Company culture is key, but it often remains an internal secret.
Beyond the occasional glimpse of some carefully manicured set of values, or the even rarer lurid tales behind a high-profile exit, there’s not much to go on when it comes to what companies really mean in terms of ‘culture’.
That’s why the collateral damage from cost blow outs at Fortescue Metals Group’s Iron Bridge magnetite project is so interesting.
Firstly, three executives, including chief operating officer Greg Lilleyman, left the company as a result.
I found that unusual.
In the scheme of things, the overall cost increase of just of $500 million on a $3.4 billion project seems moderate when you consider the tens of billions of dollars in overruns at projects during the resources boom.
There are plenty of executives across Western Australia who presided over much bigger variations and lived to tell the tale.
Fortescue chief executive Elizabeth Gaines was still a bit cryptic when she addressed the departures after it was announced.
“Greg didn’t do anything wrong in the sense of the usual financial, behavioural or business conduct parameters by which senior executives are judged,” Ms Gaines said.
“What he did was admit the fact that the Iron Bridge project had suffered a breakdown in team culture, and [that] in turn resulted in poor communication at the senior leadership level and a lack of empowerment across the organisation.
“News wasn’t being shared and that meant challenges weren’t being addressed in a timely way by involving others who could bring ideas and work on solutions.”
Given the broad spectrum of Fortescue’s stated values – safety, family, empowerment, frugality, stretch targets, integrity, enthusiasm, courage and determination, generating ideas, and humility – it is possible to imagine scenarios at Iron Bridge where one or several of these were not lived up to, resulting in the bosses not knowing there were problems at the coalface.
Were failings hidden or was it more subtle? Did those who knew things were going wrong not try hard enough to get the project back on trajectory? Or, more simply, did they just not admit it was their fault?
Fortescue’s answer to the issue is to install proven management who were otherwise occupied when Iron Bridge was started.
And the buck didn’t stop with Mr Lilleyman.
“The FY20 ESSIP (Executive and Senior Staff Incentive Plan) performance conditions included operational, people and culture, and individual strategic measures, with the people and culture metric recognising the importance of supporting Fortescue’s unique and differentiated culture,” director and chair of the board’s remuneration and people committee, Jenn Morris, said in the 2020 annual report.
That is worth noting, as Ms Gaines and at least one other key executive – chief financial officer Ian Wells – are to forego all incentive payments this financial year due to the Iron Bridge issue.
That, to me, is staggering and shows how seriously Fortescue takes this stuff.
A 13 per cent cost blow out on a challenging $3 billion-plus project in a year when the company will bust all sorts of revenue records is not something that would normally wipe out a CEO bonus.
In fact, plenty of CEOs get their bonuses as they walk out the door, having presided over real value destruction.
For Ms Gaines, the move is not a public relations exercise, either.
Last year, incentives represented 70 per cent of her $6.1 million remuneration.
Whether she was in line for that kind of payout prior to the emergence of the issues at Iron Bridge is not known, but there’s a lot that can be assumed by the result.
Firstly, either the remuneration strategy penalties for any form of non-performance are significant and unambiguous (involuntary), or in FMG culture you simply have to wear it if something goes wrong (voluntary).
Whichever is the case, the decision is part of a unique reaction from Fortescue and stands in stark contrast to the leadership displayed in so many other corporate-style dramas, most of which prove executives and boards struggle to cope with being caught out by much more materially significant issues.
Just note how, in the past month, key players at Crown Resorts and Collingwood Football Club were determined to remain in their positions despite very damning evidence of failure under their watch.
At Rio Tinto, former chief executive Jean-Sebastien Jacques lost his short-term incentives as a result of the Juukan Gorge cultural heritage drama It might be worth noting that WA’s highest paid managing director, Ian Testrow from Emeco Holdings, has just appointed a manager of people and culture, none other than former AFL football coach John Worsfold.
