Conversation with a chairman: Don Argus

Sunday, 01 June 2003


    Don Argus is at the top of his game. He is chairman of two large boards and a director on another. But if the shareholders or his fellow board members decide that he is playing past his prime, he is just as happy to play golf and become more involved in community activities. John Arbouw recently spent time with Argus talking about governance, risk management and doing business internationally

    Don Argus is at the top of his game. He is chairman of two large boards and a director on another. But if the shareholders or his fellow board members decide that he is playing past his prime, he is just as happy to play golf and become more involved in community activities. John Arbouw recently spent time with Argus talking about governance, risk management and doing business internationally

    The chairman of BHP Billiton and Brambles blames an Irish newspaper for the fact that he has been labelled in the press as Don "Don't Argue" Argus. It is a label that stuck and it was meant to convey that Argus is one of Australia's most powerful company directors. And on the surface there is compelling evidence to suggest that indeed it is unwise to argue with the sports-loving Brisbanite who, from humble origins, became CEO of NAB, Australia's most profitable bank and a director and chairman of boards such as BHP Billiton, Brambles and Southcorp.

    The "Don't Argue" tag received further currency when earlier this year the BHP Billiton board and Argus decided that the mercurial South African CEO Brian Gilbertson had to go. The parting made headlines around the globe.

    The board has refused to comment on the issue of the separation, with Argus saying that sometimes marriages break down due to irreconcilable differences between the two parties. This was one of those instances.

    The divorce settlement – a $30 million payout to Gilbertson earlier this month – only added fuel to the speculation surrounding the corporate bust-up. This speculation centred on the plans Gilbertson allegedly had for selling off BHP Petroleum and merging BHP Billiton with Rio Tinto.

    If this were the case then no one, especially no one in Melbourne, would have wanted to stand up and tell shareholders, the public or the Government that the Australian icon once known as the Big Australian would disappear forever.

    While this version is undoubtedly a savoury tale often told, the reality is probably more mundane. Gilbertson's own personality and his tendency to work in isolation from both the corporate office and the board is another explanation.

    A deal such as the merger of BHP and Rio is not done overnight and if Gilbertson had moved too far down the track without board approval or any sensible canvassing on whether the deal would benefit shareholders, then the BHP Billiton board had few options.

    In the merger between BHP and Billiton and the dual listing on the Australian and London Stock Exchanges, the Australian Government under the Foreign Investment Review Board had made it clear that the head office should remain in Australia.

    And having Rio obtain BHP Billiton was also a problem. When Rio took over CRA there were reassurances all around that the merged Rio/CRA would remain in Australia. The ink had hardly dried on the contract before CRA's management were given their marching orders and the name of an Australia resources company faded into history.

    What was also at issue was the fundamental function of boards and chief executives. The delineation of functions under the current system is that the board approves or amends the strategy provided by the CEO and management who are then charged with carrying the strategy out.

    If Gilbertson was carrying out a strategy not approved by the board or where the board was not being kept fully informed then corporate governance practices dictate that the board had to act.

    Gilbertson may have wanted to create the world's largest resources company and he may have wanted, as some speculation alleges, to triple the BHP Billiton share price but in an era where powerful CEOs both here and in the US have crashed their companies because of greed and hubris, no board could allow a CEO unfettered freedom.

    Gilbertson wasn't the only CEO to clash with Argus. John Fletcher, current CEO of Coles, also had problems when he was CEO of Brambles. To date Fletcher has not spoken about the split but it is widely accepted that he and Argus had differences of opinion on moving the Brambles headquarters to the US. Argus won the day and Brambles remains in Australia for the time being.

    And there are also the usual coterie of ex-NAB executives who left the bank after clashing with Argus and offering unattributed comments about his management style to the press.

    Two large publicly-listed companies and two CEOs given their marching orders by the same chairman in the space of a couple of years is certainly unusual, but is the sound and fury surrounding these events significant in terms of the Argus character or merely the normal cut and thrust of running a large international company?

