New Generation of Resources CEOs Face Era of Accountability

There has been a changing of the guard at the top of resources companies. In the last month we have seen the announcement of new CEOs at Rio Tinto, Arrium and now BHP.

Interestingly, all three CEO appointments have come from within. In a US paper released by the University of Delaware’s John Weinberg Center for Corporate Governance last year, the authors pointed to a body of research supporting the supposition that internal hires perform better than externally poached CEOs. Their theory was that knowledge of the business was more important than general leadership skills.

While the Rio Tinto appointment has been lauded as an example of the Board holding the leader to account for poor performance, in the case of Arrium and BHP we can see examples of Boards driving for well planned leadership succession.

The new guard of CEOs will know they too will be held accountable for their own performance, especially given the Government’s proposed legislation mandating the disclosure of any clawback measures taken in the case of misreporting financials over the past three years.

The first reported case of clawback amongst Australian executives in a leading company also occurred this week. Lend Lease Chief Steve McCann’s 2012 short term incentive will be reduced by 10% because of the accounting discrepancies discovered at Abigroup.

This clawback echoes global trends. Royal Bank of Scotland this month decided to fund £300 million pounds of the fine for its part in the Libor fixing scandal by clawing back remuneration and bonuses from past and present employees. In the US, JPMorgan last year became the first major company to exercise clawback, retrieving pay from senior executives involved in the US$5.8 billion trading loss in its treasury unit.

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