The Public Investment Corporation (PIC) has issued a curious statement around the resignation of Anglo American CEO Cynthia Carroll, revealing boardroom politics that may have pushed Carroll to step down and setting the Anglo scene for political showdown going forward.
Anglo announced the resignation of Carroll on Friday and said she will remain on the post until a successor is found. Carroll assumed the Anglo reigns in March 2007.
The PIC which on behalf of the Government Employees Pension Fund holds 7% of Anglo shares, said “whilst depressed commodity prices are partly to blame for the group’s disappointing performance, we believe that capital allocation, poor project management and poor operational performance have contributed the bulk of the observed underperformance of Anglo, relative to its peers”.
“It is easy, with the benefit of hindsight, to point to these decisions as strategic missteps and therefore shareholders should observe some sympathy for Ms Carroll. However, it is understandable that these strategic aspects will rest squarely on the CEO’s shoulders, as the custodian of the company’s strategy”.
The PIC added that “Poor capital allocation has eroded value in the company over the last few years. Acquisition of projects above fair value (for example increasing Kumba stake to 69.7% from 65.2% at a 40% premium to DCF) as well as the recent purchase of the Revuboe coal project in Mozambique are amongst a long list of projects that reduce our fair value for the group. We also see this poor capital allocation as limiting dividend paying potential for the group, resulting in unattractive dividend yield versus its peers”.
The PIC said Anglo American has underperformed its global peers in terms of total shareholder return since 2006.
The PIC also spoke about disappointing operational performance, particularly in copper, coal and PGMs. It said difficulty in delivering growth projects on time and to budget also dented performance. “We have also seen Anglo’s 1H12 Return on Equity falling to the lowest level since the Great Depression”.
“Of added concern to GEPF and PIC is the lack of emerging markets representation, given that most of its operations are situated in emerging markets, particularly SA. For an example, around 37% of group assets are still based in South Africa and generate 55% of group operating profit. Our view is that this urgently needs to be addressed to make the composition of the Board more reflective of the geographic positioning of the company. Of course, South Africa’s profit contribution needs to be taken into account in this regard”.
“At a recent board-to-board meeting, GEPF Chairperson Arthur Moloto and PIC Chairman Nhlanhla Nene were mandated to write a letter to the Anglo American PLC chairman, Sir John Parker expressing their concern on the issue of board representation, company underperformance and related issues”.
“Clearly the current composition of the Board could also have resulted in missed opportunities particularly in Africa thereby contributing to the underperformance (the group has been slowly pulling out of projects in countries like DRC, Zambia, Zimbabwe etc) in recent years”.
“A serious refocus of the company has been demanded at the highest level, through chairmen of PIC and GEPF to the chairman of Anglo. Despite this announcement, we have lined up further engagements and identification of lasting turnaround strategies from the Anglo board and executive. These will take place before year end, 2012,” said the PIC.
On her resignation Carroll was quoted in the Anglo statement saying “It has been a great honour to lead Anglo American. I am extremely proud of everything we have achieved during my period as Chief Executive and I will always retain enormous admiration and affection for this great company and its outstanding people. It is a very difficult decision to leave, but next year I will be entering my seventh year as Chief Executive and I feel that the time will be right to hand over to a successor who can build further on the strong foundations we have created.”
Anglo chairman, John Parker, said “Cynthia’s leadership has had a transformational impact on Anglo American. She developed a clear strategy, based on a highly attractive range of core commodities, and created a strong and unified culture and a streamlined organisation with a focus on operational performance. Her legacy will include, among many other things, a step change improvement in safety, sustainability and the quality of our dialogue with governments, communities and other stakeholders. Her values represent the very best of Anglo American.
“The Board is enormously grateful to Cynthia for her dedication, her hard work and all she has achieved. We also very much appreciate her willingness to continue as Chief Executive until a successor can be appointed.”