Are BHP shareholders on board with crusading boss?

Andrew Mackenzie’s ‘social frolics’ are not being properly checked by BHP’s board. Picture: Stuart McEvoy

It is a safe bet that the chief executive of BHP won’t deliver a speech about the virtues of capitalism any time soon. A few weeks ago, this column gently nudged Andrew Mackenzie, the Scottish chief executive of BHP, to use his privileged position for something novel, to be an advocate for a system that lifts people out of poverty and drives human flourishing. Instead, his response was to dig in, reaffirming it is his proper role to speak out on social causes, from climate policy to entrenching a separate voice for indigenous people in the Australian Constitution.

Given that Mackenzie is resolute about his righteousness, where does the BHP board stand on these issues? More to the point, what is their role? We won’t hold our breath waiting to hear from BHP chairman Ken MacKenzie and other board members because boards don’t like publicity. They prefer that their highly paid, powerful gigs stay in the background. But the determination of BHP’s chief executive to add BHP’s name and reputation to contested social issues has thrown the role of BHP’s board into the spotlight, and it has some questions to answer.

The board of BHP is responsible for overseeing the governance, management and strategic direction of the company and delivering accountable corporate per­formance. That means it has a duty to ensure that when a chief executive puts the company name to a prominent social issue that potentially affects brand, reputation and shareholder value, proper due diligence is done before reaching that decision. It is not tenable for the board to dodge responsibility by claiming that plunging the company name into contested social issues is within the day-to-day delegation of management.

Here, then, are questions for each of the 10 non-executive BHP board members.

When BHP’s chief said that “deep down our employees want to be more moral and ethical” as justification to take positions on social issues, how does the board determine what moral and ethical issues BHP should involve itself in? What empirical evidence is there for Mackenzie’s claim about what BHP’s employees want? Did he take a survey or is he just assuming his personal views are shared by BHP employees? And how strong are the employee views; are their views on the voice evenly divided or overwhelmingly in favour? Are their views lukewarm or strongly held? And how much do they understand about the constitutional implications of the voice? Drilling down further, how does the board satisfy itself about how the nuts and bolts of these “moral and ethical” stances will affect shareholder value? The board can’t be satisfied with a chief executive doing a Dennis Denuto, arguing “the vibe of the thing”.

The BHP board must ensure correct procedures and policies are in place to protect shareholders, and shareholders are entitled to assurance that the board carefully supervised how social issues are chosen and positions reached. What has the board done to ensure BHP’s management team, led by Mackenzie, has considered all relevant issues? In other words, what kind of management work is required before BHP puts its name to a social issue, be it a separate voice for indigenous people or telling BHP customers how to use coal bought from BHP? Are papers presented to the board about the pros and cons of adopting one position over another? Are there detailed background briefings on the long-term consequences, political and legal, of entrenching a separate voice in the Constitution or the long-term economic effects of BHP dictating to customers how they use BHP’s coal? If not, how can the board meet its duty to shareholders to oversee rigorous decision-making processes at BHP? Or is the board happy for Mackenzie to commit the company to divisive social and political stances based on a feeling in his waters?

BHP’s chief executive spoke last week in broad brushstrokes about “morals and ethics” and being in the “middle of the road”. But has the board of BHP demanded further details to test whether he is acting in their best interests by signing BHP’s name to a constitutionally entrenched voice for one class of Australians? For example, a separate indigenous voice raises a fundamental issue about parliamentary sovereignty given that, once set in the Constitution, federal parliament will not have the power to abolish the voice. How middle-of-the-road is that? Has Mackenzie and each of BHP’s board members satisfied themselves that this won’t fundamentally alter our democratic model for the worse? More important, what long-term projections has Mackenzie brought to the BHP board about the impact on shareholder value of a constitutionally entrenched voice?

And how does BHP’s board feel about the chief executive in effect saying opponents of a constitutionally entrenched voice, such as Scott Morrison, are immoral and unethical?

Each year, boards sign off on their company’s environmental, social and governance statements in their annual report. Where is the assurance from the BHP board that the company has effective corporate governance practices that ensure its chief executive is using its platform and brand for the tangible benefit of shareholders, rather than as a platform to promote their own personal social preferences? If the board of BHP has not set down proper decision-making processes around Mackenzie’s call to plunge BHP into contested social issues, why not? And where is the regulator on this issue, given corporate virtue-signalling is becoming more endemic by the day? When a chief executive assumes the role of corporate cleric, attaching the company’s name to social reforms without knowing the full ramifications to the company, it is not some innocuous act that can be ignored by boards or regulators.

The Australian Securities & Investments Commission has recently been plugging the benefits of putting a psychologist into corporate boardrooms to test the risks of pushy chief executives getting their way without proper board oversight. What does ASIC have to say about a culture that appears to give chief executives a free pass to attach company names to contested social issues? Watch the regulator dodge this one, another issue for the already bursting too-hard basket.

And what about some guidance from the Australian Securities Exchange? The latest edition of the ASX corporate governance principles offers up a long list of measures for company boards to follow as a matter of best practice, including new board responsibilities to help set the appropriate risk appetite, overseeing and challenging management and new measures to encourage better disclosure of environmental, social and governance risks. Given the rise of corporate virtue-signalling, isn’t it time that ASX corporate governance principles be read to require proper oversight of processes around how management decides on social activism, sifting the harmless from the potentially harmful? A board serious about its role would be doing this already.

It is discouraging, to say the least, if BHP’s board is not properly checking Mackenzie’s social frolics. Shareholders are entitled to know whether the board of BHP is providing the proper oversight of a chief executive who remains determined to sign the company name to highly contested causes with unknown legal, political and social consequences. The boards of other big Australian companies are on notice, too.