In the Boardroom

In the Boardroom

Broaden your vision: A talent perspective on how mining and energy boards

can prepare for industry disruption.

By Jorge Gouveia de Oliveira

The natural resources sector – largely comprised of mining and oil and gas companies – is cyclical in nature. Companies operating in this sector have experienced both peaks and troughs over the past few years. Part of the price volatility has been driven by demand from China. In the medium to long term, in addition to regional volatility, some permanently disruptive forces will shape the future of the natural resources sector.

This set of disruptive threats includes increasingly affordable alternative energy sources. Emerging markets are now pursuing these sources so aggressively that they are predicted to eclipse developed nations by 2018 in their capacity to generate wind and solar power. Analysts predict that we may already be close to global “peak coal” consumption.

Additionally, the growing focus on electric cars may lessen the demand for gasoline relatively soon. UBS predicts that in 2025 14 percent of cars sold globally will be battery-powered, and in Europe, that share is expected to be one in three. Electric cars – along with smartphones and other high-tech products – are also fueling the demand for materials such as lithium, tantalum and dysprosium. Some of these developments also bring new opportunities to the sector. In particular, technology and digitization can have a positive impact on companies’ operating models and improve both safety and profitability.

Look to Other Industries

To adapt to this new operating environment, mining and energy companies need talent who understand the changing nature of their end-customers, are able to help diversify revenue streams appropriately and can build partnerships with the new industry players. It will be critical for these companies to bring in talent from other industries to broaden the vision and build the capacity to capitalize on the disruptive forces, lest they find themselves on the outside of a new natural resources ecosystem.

There is already evidence of a commitment to evolving the leadership profile, especially among senior executive appointments. Recently, we have seen major oil companies appoint chief digital officers at either the group or division levels. Mining companies are also integrating more digital talent, albeit not necessarily in an explicitly digital role.

Moreover, these roles might not remain distinct for long. As digital technology becomes a cornerstone of natural resources companies’ businesses, it is likely that the line between digital roles and business roles will increasingly blur.

Senior executives from other industries, such as technology and automotive, can help mining and energy companies develop a perspective that accommodates the new elements of a changing natural resources sector. Not only is it important who this talent is, but it is also important where this talent sits. It is the boards of directors of natural resources companies that steer strategy, and creating space on these boards for professionals who bring an outside perspective is important for two reasons.

First, this diversity on the board helps broaden the vision of the company. Second, it positions boards to explore new ways of working. Encouraging innovation requires a shift towards a corporate culture that accepts experimentation and failure. Companies also need a structure and process for taking commercially viable ideas from conception to reality. Driving this cultural change forward and getting the entire company on board with the agenda requires significant investment from the top and a “change champion” with a seat on the board.

We have identified the three main types of potential board directors who can add this necessary and valuable diversity to mining and oil and gas companies. These include leaders who:

1. Have exposure to new technologies and emerging ecosystems;

2. Understand the trends and development of new materials; or

3. Are experts on sustainability and/or corporate affairs.

Russell Reynolds Associates recently analyzed board directors who have joined the top 50 global mining and oil and gas companies (by market capital) since Jan. 1, 2016. We identified 89 new supervisory board directors. Only two directors bring experience from the technology/software/digital fields to their positions on natural resources boards, and three came with experience in automotive, which likely includes familiarity with technology related to emerging mobility. In addition, we found that close to one-third of the 89 new directors are female and about one-fourth are citizens of a country other than where the company is headquartered.

Here’s Your Chance

Companies should see the replacement of retiring board directors as a chance to bring on board directors who represent a diversity of both personal and professional experience. Fortuitously, a search for directors who have professional experience across a wider range of industries also yields a larger pool of professionals that is diverse along other lines as well.

Naturally, mining and oil and gas boards will continue to need directors with specific industry experience as well as expertise in traditional board topics. These include corporate governance, finance, remuneration and nominations.

Our advice is that in addition to the standard industry- and function-related criteria, mining and oil and gas boards should consider having at least one board member who brings a perspective on relevant developments in the new ecosystems that the company should be eyeing. Therefore, it is important to cross-fertilize talent from other industries, particularly to advise on matters where the natural resources industries are lagging behind. This will in turn broaden the relatively narrow pool of senior talent available in the industry. Companies’ responses to the increasingly disruptive threats to the industry will lead to the rise of more diverse boards and executive leadership teams.

Jorge Gouveia de Oliveira is a managing director in Russell Reynolds Associates’ London office, and is a member of the firm’s Industrial and Natural Resources sector. He specializes in executive and board searches for industrial and resources companies worldwide.

 

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