of his new responsibilities. He enrolled in Melbourne’s business school on a scholarship but remembers working odd jobs to support himself and saving money by walking the two kilometres from Flinders Street station to uni rather than catching a tram. After ­graduating he landed an entry-level job in the purchasing department of the car-maker ­General Motors-Holden, which dispatched him to Flint, Michigan, to work at Buick and attend the General Motors Institute. Walsh’s 15 years at GMH seem unremarkable on paper – he rose to purchasing manager by age 35 – but he says that in 1986 he was handpicked by the company’s managing director, Chuck Chapman, to lead a root-and-branch review of GMH alongside the management consultants McKinsey. “It was incredibly intense,” he recalls. “We basically went through every job, every department, every element of the company: what we did and how we did it.” In Walsh’s telling of events, the review ­climaxed with 36-year-old Sam standing before the GMH board of directors and recommending they all resign. “That’s pretty gutsy!” he laughs.

It’s a wonderful story, but one that prompts quizzical chuckles from those who knew Walsh at GMH. Ray Grigg, former general manager of operations at Holden, says he remembers the 1986 review well but does not recall Walsh ­telling the board to resign. “We had a taskforce team and Sam was part of that,” says Grigg, “but in fact I led the taskforce.” Robert McEniry, another former GMH executive, recalls: “There were four of us on the restructure team who went to Detroit to present our findings and Sam certainly wasn’t one of those. The changes to the board were really pushed by that smaller group. I can very distinctly remember that because I ended up being appointed to the board.”

Whatever the case, both Grigg and McEniry agree that Walsh was a highly regarded manager and in 1987 he was recruited to Nissan, where he was charged with overhauling the production line. By then Walsh had already earned a reputation for the unflappable calm that is his signature style. A car plant is a complicated, high-stress environment that relies on hundreds of workers and the steady supply of thousands of components from myriad manufacturers. At Nissan, Walsh successfully introduced advanced robotics while dealing with powerful unions and immersing himself in the unfamiliar tenets of Asian management practice. His boss at the time, ­former Nissan CEO Ivan Deveson, recalls: “The thing that always impressed me about Sam – and I think it’s part of his make-up today – is that he was always very cool under pressure.”

Walsh’s jump to the mining industry came in 1991 when Conzinc Riotinto of Australia – as it was then known – recruited him to run a new operation manufacturing aluminium car wheels. Rio was looking to shake up its management by recruiting outsiders who understood Asia and had worked in highly unionised industries. As he had at GMH, Walsh worked his way methodically up through the ranks of middle management to become chief executive of Comalco and then, in 2005, head of the iron ore division, Rio’s biggest revenue centre. These were jobs that put him in charge of huge projects like the $2.7 billion Gladstone alumina refinery and the $2.2 billion Hope Downs mine in the Pilbara, a deal he negotiated with Gina Rinehart. But Walsh, drawing on his experience at Nissan, also had a far-sighted grasp of how advanced technology such as driverless trucks and trains might push down costs in mining.

“He did a lot of things to take Rio Tinto into the 21st century,” says Preston Chiaro. “Sam thought the mining industry was backward and wanted to bring modern practices into Rio Tinto. He pulled a team together and took them around the world looking at leading practices in the aircraft and automobile industries that we could adopt.” The end result can be found today inside a squat building at Perth airport that bears the Rio Tinto logo: it’s the computerised command centre where the company’s far-flung network of highly automated trains, trucks and processing system are controlled remotely.

“I used to say this centre looks like [the US space agency] NASA,” says Walsh proudly, “until one of my guys went to NASA and said, ‘Sam, you’ve gotta stop talking about that NASA thing – it’s better!’” Driverless trucks and trains look destined to be ubiquitous in mining, but Walsh is dismissive of the efforts of his rivals. “My competitors don’t get it,” he says. “My competitors think it’s a technical solution – it’s not. It’s a cultural solution. I have my centre at the airport so that people can fly backwards and forwards [from the mines], because you’re relying on trust… You can’t have somebody in Perth who’s not in touch with the fact that a road’s been changed or you’re mining in a new pit.”

For an old fella who can remember when electric typewriters were state-of-the-art technology, Walsh seems at ease with 21st-century innovations. At Rio he has fostered the careers of several women and embraced modish practices such as mentoring and change management. In 2012 he recruited the 22-year-old Perth law graduate and youth activist Holly Ransom to Rio to scrutinise the company’s ­gender and environment policies. Ransom still sounds incredulous at this turn of events, which happened after she and Walsh bumped into each other during the tea-break at an International Women’s Day event hosted by then governor-general Quentin Bryce in Canberra.

