03/12/2020 - 08:00

Walsh active in business and beyond

03/12/2020 - 08:00

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Business News talked to former Rio boss Sam Walsh about life, leadership, and why he collects antique milk jugs.

Sam Walsh has high-profile board roles with companies in Japan, Saudi Arabia and the UK. Photo: Gabriel Oliveira

Sam Walsh beams as he remarks just how much he is enjoying retirement.

Although ‘retirement’ for the former Rio Tinto chief executive includes a suite of high-profile roles in business and community organisations.

In recent weeks, Mr Walsh added a new position to his collection: a role on the board of miner Ma’aden, as the representative of Saudi Arabia’s sovereign wealth fund.

A listed Saudi business, Ma’aden’s two biggest revenue streams are in phosphate and aluminium.

The high-profile board is led by Yasir Al-Rumayyan, who is governor of the kingdom’s wealth fund, chairs oil giant Saudi Aramco, and is a director of both Softbank and Uber Technologies.

Former Newmont Mining Corporation chief executive Richard O’Brien is also a Ma’aden board member.

Mr Walsh fits right in, with a current portfolio that includes chairing the state government’s Gold Corporation, a board position at Japanese trading house Mitsui & Co, and the chairmanship of the Australia Council arts funding body, among others.

Ma’aden would fit well with his existing experience, Mr Walsh told Business News.

“It’s not as if I’m stepping into the unknown, it’s a business [mining] I’m used to,” Mr Walsh said.

However, the cultural approach on the board was different to those he had previously experienced, and more formal, he said.

“I have a very diverse international portfolio: arts, church, charity, and I’ve got three business associations,” Mr Walsh said.

“I’ve always been international.”

Part of that international experience includes time in the US with General Motors, then a period with Japanese car maker Nissan, and later Rio Tinto.

“You learn bits and pieces from each,” he said.

“GM taught me how to get things done.

“Nissan taught me about consensus decision making and communicating.

“Rio taught me the big picture.

“When I was running iron ore, you’re competing on the world stage.”

Sam Walsh in the Business News boardroom more than a decade ago. 

Leadership lessons

Mr Walsh attended Brighton Grammar in Melbourne, was a regular scout and involved in the church community.

Scouting, and church, taught valuable lessons that have stayed with Mr Walsh during his time in business, particularly the importance of values and ethics.

After studying economics at Melbourne University, he secured a graduate job at General Motors, which manufactured Holden motor cars.

“It was the first job I applied for and I got it, which surprised me,” Mr Walsh said.

As part of the program, Mr Walsh was sent to Michigan in the US for a year, where he said he was fortunate to gain experience in many parts of the business, including in computing.

“I was programming at Buick in something called COBOL,” he said, referring to a popular programming language at the time.

“So, I’m not a Neanderthal, but COBOL is these days.”

His rise at GM was rapid, which he attributed to an ability to get things done.

“[People] join an organisation and they think their job is to do the job they’re hired for,” Mr Walsh said.

“But they’re hired to add value.

“If you want to get on, you’ve got to add value.

“A little bit risky, but that’s how business works.

“It doesn’t work by people being bureaucratic.”

An example of this during his time with GM Holden was one of his early assignments dealing with vehicles off the road, waiting for parts.

There were about 150 vehicles off the road around Australia.

“It swamped the organisation,” Mr Walsh said.

“I just tackled it with a vengeance.

“I tore parts off cars being built so they could go out to some poor customer who was stranded somewhere without their vehicle.

“I spoke with suppliers and got them to expedite or air freight components.

“The fascinating thing was, the moment something went into shortage it was a bit like toilet paper [earlier this year], demand for that part far exceeded the real requirement.

“The trick was to get vehicles back on the road, so you could get back to normal demand.

“Then the system just worked.”

There was a similar lesson in Michigan at Buick, where his first role was in the expediting department.

“The guy who was in the role the day before me went off with a heart attack,” Mr Walsh said.

“I was given the job.

“When I saw his deck of shortages, I realised exactly why he’d gone off with a heart attack.”

One big problem was a shortage of engines.

