Why Rio Tinto gave its CEO, Tom Albanese, a push

Why didn’t Tom Albanese resign before he was pushed? Yesterday, mining giant Rio Tinto, announced the Albanese had “stepped down” from his role as CEO.

The trigger for Albanese’s departure is $14 billion of writedowns that the company announced relating to its investments in Mozambique. The words ringing in his ears will be those of Rio chairman, Jan du Plessis, in an ASX announcement yesterday: “The Rio Tinto Board fully acknowledges that a writedown of this scale in relation to the relatively recent Mozambique acquisition is unacceptable,” du Plessis says.

He has been replaced by Sam Walsh, who was the head of the company’s successful Pilbara operations.

One reason the loss is so unacceptable to the board is that it comes on top of other impairments over Albanese tenure as Rio’s CEO (from May 2007) which total about $29 billion (including the latest) according to reports in The Australian Financial Review.

Albanese has not had an easy run. Eighteen months after his appointment, the world was hit by the GFC, which was a factor in ruining the company’s $38 billion acquisition of Alcan that did not help Rio’s balance sheet. Shareholders were so angry that they agitated – unsuccessfully – for Albanese’s head.

The writedown is expected to result in Rio announcing a loss of about $4 billion in 2012. Until now, Albanese has presided over big profits: $5.8 billion in 2010-11, $14.3 in 2009-10 and $4.9 billion the year before.

But BHP Billiton has shown more consistent and growing profits in the same period. At one time BHP Billiton was a contender to take over Rio Tinto, a move that Albanese fought tooth and nail. Since then, Rio’s share price has headed steeply down, while BHP Billiton’s has stayed relatively stable.

We take a close look at the reasons Albanese, and other leaders, hang on when self-interest dictates that they quit.

The best gig

Where would Albanese go after his gig at the top of Rio Tinto? The position is really the top of the tree, and when leaders make it to the very top, they need to maximise their time there, says Brendon Booth, director of pb Human Capital. “What is next when you have been at one of the world’s largest companies? If the job is the pinnacle of your career, you spin it out as long as possible. I would have stayed with the sinking ship too.”

However, it is clearly best to get out if you see the axe falling, says Booth. “It is a blot on your copy book. If you go on your own terms, the last couple of years of downward trend is not a lasting legacy, but now, because he was ‘let go’ for performance reasons, it will follow him,” Booth says.

Weasel words won’t work

Albanese “stepped down” by “mutual agreement”, according to Rio Tinto’s announcement to the Australian Securities Exchange. But the fact that it was so sudden and that the board has a replacement ready in Sam Welsh, belies the wording. Albanese looks like he has been sacked, whatever the wording.

That means no final lap of honour for Albanese, no chance to shake the hand of his troops. “The board have phrased it so that he can do the go-around, but I don’t think he will,” says Booth. “It will be a matter of going out quietly, taking his payout and heading to the beach.”

He didn’t finish the plan

Every CEO enters their role with a performance plan agreed to with the board and with their own goals and objectives. Booth says: “Every CEO should step in with an exit plan, and a clear agreement about what the board expects from the CEO and what the CEO expects to achieve. That is clearly enunciated when CEO goes in: this is our plan for five years, this is how it fits in to corporate strategy.”

So how many milestones does a CEO miss before accepting failure? “He would have contextualised his failures,” says Booth. “‘Alcan would be been great if it wasn’t for the GFC, and Mozambique would have worked if not for another factor’. It is difficult to be objective.”

Losing objectivity is a very real risk for CEOs. Booth says CEOs need a mentor, who speaks the truth – “this isn’t working” or “it has run its course”– and puts the hard questions.

The time of life makes it hard

CEOs of large family businesses often struggle with letting go of control, says the CEO of Family Business Australia, Phillipa Taylor. “It is difficult to find people who will admit that it is difficult to step aside. They are more likely to say, ‘Why should I?’”

The issue is an emotional one, Taylor says. “They have so much invested, they have often built it up, many work six and a half days a week, 16 hours a day. They see stepping down as being put out to pasture.”

Business educator and author, Dr John L Ward, has called knowing when to step down “the final test of greatness”. In his book, Another Kind of Hero, co-written with Craig E Aronoff, Ward says the need to step back from controlling the successor’s development often comes at a particularly difficult life stage for the business owner. He writes: “Late in the [leader’s] career, self-doubt may grow, igniting a need to plunge into action and reassert one’s value to the business. A desire to `perfect’ the business that has played such a huge role in [their] life may overtake other impulses.”

He thought the mistakes made by his chief strategy officer were not big enough

Albanese’s chief strategy officer, Doug Ritchie, has also resigned. Richie was responsible for the acquisition and for integrating the Mozambique businesses into Rio’s, the very project that has led to Albanese’s demise.

CEOs do not always resign when a senior executive makes a major blunder – it depends on the scale and the politics, says Booth. “The CEO has ultimate responsibility but you have to delegate and push down responsibility, so other people are making critical decisions,” Booth says. “Certainly Doug has to go, but I wouldn’t have expected Albanese to resign for a mistake Doug made. It does depend on the scale of problem, however. If it was an oil disaster, yes, the CEO probably goes.”

Judging the scale of a disaster can be a difficult call.

Somewhere to go

Few CEOs have time for interests outside their job, and this leaves them vulnerable to staying too long in the job, says Taylor. One of the best ways of easing long-staying leaders out of the driving seat is to make them mentors, finding ways for them to pass on their knowledge and wisdom to up and coming leaders. In the case of family businesses, Taylor says mentoring the third generation can be very successful, passing on the family history and values to grandchildren as they study or enter the business.

Taylor suggests the short tenure of leaders in public companies might be contributing to their woes. The tenure in private family businesses is much longer, and during the global financial crisis, many leaders who planned to retire stayed at the helm a bit longer. “They agreed to stay on, and the phrase I heard most often was ‘a steady hand on the tiller’. Having that longevity means they didn’t panic,” she says. “That is the difference between family business CEOs and those in public companies. Maybe Albanese was a victim of that. If there was culture of long-term leadership, perhaps Rio would ride out the problems it is having now.”

This article first appeared on LeadingCompany.