“I was one of the only young people in the room and he was one of the only men,” she recalls. “He introduced himself as Sam and I introduced myself as Holly and we chatted for half an hour about gender equity and business and other issues. It sounds a bit embarrassing, but it wasn’t until he handed me his business card that I realised who he was.” Ransom spent two years at Rio before leaving to set up her own management consultancy; Walsh continues to mentor her, recently setting aside three hours to walk around Hyde Park in Sydney chewing the fat. “I kind of marvel that someone can be as excited by their job as Sam is,” she says. “He self-describes all the time as the luckiest man in the world.”

In his speech to the Melbourne Business School, Walsh proudly asserted that there has never been a day during his 25 years at Rio Tinto when he has doubted the company’s ­ethics or honesty. It’s a bold statement from a devout Christian, but Walsh has more than once stated that Rio’s ­ethical behaviour is entirely of a piece with his religious beliefs.

There’s no doubt that the Rio Tinto of the 21st ­century is a different beast from the company whose infamous Panguna copper mine sparked a violent revolt in Bougainville, Papua New Guinea, in 1988. That episode – in which the people of Bougainville launched a secessionist war because of pollution from the mine and the gross inequity of Rio’s deal – remains an indelible stain on the company’s past. In the past 20 years Rio has worked hard to remake both its image and its relationships with indigenous communities, winning kudos from supporters such as Marcia Langton at the University of Melbourne.

Langton was working at the National ­Aboriginal Council for Reconciliation in the mid-1990s when Rio’s far-sighted chief executive, Leon Davis, broke ranks with the mining industry by agreeing to negotiate native title royalty deals with indigenous communities. In the decades since then Langton has assisted the company with community liaison, visited its mine sites and accepted funding from Rio for her own research. She says Walsh has been an emphatic supporter of indigenous engagement.

“When he became head of Rio Tinto’s iron ore division there was a spate of innovation in dealing with traditional owner groups and native title groups,” she recalls. “Suddenly you went from infinitesimal indigenous employment to 25 per cent indigenous employment on projects. Also there was the settlement of agreements with native title groups and the company’s procurement policy, which resulted in all these indigenous contracts.” The royalties and income from such initiatives have dramatically improved the lives of thousands of Aboriginal people, Langton says. She points to Cape York, a region of particular historical shame for Rio, where in 1963 police marched the Aboriginal people of Mapoon off their land at gunpoint and razed their homes to make way for Comalco’s bauxite mines. Today the communities of western Cape York have nearly $80 million in accumulated mining royalties and the workforce at Rio’s Weipa bauxite operation is nearly one-quarter indigenous. “People who don’t understand modern mining corporations don’t understand that community relations is part of the new corporate approach, and you can’t get it wrong,” says Langton.

Walsh’s company has demonstrated a more ruthless approach in its dealings with the tiny hamlet of Bulga, in NSW’s Hunter Valley. Bulga sits next to Rio’s massive Mount Thorley Warkworth open-cut coalmine, which was expanded in 2003 after Rio struck a legal agreement with the Labor state government guaranteeing the mine would never extend beyond a high ridge that protects Bulga from noise and dust. Seven years later, Rio lobbied the new Liberal state government to tear up that agreement so it could mine through the ridge, a plan that Bulga’s 350 residents say will make their town uninhabitable and their homes valueless. Outraged, the community launched legal action and won a historic court case against Rio in 2013, winning a second time after Rio appealed the following year.

Under Walsh’s leadership, Rio has since ­lobbied the NSW Government to nullify the community’s court victory by changing the rules governing mine approvals. Rio is now pushing ahead with plans for the mine extension, even as it tries to sell Mount Thorley Warkworth to escape the coal downturn. “If Sam really is a good churchgoing bloke,” says John Krey, leader of the Bulga residents group, “you’d think he would say, ‘OK, this is a business, but it has to have a certain morality’. Listening to him you’d think Rio Tinto was a shining example of corporate ethics; the reality, of course, is otherwise.”

Asked about the anger in Bulga, Walsh adopts his most placatory tone. “There are a raft of issues there,” he says, “and we have to deal with these issues and work through them and we have to rely on the fact that government, representing the people, will take everything into account in terms of how they reach their conclusion. Yes, there are people who are opposing the mine. There are also a large number of people who are supporting the mine. It’s their livelihood; it’s their energy and fuel source.” Walsh has visited Bulga and insists that expanding the mine won’t render the village unliveable. But on the question of why Rio reneged on its 2003 agreement protecting the community, he looks puzzled. “I’ve not heard of this agreement,” he says. “If I knew about it, I would tell you. I don’t know about it.”

