Fresh Perspective: A View from the Top — Tom Albanese, CEO, Rio Tinto

August 2012 / Fresh Perspective

Russ Volckmann

Tom Albanese

Tom Albanese

Russ: Tom, let’s begin by learning a bit about your background. What part of New Russ VolckmannJersey are you from?

Tom: I grew up in Flemington, New Jersey, which is to the west in Hunterdon County. My family is still in that neck of the woods. I have a farm there that I’m going to be rebuilding for my family who are all around the New York – New Jersey area.

Russ: What motivated you to go from New Jersey to Alaska for your college and graduate education?

Tom: I wanted to get as far away from New Jersey as I could. I had a long-standing interest in the outdoors. I was in the Boy Scouts in high school and did hikes along the Appalachian trail. On weekends we would hike down in Virginia and elsewhere. I wanted to go mountain climbing and Alaska was a good place to do it.

Russ: So you studied engineering, is that right?

Tom: I started in geology, because I had a rock climbing instructor in high school who said you can be a professional rock climber and get the rocks for the geologists. I decided to learn how to be do geology so that I could do both at the same time. About my second year I realized I wanted to do more than geology. I got permission to design an interdisciplinary program with a variety of courses in economics, geology, mining, engineering, all as an undergraduate. Then I went from there to get a master’s in mining engineering.

Russ: Eventually you arrived at Rio Tinto. You’ve been CEO since 2007 after being with the company for 13 years. I’ve tried to do a little bit of background research on you and Rio Tinto and there is the quite a bit of material out there about the industry and about some of the challenges. But I’d like to start by focusing on you and how you moved from being a graduate student in Alaska to being CEO of what I have seen described as the second or the third largest mining company in the world. I believe its second is that right?

Tom: We like to consider it second, but I think that someone will disagree with us, so it’s arguable.

Russ: What took you from your interest in geology and engineering to move you into executive roles and eventually to become CEO of Rio Tinto?

Tom: This sounds very corny, but when I was in high school, as an eagle scout I was the senior leader of my Boy Scout troup. Leadership was something that I gravitated towards when I was a pimply teenage kid.

I went up to Alaska for the purpose of really doing the outdoors. I gravitated first of all to geology and the sciences. As I was doing my undergraduate classes, I was working for a number of oil companies by exploring for rock samples. So that got me into this incredibly privileged position of spending my summer months from early May to September making more money than a kid my age should ever make.

I was flying around in helicopters and getting flown to the top of mountains to gather rock samples so geologists would not have to do the climbing. Whether it was carrying rocks for geologist or doing the soil samples – the stuff that one does in small crews of eight people – I got to see parts of Alaska that people can only dream about. This was before a lot of the National Park legislation, so those areas were not closed. Basically, we were zipping around in helicopters and carrying guns to fend off the bears and all sorts of things you wouldn’t think a 19 year old would do. That was a good experience for my age, including to be doing that type of thing in small crews. It got me very interested in the mining sector.

When I graduated from the university, I got married. My wife has a Master’s Degree in Geology. After I graduated I decided to get a Master’s myself. For about two years (and a tough two years it was – this was a time when gold was worth $800 an ounce in 1980) I was running a gold exploration company on the side, while doing my masters in mining engineering. I had to do all the undergraduate programs in engineering at the same time. But I did manage to get through that. I got my graduate degree in mining engineering in 1981.

Then I went to work for a small private exploration company. Mainly they’d send me out on a drilling rig into the far and unknown parts of Alaska where I spent about six months. When I came back from there, the company had been acquired by another. Earlier on in my career, although I was mainly doing exploration, I had also managed to be the only one in the company who knew how to run a personal computer. I worked with one that predated the Apple II. I got it from Radio Shack and learned how to do spreadsheets. That put me in a great position in my mid 20’s to be the only one in the company knowing how to do an acquisition analysis.

Then the parent company said move from exploration to acquisition. For the next five years I was involved with an acquisition team of three people. We were buying mineral assets from oil companies in the early to mid 80’s for literally cents on the dollar. That was a good experience. We were a very rapidly growing company; we had to double up our phone system every year. At one point we had 25% of all the Fax correspondence for the whole city of Fairbanks. We were running this out in the middle of nowhere. Because we were growing so fast it gave me a chance to do a lot of lateral moves. At one point I was vice president of marketing. I ran the IT department, the management and financial reporting departments while I was doing all these other things.

As a result of this great and very wide span of activities and because in my college years I really did what amounted to an interdisciplinary degree, I understood that there are lots of disciplines using the same tools. It gave me a set of insights going forward into the future.

