About expecting the unexpected

Wednesday, 01 December 2021

Rick Crabb FAICD photo
Rick Crabb FAICD
Chairman, Eagle Mountain Mining Limited

    Rick Crabb FAICD, chair of Eagle Mountain Mining and AICD WA Gold Medal Award winner, has spent enough time on the resources roller-coaster to know that nothing gets you out of trouble quicker than a fully engaged board.

    Over the past 30 years, I’ve been involved as a director on a number of public companies that grew from startups to revenue generators — mostly in the resource industry, but also in property. One of those companies was Paladin Energy, where I spent 25 years, mostly as chair. Changing circumstances meant I remained a director longer than anticipated, but I’m privileged to have experienced a company’s entire progression in one of the most complex of commodities, uranium. It has given me a long view of the business and although I’m no longer involved, it’s fascinating that Paladin, like other uranium operators, now has a new lease of life. In the early 1990s, the company was floated as a gold and copper explorer, but then morphed into a uranium miner with two African operations, selling uranium for power generation in the US, Asia and Europe.

    The Fukushima Daiichi nuclear disaster in 2011, triggered by the tsunami, had a severe impact on the entire industry, which is only now showing signs of growing as expected. The impact on the uranium price was not immediate, reflecting the complex nature of this market. It was not until 2017 that we finally had to call in administrators to complete the restructure we’d been working on. I remained as chair, retiring in 2019. During those challenging years, I was constantly reminded that nothing remains static — and it forces you as a director to move swiftly as circumstances change. The need for a cohesive and actively engaged board during such times is critical.

    The most invigorating part has been seeing companies [progress] through their entire development, growth and success. The board’s work has to be dynamic as the company progresses. You watch as it consolidates its shareholder base and becomes more institutional in character, which brings increased compliance and reporting requirements I consider positive.

    A director, at least in the space I occupy, should have “skin in the game”. As with past companies, I invested pre-IPO in Eagle Mountain Mining, but not enough for it to affect my independence as a non-executive chair.

    It’s important that you are — and are seen to be — joined with employees, shareholders and other stakeholders. Of course, people can make their own decisions, and it’s an area that’s often debated, but I wouldn’t go onto the board of a company if I didn’t feel I would invest in it. Receiving a director’s fee is not enough for the time, effort and risk involved.

    Investors and incentives

    Australian companies generally work on a base of good, solid governance principles, and I’ve never believed the rules and regulations have been too arduous or too complex to work with. What has changed — for the good — are the expectations around reporting. In the past, we weren’t expected to capture and document many of the oversight processes the way we’re required to now. Many of those governance processes — such as risk management and remuneration structure — were covered in an ad hoc fashion, at least on the smaller listed companies.

    Dealing with incentive remuneration structures has been one of the most challenging issues for directors. You must balance what you do for staff versus investor expectations. Investors tend to think only from their position, but as a director, you need to consider different stakeholders and, more often than not, the staff themselves are sceptical of the benefits.

    If incentives are a function of the share price, then so many market forces are at play. Often, it’s the case that by the time options, for example, are vested, circumstances have changed. Taxation rules have also had a habit of chopping and changing. If the formula works out, they tend to say you’ve been overly generous; if it doesn’t, it’s seen as a waste of time. Employee benefits are extremely delicate and nobody gets it right all the time. Varying incentive structures to suit changing investor expectations or tax rules, tends to increase the scepticism of employees.

    Strategising for survival

    With the increased focus on reporting on governance, I’ve learned that more effort needs to be made to ensure a board’s attention is properly directed to strategy. Some organisations have been overwhelmed by the increased compliance regime, which often results in extra staff costs and an increased amount of board time [being taken up].

    The most rewarding aspect of director involvement is contributing to strategy. A fulsome debate on strategy over a few time horizons, brings out many issues that circle back to elements of good governance.

    Every company will have to deal with some form of disruption. At Paladin, ours was Fukushima. It shouldn’t have happened, but in the end, the only real question was whether Paladin was sufficiently financially viable to deal with the longer-term impact. I foresee many companies having to deal with a lot more black swan events such as this. COVID-19, of course, was one. Pandemics will no longer be regarded as black swans, but others will emerge. We have to be ready for the unexpected.

    I’ve had to deal with many challenging as well as distressing situations as a director — such as financial distress involving hundreds of millions of dollars — but the worst has been employee deaths in mine accidents and a plane crash. I’ve learned to appreciate the benefit of a strong board with people prepared to roll up their sleeves and speak up.

    Many times, I’ve been anxious about an upcoming board meeting where I knew conflict would exist, only to come out hours later feeling relaxed because everyone contributed and a good solution was found. There is a general positive feeling shared between directors and senior management in that situation because the team performed well. I love that feeling.

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