Perhaps that’s simply the reality of being at the top of a company with 60,000 employees spread as far as the remote regions of Guinea and ­Mongolia. A cynic might suggest that Rio had everything to gain from negotiating with ­Aboriginal communities but nothing to gain from capitulating to the people of Bulga. As one former Rio executive says about the company’s native title stance: “Let’s face it, in the pure ­commercial sense it gave us an advantage over those who were trying to fight [native title]. We were more welcome on indigenous land than any other mining company.” By contrast, Rio can sell the Mount Thorley Warkworth mine for a much higher price if the extension approval is in place.

Rio has undeniably taken admirable environmental steps under Walsh. Last year it ­relinquished its mining rights to 175,000ha of Kimberley wilderness, including the spectacular Mitchell Falls, which will now be incorporated into Australia’s largest national park; a year earlier it pulled out of the controversial ­Pebble copper and gold mine in Canada, donating its shares to two Alaskan charities. Walsh presented the Kimberley initiative almost as a personal decision, saying a visit to the Mitchell Falls as a tourist convinced him it was “an iconic area that needs to be preserved for future generations”.

Yet it’s also true that mining in both those regions is a marginal proposition at a time of ­massive cost-cutting in the company. Matt Rose, an economist with the Australian Conservation Foundation, applauds Walsh for driving the company to use more renewable energy, which now powers 84 per cent of its aluminium production. But Rose says that shouldn’t ­distract from the core issue with mining companies: they are massive polluters. Rio’s mining and smelting operations were responsible for 18.1 million tonnes of CO2 emissions in 2013-14, making it our biggest-polluting miner, according to the ACF. The coal and iron ore it ships overseas, meanwhile, contribute to many millions of tonnes of emissions elsewhere. “The fact is that the stuff they’re digging out of the ground is the problem,” says Rose. “The business is the problem.”

A few days before Walsh spoke in Melbourne, pollution in Beijing became so critical that authorities issued an “orange alert” recommending that its 22.5 million residents stay indoors. Asked whether he ever pauses, on his many trips to China, to consider the toll that rampant industrialisation is wreaking there, Walsh is silent for a moment. “Well, I mean, yes and no,” he replies. “You see what’s going on and you see the ramifications very visibly. With our iron ore business, we deal with the top 60 steel-makers and they’re using world’s best practice in terms of environmental controls in how they make steel. It’s actually the other 2500 steel producers that are creating most of the problem. Don’t get me wrong, there is a serious issue of pollution in China. But do I feel bad about the fact that I’ve helped to be part of the solution, to 300 million people moving out of poverty into the middle class? That’s a worthy contribution.”

One of Walsh’s former close colleagues at Rio Tinto, Stern Hu, is serving a 10-year prison sentence in China for stealing commercial secrets and accepting bribes, following a trial in which crucial hearings were held in secret. The severity of the sentence and the timing of the charges in 2010 – when China was trying to drive down the price of iron ore – have caused much ­consternation in Australia.

Asked whether he thinks his old friend was treated harshly, Walsh exhales heavily. “We operate in a raft of regimes, 40 countries around the world, and quite frankly we have learnt to follow the law of the land,” he replies. “So it’s not something that really I can comment on except to say we follow the law.” The case was one of the most difficult periods of his life, says Walsh, who regarded Hu as “a good friend”. But he says the evidence was irrefutable that Hu was taking bribes in return for tipping off buyers about how to outbid their rivals for Rio’s ore.

As 2015 was drawing to a close, Rio Tinto was closing in on BHP Billiton for the title of world’s biggest miner. In some ways, it’s a race in reverse, for BHP’s market-value has plunged more than half in the past 18 months, compared to Rio’s more moderate dive of 28 per cent. Still, knocking the Big Australian off its perch for the first time since the Billiton merger would be a sweet way indeed for Sam Walsh to finish his reign as Rio’s CEO.

Asked what he might do after that, Walsh muses that he has a few “global connections” that offer possibilities. “I interface with a whole raft of world leaders – Christine Lagarde, Angel Gurria of the OECD, Jim Kim of the World Bank… And I like to be part of the big picture. I like to understand where people are taking the world.” The boy from Brighton may clock up a few more frequent-flyer miles yet.

Sourse: http://www.theaustralian.com.au