    How the markets will ultimately judge BHP Billiton and Brambles and the changes at the top will depend to a large extent on the global economy. In the bull market of the 1990s, it was easy to be a corporate hero and increase shareholder wealth. Current market conditions including a rising Australian dollar, a suspect American economy, a terminally ill Japanese financial system and the threat of terrorism everywhere has given new meaning to the term risk management.

    The resignation of Dick Warburton as chairman of David Jones over the failed Foodchain decision and the resignation of Stan Wallis as chairman of AMP is evidence enough that mistakes can be costly to the company and to the career of the chairman.

    One thing is certain however. Argus is the most successful survivor so far of a coterie of ex-CEOs in Melbourne who made their reputation as managers during the 1980s and early 1990s to become company directors and chairmen of Australia's largest companies. John Ralph (ex-CRA) and Stan Wallis (ex-Amcor) are the other obvious examples.

    Up close and personal, Don Argus is not nearly as fearsome as his reputation.

    In fact when asked about his NAB days and the HomeSide debacle in the US that tarnished the reputation of the bank, Argus is still upset and angry over the handling of the HomeSide business (see story, page 13).

    While Argus may hold some anger over the past he is very much focused on the future and the need for companies to understand what corporate governance and risk management is all about.

    He does not believe that a system of rules should be so onerous as to impinge on a company's performance. He believes governance is about the management of risk including operational, financial, environmental, social, legal and sovereign.

    "Boards need to understand the risk/reward equation. There is no simple answer and it is wrong to generalise because industries and entities have different risks and different risk appetites," Argus says.

    "There is no doubt that when you get a series of mismanagements or calamities it unsettles the market and you always get people that want to subscribe standards. Now, I don't have any trouble with that but new standards will not correct what has gone wrong in the past."

    He also provides a warning to regulators that any new standards or guidelines should not simply become a question of ticking the box.

    "The box ticking mentality will always fail. You have to go back to fundamentals in terms of who boards and management are working for. They are only stewards for a group of shareholders external to that organisation. The shareholders have the right to dismiss everyone in the company from the chairman on down," he says.

    "Board and management should never forget that they are the stewards of someone else's money."

    In that context, the Argus definition of corporate governance is much broader and revolves around the need to ensure that companies control and report on material business risk. He believes a great audit committee won't make a company great but a great company will have a strong audit committee.

    In light of the failed chemistry between the BHP Billiton board and its former CEO, Argus says it is one thing to get a talented group of people together but it is quite another to get them to work together as a team.

    "Winning teams usually have a chemistry that can be difficult to quantify but members seem to develop mutual respect," he says. "Because of this respect they develop trust in one another, they are able to deal with complexity, they share and understand difficult information and they challenge one another's conclusions.

    "More than ever directors need to able to argue, to challenge and to work hard to find the reality of what is really going on in their business. Often this means not accepting at face value what is being presented at board meetings, of forming teams of directors to really delve into operating areas of concern."

    Not surprisingly, Argus believes the issue of independent directors are not simply a question of criteria but of having directors who are independent and prepared to think for themselves rather than get caught up into the boardroom group think mentality.

    However, he does believe the new ASX corporate governance guidelines are on the right track and only mirror what is happening in the UK and South Africa.

    "The new rules are all very well as long as it doesn't become box ticking," Argus says. "For instance, you have a new breed of corporate governance people in funds management. One guy actually had the audacity to tell me that he was there to keep the funds manager honest.

    "Would you believe that he decides on the proxy votes at an AGM not the man managing the fund. I hope that this is a one-off because if we get down to box tickers, heaven forbid."

    Argus also believes that the proposal to have a non-executive chairman is a no-brainer because you must have separation of duties.

    So would he tell Kerry Packer or Gerry Harvey that they have to step down?

    "Look, they have a different situation because they have a big stake in the business. And if I had a big stake in the business I would want to have a say in the way the business is run.

    "When you have a huge spread of shareholders then it is a different animal. However if someone owns more than 20 percent of the company I think they are entitled to say that they want to be chairman of the company.

    "I think putting a cap on it is not a bad way to go about it. The problem is when does control kick in? It's a workable control test that is needed."

