BHP’s new chairman Ken MacKenzie to tackle shale oil

Incoming BHP chairman Ken MacKenzie will confront growing shareholder pressure to boost returns.

BHP Billiton chairman-elect Ken MacKenzie. Picture: James Croucher

Incoming BHP Billiton chairman Ken MacKenzie will confront growing shareholder pressure to boost returns and finally deal with the company’s underperforming US shale assets, amid questions over what impact his appointment will have on the miner’s relatively new management team.

The former long-serving Amcor boss will replace Jac Nasser as BHP chairman in September, after a vote at the big miner’s Santiago board meeting yesterday confirmed the appointment over internal candidates Lindsay Maxsted and Malcolm Broomhead.

With the appointment flagged last week by The Australian and backed by shareholders, attention has now turned to how Montreal-born Mr MacKenzie will view BHP’s capital allocation, and whether board regeneration will be pursued.

Big shareholders and Elliott were quick to applaud the board’s decision to vote in the 53-year-old over the more experienced internal candidates — Westpac chairman Mr Maxsted and Orica chairman Mr Broomhead.

“Of the internal candidates, Ken MacKenzie stands out as a clear leader with vision, a strong track record and a very impressive record with Amcor,” said Andrew Preston, head of Australian corporate governance at Aberdeen Asset Management.

“I think he’ll be very good for the company.”

Aberdeen is the second-biggest shareholder listed in the miner’s annual report, with a $2.1 billion stake in BHP’s London-listed shares and an undisclosed number of Australian-listed shares.

Mr MacKenzie joined the board last September, so when Mr Nasser announced his intention to retire a month later, the new board member was initially seen as little more than an outside chance to nab the top board job at the world’s biggest miner.

But Mr Preston said the other internal candidates were tied to decisions that had brought pressure on BHP, such as the $US20bn acquisition of US shale oil and gas ­assets in 2011.

“They have made a good selection with Andrew Mackenzie as CEO and to pair that with a slightly younger chairman who might come in with fresh ideas, I think is good,” he said.

Mr MacKenzie left packaging company Amcor in 2015 after 23 years with the company, 10 as chief executive. During that time he is credited with turning the company around by making it a truly international business and boosting returns on capital.

The BHP directorship has been his only corporate non-executive position since leaving Amcor.

Mr MacKenzie said Mr Nasser’s leadership had transformed BHP, creating a simpler, more productive and more resilient company, and it was an honour to be announced as his successor.

But he gave a nod to the ­pressure on the company from the ­Elliott campaign, and to inconveniently low oil prices that continue to postpone any real returns from the US shale business.

“As incoming chairman, I look forward to engaging with shareholders and other stakeholders over the coming weeks to understand their perspectives,” Mr MacKenzie said.

“I am committed to the creation of long-term value for all of our shareholders and will work tirelessly with the board and management to achieve this.”

Elliott, which says it has a 4 per cent interest in BHP’s London-listed shares that cannot be confirmed by company records, applauded Mr MacKenzie’s appointment and urged the new chairman to refresh the board and review the Andrew Mackenzie-led management team.

“As CEO of Amcor, Mr Mac­Kenzie displayed strong leadership qualities as he successfully navigated the company through the financial crisis while making difficult decisions to significantly improve shareholder returns over his decade at the helm,” Elliott said from its Hong Kong office.

“As a large investor in BHP, ­Elliott encourages Mr MacKenzie to use his leadership skills to address BHP’s poor capital allocation and underperformance, nominate diverse and qualified directors, and review the executive management team.”

Elliott has not made public any major beefs with current management. It has declined to say whether it is happy with the performance of Mr Mackenzie’s team, none of whom were associated with the shale acquisitions that the New York hedge fund says destroyed value, or whether management pressure could be another stage of its campaign.

Citi analyst Clarke Wilkins said that given Mr MacKenzie, unlike the other internal candidates and Mr Nasser, had no ­connection to the US shale acquisitions, there could be more ­potential for a sale of the assets, which Citi values at $7.3bn. There could also be management change on the way, he said.

“Andrew Mackenzie has been in the role for just over four years ... and has driven a significant reduction in costs across the business and a slimming down of the portfolio through the demerger of South32,” he said. “With a new chairman and focus moving to unlocking productivity improvements through realising latent capacity and delivering projects, there may be some subsequent changes among management.”

BHP has given no indication it is sees a chief executive change on the horizon as Mr Mackenzie’s time at the helm approaches the five-year mark, seen as an average tenure for Australian CEOs.

But the big miner says succession planning is a constant process and at the moment, potential internal successors include Australian mining boss Mike Henry, chief financial officer Peter Beaven and chief operating officer ­Arnoud Balhuizen.

Market speculation has thrown up former BHP chief fin­ancial officer and current South32 chief executive Graham Kerr as a possible candidate.

Australian Foundation Investment Co shareholder Ross Barker, the managing director of top 20 shareholder Australian Foundation Investment Co, said he was very supportive of Mr MacKenzie’s appointment and hoped he could ensure BHP’s world-class assets were well-managed.

“As long-term shareholders, we look forward to participating in the prosperity which is on offer from those assets and opportunities being well managed,” Mr Barker said.

BHP chairman Jac Nasser and John Durie in conversation. June 29, Ivy Ballroom, Sydney. Details: theaustralian.com.au/advantage