So in 1986 we took over a struggling oil and gas Company. My boss, who had been made rich by the private company takeover, was made President of the oil and gas company.

I was sent to Oklahoma City in 2007. We had to take an office of about 100 people down to three people and restructure it. We shifted that exploration company during the gas glut from exploration to acquisition. Then it started doing acquisitions in the Gulf of Mexico. So from about 1987 through about 1989, I was an officer of an oil and gas company and at a mineral company at the same time. Just to give you a sense of my life, the time I put into the business meant that I went for eight years without taking a vacation. ­

In 1989 I had a choice of moving into the oil and gas business or the mineral business. I chose the mineral business and was made chief operating officer of the mineral subsidiary. I ran that until we decided to sell the company in 1992. We spent a year trying to sell it. Running the company during that time was quite traumatic and also a good learning experience. Ultimately this led to the sale of the entire company to Rio Tinto. And that got me into Rio Tinto in 1993.

Russ: In Rio Tinto you were put in position to be responsible for a different subsidiary?

Tom: Well in the first place, it was a case of surviving. I think this is an important lesson for everyone that’s involved in acquisition. At the time of acquisition I was Senior VP of a fortune 500 company. Normally, when your company is acquired by another you take a package and you go do something else. I was one of three in the head office of 250 that stayed with the company. I consciously joined Rio Tinto and moved from my role as Senior VP to a role of General Manager of a small operation that had just closed down in Alaska.

I figured that I had done pretty well climbing the corporate ladder in a US company and that I would take the risk of climbing the corporate ladder in an international company. I went down two notches organizationally. It was about seven years before I got my pay back to where I was in 1993. It was a challenging decision, personally, but I learned a lot about the operations of running a big business and a big company.

Mine Operations: Courtesy Rio Tinto

Mine Operations: Courtesy Rio Tinto

Russ: You have management experience across a lot of the chimneys that you find in organizations with growing scope and size in the operations you were working in. What were some of the most significant challenges that contributed to your learning about yourself as a leader?

Tom: I think first of all it was about understanding the environment around me. Being very aware not just of the business, but also of the dynamics. I think what I saw most as a result of moving from a smaller company to a bigger company is that generally bigger companies and their organizations are more static. People are in their own separate specialties. They don’t have a broad span of control and they’re not regarded as decision makers. It’s quite useful for someone to have exposure to a wide range of roles in a smaller company before they actually come into a large company. If they can adapt quickly they will be well equipped to be successful. Frankly, they are competing with people who are very one-dimensional.

Russ: And so aside from just moving into management roles, were there specific things that facilitated the development of your leadership capabilities? It could range from mentoring to other opportunities for you to gain insights.

Tom: First of all, I was working for my mentor when I was running the small private company that got bought out. I saw that when he became president of the parent company, very quickly his entrepreneurial strengths began to be overwhelmed by his weaknesses in managing a large company. This is not unusual for entrepreneurs to become senior leaders in bigger companies. For them those things that create strength in a small team actually develop into a weakness in a large team.

Something that was actually quite important for me earlier on in my career happened around in the early 90’s when I was chief operating officer. I must have been in my early to mid 30’s. I was pretty self-confident. Some would say brash! I went through what was then a senior leadership program provided by the parent company. The company was looking at people in my age category and grooming them or testing them.

One of the classic industrial psychologists from those days was quite wise. He put me through three days of testing – a sort of IQ test. He left me with a couple of observations and five points that I could use to self-develop, to improve myself. I kept that sheet of paper with me for a couple of years. One point it made was that we have to do a better job to respect people who aren’t as smart as we are, not as ambitious or basically not as motivated.

It was also about improving my own ability to put people at ease and listen as much as speak. And it was about not what I’d call showing people how smart you are, but working towards bringing up the best in the whole organization. We recognize that 90% of organization just want to do their eight or nine hours, do a good job and then go home to their family and life is good. It’s very important for a senior leader or a rising star to actually get that kind of mentoring, not in terms of how to do their job better but how to work in an environment of larger teams and ultimately lead larger teams better.

Russ: Regarding this notion of teams and leading, how does that show up for you?

Tom: Well I’m one that never celebrates the individual; it’s always about celebrating a team. Particularly in the mining sector where it’s a capital intensive of business, you are actually a steward, a custodian to assets that were developed and built by literally generations of management. I must pass that baton to the next generation of management. Our customers will be around for a long time. This is a serious B2B company. Customer relationships, shareholder relationships, stakeholder relationships endure well beyond the individual. Consequently, it’s so important to celebrate the team verses the individual.