“Making cars, you don’t want to stop an assembly line, ever … then you have thousands of people doing nothing, twiddling their thumbs,” Mr Walsh said.

He called someone at the engine production business in Ohio, working to speed up production and delivery of the engines.

When he asked if they could put the engines on a truck, his counterparty said that would not be quick enough and he’d need to hire a jet.

“Working at GM Holden [Australia], I couldn’t hire a taxi, I couldn’t make an interstate call,” Mr Walsh said.

“And here was this guy telling me I had to hire a plane.”

But his boss, and the Buick logistics department, approved the move rapidly.

“That showed me what you could do if you need to,” Mr Walsh said.

“It was about empowerment.

“And quite frankly if I hadn’t learned very quickly to do things like that, it would have taken me out with a heart attack.”

Restructures

Mr Walsh moved to Nissan in 1987, where he worked in a management role.

The 1980s was the beginning of a restructuring of the Australian car manufacturing industry, which had been protected by high import tariffs.

The Labor federal government developed the Button Plan to rationalise automotive manufacturing and sharpen competitiveness.

Manufacturers were to form three groups, according to a newspaper report from the time, with the Toyota Camry, for example, to be rebadged and sold as the Holden Apollo.

The plan put pressure on Nissan to meet a volume quota, Mr Walsh said.

There were large overhead costs to develop a new car model, he said, which for Australian manufacturing would need to be dispersed across a smaller volume of cars compared to competitors in bigger markets.

Mr Walsh recalled a particular insight gained from engaging suppliers closely.

“Some of them had never seen how the parts they supplied actually went into [the Nissan] car,” he said.

“A lot of [the parts] were buried in the car, you couldn’t get to see them just lifting the bonnet.”

One supplier discovered they had an excessively tight tolerance on a particular dimension of a product that was not important, so relaxed this to lower the cost.

“Growing up in manufacturing you learn a lot about engineering, what makes things work,” Mr Walsh said.

“And what makes people work.

“Some people in business, it’s like there’s a black box, they don’t want to open the box.

“I’ve always wanted to open the box.”

Despite the efforts to make Nissan more competitive, the Japanese-owned manufacturer closed its Clayton car assembly operations in Melbourne in 1992.

However, Nissan’s casting operation continued, manufacturing and exporting parts with 190 employees.

GM Holden, where Mr Walsh had been a key player in a 1986 restructure, fared better.

It continued making cars in Australia until 2017.

Rio revolution

Mr Walsh moved to Rio Tinto in the early 1990s, where he led a turnaround and divestment of foundry businesses.

Later, he headed Rio’s iron ore operations, which underwent a huge expansion to meet Chinese demand growth.

In 2013, Mr Walsh became chief executive of Rio globally, with a big task to improve the finances.

Rio had invested in dramatically boosting production capacity, and undertook a huge acquisition in 2007, the $US38 billion purchase of Alcan.

Predecessor Tom Albanese resigned in January 2013 after $13 billion of write-downs.

It was reported in early 2013 that Rio had debts of $US33 billion, with Standard & Poor’s revising Rio’s credit rating from ‘stable’ to ‘negative’.

A big target for Mr Walsh’s financial fix was reducing working capital, with $6 billion on Rio’s books.

Working capital includes inventories and liquid assets.

“Working at Nissan taught me if you have got processes that are in control and capable, you don’t need to have large inventories; in fact you … need to have hardly any,” Mr Walsh said.

“The other problem with the inventory was that they were overhanging the market.

“If you’ve got a mountain of iron ore sitting there, the customers know that and that comes into the supply equation when you’re looking at matching supply and demand.

“I just had to explain to people [that] we really didn’t need those supplies.

“We pulled $5 billion out of the working capital. 

“But I couldn’t have done it just sitting in the corner office.”

By 2016, iron ore cash costs had been reduced to $US13.70 per tonne, with $US1.4 billion of savings in that business segment compared to 2012.

That included through improved contracting arrangements, better fleet utilisation, and a reduction in cycle times on ore car dumpers.

The iron ore business also embraced automation, with the Auto Haul rail project introducing driverless trains.

