Listening the key to Brian Loton’s success at BHP
Even after the late Brian Loton retired as BHP chairman in 1997, the company kept an office for him.
Even after the late Brian Loton retired as BHP chairman in 1997, the company kept an office for him. Countless young BHP up and comers passed the grey headed icon with little knowledge of the role he played in shaping the mining giant.
Loton had risen from the bottom rungs of BHP to the top without the benefit of a Newcastle High education – the passport to success of so many BHP executives in his era.
Those up and comers who asked for his advice might have heard the word “listen”. One of Loton’s greatest skills was listening to gain the knowledge needed to advance from his early days in the dusty South Australian iron ore mines and shipyards.
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Brian Loton
Born: May 17, 1929
Died: March 29, 2022
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Loton will go down in BHP history as the man who stopped Robert Holmes a Court from gaining control. But he also took the company out of the comfort of Australia into the international world. The Loton story covers almost half a century of what is now our largest company.
When Loton joined BHP, he experienced the final years of the 34-year dominating reign of Essington Lewis, first as managing director and then chairman.
The Lewis pattern became the BHP management way, and so after Lewis’s death another dominating force emerged from within the company’s ranks – Ian McLennan.
Like Lewis he ruled first from the executive floor and then as an executive chairman. Loton thrived in the McLennan era.
McLennan will be remembered for buying the Mount Newman iron ore deposits from CSR and leading BHP into Bass Strait, building the company’s stake in oil and gas.
The traditional success criteria for BHP chiefs was not so much related to profits and dividends but adding more resources than you had inherited from your predecessor.
McLennan was a hero on this front and set a high bar for subsequent BHP chiefs, including Loton. McLennan also entrenched the Lewis precedent for BHP chairmen to be the dominating force with the chief executive as the No.2.
McLennan’s No.2 was James McNeill. After Lewis’s death BHP established a retiring age, so in 1977 McNeill replaced McLennan as chairman and top executive. He needed to choose a chief executive as his No.2.
Loton was not his first choice; McNeill appointed the outgoing and very personable Fred Rich to the role.
But Rich died before taking office and his rival, Loton, was appointed with the initial title chief general manager – not managing director. It was almost as though Loton was on trial.
As McNeill neared his 1984 compulsorily retirement Loton encouraged McNeill to buy control of Utah’s vast coal interests in Australia from General Electric’s Jack Welch.
It was a huge acquisition for BHP and secured McNeill’s place as a BHP leader who handed down more resources than he inherited. But it would be Loton who turned the acquisition into a bonanza.
A year before McNeill’s required retirement as BHP chairman, Loton was promoted to managing director – he had won his spurs in the eyes of McNeill.
Welch had, almost as an afterthought, thrown in Utah’s Escondida copper discovery in Chile. Loton saw the Chilean deposit as a beginning of an international BHP and immediately began work on its development.
It was around the time of the Utah acquisition that Robert Holmes a Court made his first bid for BHP. Neither McNeill nor Loton took Holmes a Court seriously and there was great laughter in the BHP camp.
In the BHP tradition, Loton could be expected to become chairman when McNeill reached retirement age in 1984.
But the BHP board wanted a non-executive chairman and chose the earthy, rural-based James Balderstone for the role. Loton accepted the decision and Balderstone and Loton became a brilliant team.
It was soon apparent that the threat from Robert Holmes a Court was no laughing matter. Australia’s institutions were starting to become much more active. They saw BHP as a bit stodgy and wanted more action.
Balderstone and Loton vowed that they would do everything they possibly could to stop Holmes a Court from gaining control of the Big Australian.
The battle lasted almost five years, requiring incredible fortitude from Loton and Balderstone.
They were prepared to sail close to the legal wind when John Elliott’s Elders came in to help.
BHP bought shares in Elders and Elders bought a blocking stake in BHP.
Loton and Balderstone knew that Elliott was not a passive white knight – he also wanted control of BHP. During the battle, Loton took the incredible step of inviting both Elliott and Holmes a Court on to the BHP board – a defensive tactic which has rarely, if ever, been repeated. Loton’s determination to block both Holmes a Court and Elliott never wavered, but as a listener he was fascinated by some of the ideas Holmes a Court canvassed.
One of those was that BHP should become a dominating force in the global copper industry, extending from its mines in Chile to refining the metal.
By February 1988 – following the 1987 share crash – Elliott and Holmes a Court’s holdings had unravelled and both had left the BHP board. Loton had won against the odds.
And although the BHP balance sheet was scarred by the debt involved in the settlement, Loton began making up for lost time and began planting some of the seeds that would germinate into the biggest expansion program ever attempted by an Australian company.
When Balderstone retired as chairman in 1989 Loton might have been expected to take his job immediately. But BHP directors did not want a repeat of the Lewis-McLennan-McNeill tradition, so Arvi Parbo was “borrowed” from Western Mining to be BHP chairman for three years.
Loton was to be deputy chairman and managing director for the first two years.
In the third year of Parbo’s chairmanship John Prescott became chief executive.
Loton become BHP chairman in June 1992.
Fast forward to May 1996 and BHP executives and directors were meeting at the Sefton retreat at Mount Macedon in Victoria. Loton, under BHP rules, would have to retire in a year and a new chairman was to take start in 1997.
Directors in 1996 saw excitement in every corner of BHP.
BHP was erecting a $2.4bn plant to directly reduce iron ore to iron; petroleum chief John O’Connor’s brilliant analysis had led the company into the Gulf of Mexico in search of oil; Ron McNeilly had taken BHP steel into Asia; a titanium production unit was being erected in Western Australia; and in the biggest project of all, Jerry Ellis had fulfilled what had become a BHP dream – linking the BHP copper from mine to metal – via a the $3.2bn takeover of US refiner Magma.
But in the desire to fulfil that dream, the company had not done enough due diligence on the Magma acquisition. It was later to discover it had bought a lemon. The engineers in the iron and titanium projects had not been frank with the executive in charge, Dick Carter, about the problems they were encountering. But in 1996, no one had an inkling that more than $6bn in writedowns were ahead.
At Macedon, the selection of a new chairman was not easy. The non-executive directors were too old, others held executive positions. So Ellis, the hero of Magma, was selected.
At that meeting, it had not been highlighted that Loton had strayed into the Lewis-McClennan-McNeill chairmanship tradition and a number of executives were effectively reporting to him rather than the chief executive.
After Loton retired the balloon went up and Prescott and Carter were asked to leave, while O’Connor made a foolish off-the-cuff remark about floating BHP Petroleum to a journalist.
He too was dumped.
Ellis was replaced by Don Argus in 1999. It was a bitter time.
But Loton’s legacy remained the defeat of Holmes a Court and the company’s new era of internationalisation.
The current BHP no longer rates chief executives by the resources they accumulate – its about profits and cash distributions. It’s a new BHP.