    So if non-executive chairmen are the way to go and exceptions to the rule in terms of shareholding apply, then what about one individual being the chairman of two large public companies? There is a view that this is just conceit and that the chairman's role of a large publicly listed company requires full time duty.

    "I am glad to say that I was chairman of both BHP and Brambles when they did their mergers and then dual listed. They were complex transactions and required staying on top of the issues as you were doing it.

    "But it is up to the individual. I don't have any problems personally and I have very strong boards on both companies. If I weren't doing my job they would toss me off very quickly.

    "Why be proscriptive about any one individual having one board. Why can't he be chairman of three boards providing there are no other issues. I am kept quite busy by my commitments but I can still have a couple of games of golf a week.

    And when does a director or chairman reach a use by date?

    "I am not big on tenure but you must keep your board evergreen. I think sensible boards are now looking very hard at keeping their boards evergreen. At BHP Billiton we set up a very good international board with a good age profile.

    "Companies also have to be prepared to free up

    executives and let them sit on boards while they are in the executive ranks. My argument is that this helps build the individual and it will also build the talent pool of diverse people needed for boards."

    Argus is also very strong on the need for companies to make their remuneration policies far more transparent than they have been in the past.

    "Last year at BHP Billiton and Brambles we actually went out to shareholders to seek approval for the remuneration policy of both companies. That was a first mover approach and created a lot of debate. This took a lot of courage from both boards to do that.

    "I don't think we have gone far enough yet in this country putting remuneration policies up for approval."

    Throughout his career, Argus has had to front various media scrums to present company profits, downturns, mergers and acquisitions. This has extended to brokers, analysts and fund managers fretful about the share price at any one particular time.

    "People think that if you get some huge gyration with the stock price that you are destroying or adding value," he says. "That is a popular perception particularly with moms and dads and with some of the less-skilled media commentators.

    "The basic thing a mom and dad should look at is whether that company's earnings per share is working; is it making a return on capital above its average weighted cost; is there margin improvement in what they are doing; are the costs under control; how much free cash does this company generate and what do they do with it?

    "If you start to get those basic things right you will make investments grow. The true value of a company is the net present value of what the forward cash position will be. If stocks run up to 20 or 30 times earnings and defy what their cash generation capacity is, boards or management should not be blamed.

    "Boards and management control the earnings and they can have a view of what the value of that company based on what the forward cash position will be."

    Argus says the dotcom boom and bust was due to boards and management simply getting carried away with the cash that was there. He says that companies and boards have to stick to the value proposition of companies and avoid talking things up just to please fund managers and financial journalists.

    "You are now in an environment where growth is pretty tough. In an economy of 20 million people where are you going to get the growth, especially with the number of duplications of businesses in various industries?

    "We do not have the critical mass where you can drive consistent growth."

    His comments also explain his views about the government and its latest international taxation rule changes that in effect encourage companies to stay in Australia.

    "I don't think they have gone far enough to remove the barriers. Maybe business hasn't been good enough in articulating why these things should happen and the whole globalisation debate is misunderstood."

    And what is the Argus view of the economy for the next 12 months?

    "I see from some surveys that small business is pessimistic about the economy (the Government indicated on June 3 that growth would become more difficult) and that is a concern. When small business loses its optimism then we should sit up and take notice.

    "Small business is the real engine room of what drives the economy and I want to understand more about this because it rings alarm bells."

    The future as they say is uncertain. BHP Billiton is in reasonable shape because most of its projects are in the brownfield stage rather than requiring new development capital. Brambles may have trouble finding the pallets its CHEP subsidiary keeps losing but the share price seems to have settled down and its business remains strong.

    Don Argus takes this in his stride.

    "I will do my best whatever happens and if they ask me to go I am happy to spend more time with the Blind Society helping people with impaired vision. I have had a great innings and it is also important to give something back to the community. When you meet people with genuine disabilities then the problems you are facing in your daily life become insignificant."


    The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.

    Latest news

    This is of of your complimentary pieces of content

    This is exclusive content.

    You have reached your limit for guest contents. The content you are trying to access is exclusive for AICD members. Please become a member for unlimited access.