Russ: Clearly you’re working in an environment of extraordinary complexity. Your company has operations in virtually every continent except in Antarctica. You’re dealing with a huge number of different country governments and cultures, the economic dynamics, labor dynamics and so on – all the  stakeholders that are concerned with the operations of your company. It involves the complexity and volatility of markets and all the other things that you’ve talked about in a number of interviews that are available on the Internet. What does it take to be able to get your arms around all that and deal with that?

Labor Protest,

Labor Protest,

Tom: Surround yourself with smart motivated people and make sure that they are aligned with your thinking.

Russ: And how do you build alignments?

Tom: We need clarity of purpose and a common objective. We have to work with people through good times and bad to show that we’ve got loyalty to them in exchange for the bargain that they should loyal to us. We want to create some mutual respect. I know a lot of people in my sector who actually will be much more bullying or aggressive with their teams and I think that they create dysfunctional organizations, consequently.

Russ: How many people do you include in your leadership team?

Tom: Well, I have an executive committee that is made up of 9 people who report to me.

Russ: How many different cultures do they represent?

Tom: Not as many as they should. To some extent we have a Caucasian culture, but we are increasingly moving into new parts of the world. My management team includes Australians, Brits, Americans and Canadians. There are two women in a group of nine direct reports. Out of those nine, four of them had worked for some time in their career in emerging markets.

Russ: I saw that China had invested I think it was 14 billion in your company. Does that mean that China will take on any kind of management role where you need to be managing them not just as shareholders or investors but in the management arena as well?

Tom: We treat them as one of our larger shareholders, but we’ve also tried to find places where we can work with them on projects – for example in Africa or in exploration which are seen to be valuable for them, valuable for Rio Tinto and valuable for the other Rio Tinto shareholders. We’re quite careful that we are not seen to be doing something that’s benefiting one shareholder at the expense of the others.

Russ: In what ways do you personally invest time and energy in developing the leadership capabilities, skills or practices of the people in your executive team?

Tom: Quite a bit of time, actually, on that. I have to make sure they’re doing their job as well as they can. For selected members I have to test them as potential candidates for my succession.

Russ: In what kinds of activities do you get involved?

Tom: I think it’s a combination of formal and informal. I have formal monthly executive team meetings that take about two thirds of a day. Quarterly these meeting last one to two days, I have formal monthly meetings with each of the division chief executives together with my chief CFO on their particular business. I have monthly meetings with respect to large investments that we review. That’s supplemented with less formal conversations, including phone calls and emails. In a global company you don’t actually catch people on a face to face basis as much as you do in a company in which the entire team executives are on the same floor.

Russ: So these people are located in various parts of the world?

Tom: Yes. In my direct team – I’m just going from west to east ­– it’s Montreal, London, Perth, Melbourne and Brisbane.

Russ: Clearly, one of the demands on your time is representing the company in regard various countries and issues such as politics and union dynamics, in relation to ecology and sustainability, which you and your company are publicly committed to. In addition to coaching the individuals and your executive team, what are some of the other things that you’re doing in your role as a leader? How do you spend your time?

Tom: Every year there’s something else that’s sort of new or different, so I wouldn’t have a fixed set agenda. At the end of every year I mark out my calendar and I look at, how much time I spent in London, how much time I spent traveling, how much time I spent with investors, with customers, with media, with the Board with formal executive interaction, with heads of state and in a bunch of other categories. Then I set some objectives for where I’d like to change – move the needle for the next year. I share that type of thing with the Chairman. We discuss what I do and who I spend my time with. I think that’s actually a useful process.

It’s fair to say that the mining industry five years ago was a more sleepy industry than it is today. As you troll the Internet you see that people didn’t write about it much in the past, except from the environmental perspective. Now people write about it from a political, economic and even a geopolitical perspective. What’s changed the most from our predecessors is that we now spend much more time meeting with senior political leaders and meeting in the context of global, multinational or multilateral forums.

Rio Tinto Alcan Refinery Expansion, Gladstone, Australia,

Rio Tinto Alcan Refinery Expansion, Gladstone, Australia,

Russ: I find that really intriguing because global companies such as yours, economically in particular, are much larger than a number of countries. In our evolutionary process in the global economy the situation is one in which we have large companies that are having to deal with the governments of many different countries that they operate in. I have a very difficult time imagining what that’s like, because the dynamics within the global economy and in relation to other countries is compounded by the takeover dynamics in the industry and competition in the global markets. What do you see as the trends and turns of the global economic system in relation to individual political systems within countries? Do you see anything coming down the road that’s shifting that in any way?

