Case study: Anglo American

The story.
By the 1950s Anglo American was the world’s biggest gold miner. Then, economic sanctions during the apartheid era and South Africa’s capital control policies led the company to acquire a ragbag of businesses ranging from steel and timber to consumer goods.

That, along with its loose structure and South African listing, impeded its ability to raise capital on international markets to compete with peers. As a remedy, in 1999 Anglo merged with Minoroco, a Luxembourg-registered holding company part-owned by Anglo. The new entity became Anglo American, moved its headquarters to London and listed on the London Stock Exchange.

The challenge.
Anglo wanted to enhance shareholder value through greater focus on core activities. But the pace of change was disappointing and its share performance continued to lag behind rivals BHP Billiton, Rio Tinto and Xstrata.

In 2007, Anglo appointed the American Cynthia Carroll as chief executive – its first non-South African and first woman in the role. Her task was to transform Anglo into a purely industrial metals company and make it more responsive, effective and efficient. This was made tougher by Xstrata’s unsolicited nil premium merger proposal in 2009 and Ms Carroll’s relatively low profile in the sector.

What happened.
Ms Carroll decided on simultaneous transformational change in scope, culture, structure and processes. A fact-based process was used to assess capabilities and demand. The outcome was to focus on five commodities and sell the rest along with non-core businesses.

Changing culture and structure was harder. There were in effect several “Anglos”, each pursuing its own strategy. Vested interest had to be confronted and waverers won over.

A fatality at a platinum mine helped management convey it was serious. Ms Carroll temporarily closed the mine and ordered an audit of infrastructure and safety standards. The 28,000 employees were retrained, and the new standards extended to other mines.

Ms Carroll overhauled the structure of Anglo to create seven commodity business units with management located in areas of core geographic focus and responsible for operational performance and project delivery. Supporting them were five group directors managing the shared functions such as human resources, finance and technology.

Anglo now operated more like a network of embassies controlled from the centre, leading to greater clarity and speedier implementation.

The flatter organisation lost 2,700 managerial jobs. The board was overhauled. Reorganisation and supply chain rationalisation enabled Anglo to cut headcount by 23,400, delivering £2bn of value.

By being able to show the superior value and prospects of its assets, Anglo won the support of key shareholders to fend off Xstrata. The defence was strengthened by appointing a highly respected chairman, Sir John Parker, and further board changes.

In addition, Anglo took the difficult decision not to pay dividends while maintaining capital expenditure, thereby risking shareholders’ wrath, in pursuit of long-term value.

The results.
By 2010, transformation coupled with rising demand helped Anglo more than double profits to $9.8bn. Anglo is now close to developing into a pure metal company.

Key lessons.
Business transformation requires simultaneous change in scope, culture, board and top management, structure and in the processes critical to the company’s function, products or services. Anglo’s previous turnround efforts had been limited by focusing on only one or two levers of transformation.

Closing a mine at great cost was a catalyst for cultural transformation because it unambiguously demonstrated intent. However, symbolic acts are not sufficient on their own, and the introduction of “value-based” management was essential in creating a “one Anglo” culture.

Lastly, it is possible to pursue long-term gains and even suspend dividend payments if you present a clear rationale to shareholders.
- Financial Times, 30 March 2011