This all happened as the iron ore price dropped dramatically, putting pressure on revenue in the company’s biggest business unit.

Mr Walsh consistently highlights the importance of engaging with employees, and prioritising values and ethics.

Being capable of being trusted, leading by example, and adding value were attributes of good leadership, he said.

Governance 

In March, Rio Tinto paid Mr Walsh incentive payments from his time as chief executive, which had been delayed.

Mr Walsh and Rio had agreed to defer the incentives in 2017 after it self-reported to regulators a payment made to a consultant at the Simandou project in Guinea.

That payment was made when Mr Walsh was running the iron ore business.

“I knew I hadn’t done anything wrong; I would be found innocent in whatever they self-reported,” he said.

But when the company moved to extend the incentives further, he felt that was unfair and disagreed.

Rio announced in March that an independent dispute resolution process had declared Mr Walsh’s incentives should not be further deferred.

“The incentives they were withholding were the incentives I earned as CEO, not as head of iron ore,” Mr Walsh said.

He said he had been provided a letter by the Australian Securities and Investments Commission in June confirming he was not a person of interest in the investigation.

Also in June an issue arose at Gold Corporation, which operates the Perth Mint.

The government enterprise reports directly to the premier, and Mr Walsh had been appointed to the board in 2018, tasked with lifting governance standards.

A media report alleged the mint had compliance issues and had bought gold from mines in Papua New Guinea which breached ethical policies.

The allegations included that the counterparty was owned by a convicted criminal and had used mercury and child labour.

That led to an investigation by the London Bullion Market Association, which in August confirmed the mint’s accreditation, and said there were no instances of zero-tolerance non-compliance.

“There are elements of The Perth Mint’s risk assessment, which need to be strengthened through a corrective action plan to be audited by a third-party auditor,” the LBMA said in August. 

“The previous auditor is no longer approved, and The Perth Mint will be required to use a new [auditor].

“This [action plan] will address the weaknesses in the application of The Perth Mint’s management systems. 

“For example, the Papua New Guinea-based counterparty was identified as medium risk, rather than high risk.”

Mr Walsh said the mint had held an emergency board meeting when the allegations were published and moved to stop doing business with PNG.

“It wasn’t a difficult decision,” he said.

“The board was unanimous.

“The [media report] was a little bit naughty because it referred to conflict gold; I’m not aware of any conflicts going on in PNG, I don’t think you could refer to it as conflict gold.

“It referred to using mercury, but we assay all the gold that’s coming into the refinery and there was no evidence of mercury.”

Sam Walsh (left), Colin Barnett, Nicole Lockwood and Brendan Grylls signing a Pilbara Cities document circa 2009. 

Cultural passion

When Mr Walsh is not in the boardroom, he is a frequent attendee of arts and cultural events, including opera and ballet, concert hall performances and at the Perth Institute of Contemporary Arts.

He’s also known to be a collector of antique milk creamers. 

Mr Walsh said he had 400 jugs in the collection.

The oldest is from 400BC, purchased from an antiques dealer in Montreal.

The newest work was a commission by local artist Megan Evans.

“I enjoy antiques, but 12-seat dining tables are too difficult to bring home,” Mr Walsh said.

“I could buy a creamer and put it in my briefcase.

“I have never broken one, although I came close when I left the briefcase in a limo in Scotland that had a rear-end crash. The jug survived.”

In 2013, Mr Walsh was made a life member of the Chamber of Arts and Culture Western Australia.

“I’m really interested in the arts,” Mr Walsh said.

His commitment extends beyond sitting in the audience.

Mr Walsh previously chaired the Art Gallery WA board and now chairs the Australia Council

At the Australia Council, he said he had introduced contestability in grant processes for big arts organisations.

He sees big potential for the arts as a tourist attraction.

“[Perth Mint] has 60,000 tourists visit the gold pouring and museum each year,” Mr Walsh said.

“That with the new museum … the art gallery, the performing arts.

“That’s all important for cultural tourism.”

At 70, Mr Walsh shows no sign of slowing down.

“I’m a busy person, but I’m having fun and I’m really enjoying it,” he said.

“And hopefully adding value and making a difference.”

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