Tom: I really don’t. The global trade debate – it does not apply to our sector that much in the various trade agreements and trade realms. The reason is that we produce a pure commodity and either a country has it or they don’t. If we are producing it and we can get it onto a ship, it’s very mobile and can be sent to many different countries. We don’t have the same type of issues about trade restrictions or trade barriers unless there’s a country banned from trade because of some aberrance that they are to the world system, like Iran.

You don’t trade with Iran. You don’t trade with North Korea. Even now, you don’t trade with Burma [this interview took place before the Myanmar elections of 2012 – Ed.]. Doing so would be repellant to the world community. But I think if you’re a part of world trade any country can be a customer of ours. Everyone wants steel. Not everyone has iron ore. Everyone wants copper plumbing. Everyone wants an iPad. Everyone wants the stuff that ultimately we provide in front of the supply chain. So this is one area where we play into globalization. Frankly, there are few alternatives to globalization for our particular sector.

Russ: The situation seems to be bordering on the chaotic these days. That must be difficult to exercise any kind of leadership under those conditions.

Tom: Maybe, but Elliot Jaques would have said that it is the job of a level six in the face of such complexity.

Russ: [Laughter] Tell us about Rio Tinto’s experience with Elliot Jaques?

Tom: I don’t have any direct experience because that work predated me. In 1995 CRA was focused on the bread and butter of running big operations. And during the 80’s and the most of the 90’s in Australia there was a very aggressive and militant union movement that was incredibly constraining on the business of the economy. The economy was suffering. It got to the point where some of our business unions were running the operations.

To regain the owner running the operation, we had actually changed the way people did their work from the bottom all the way up to the top. That was probably the driver for bringing Elliot into the system. Today, as a chief executive I leave labour relations to the local teams. I would meet union leaders on a courtesy basis, but not on a negotiating basis, unless there was a need for the role of a level six. In the old days the CEO spent time with the unions and negotiated from a long distance. That wasn’t the right thing for the company to be doing.

So, we had to put the labor relations environment to where it could be managed appropriately, which is at the site. That was probably the catalyst that drove the need for looking at the organization. What happened over about a 10-year period is that the Australian organization greatly improved as a consequence of embracing Elliot Jaques’ theories. To some extent it went overboard. It was almost too rigid in this application. There were, for example, restrictions on a level three person as to how they can engage with a level five person. It was to the point where the organization was too stratified. It had moved away from what we have now, which is a team-based collaborative organization. The Jaques approach was actually anti-collaborative; it forced silos.

From time to time, I refer to the fact that there is still the ghost of Elliot Jaques roaming the hallways in our Australian business and with some of our senior management even here in London. I think it’s been very good but it was taken too literary and too liberally. It created an overly stratified structure. Now our mantra is collaboration. It’s team building. It’s working across boundaries.

Russ: You’re suggesting that the predominant culture at Rio Tinto is moving toward a more boundary spanning team process. Is that right?

Tom: It’s always an effort because it’s not our natural instinct. We had two very different cultures within Rio Tinto in the mid 90’s. One was more of business oriented and strategic. It used a decentralized approach out of our London organization where the London executives didn’t pay too much operational attention to the businesses. They focused on the strategic and financial side of the business. The Australian culture was actually more centralized, more hands on. It was not seen to be as strategic.

Over a 10-year period we have worked on merging those two cultures. We had to build up the company conversion in 1995 and have had a global division structure. We’ve made a lot of good progress there, although it’s never perfect. We do tend to identify with silos, particularly at the local level where our mines have 50- or even 100-year histories under some local brand name and that have tremendous pride in those local communities.

Russ: It’s interesting that in many industries where there is a call for a lot of innovation, the shift is to the kind of organization that you’re talking about. They need to develop a more fluid process and culture in the face of rigid boundaries. They seek to be more team oriented. Do you see innovation as a key challenge in your industry?

Tom: We are not necessarily innovation friendly, because first of all we are not like IT with consumer goods. We’re not always destroying our business, our product. We don’t have businesses with three year product lines where we would completely reinvent ourselves every three years in order to stay around. But there’s an advantage to that. No one is going to reinvent copper. I don’t have to have a team of scientists telling me what will be the next copper. Copper will always be there; iron and steel will always be there. Coal has some issues, but frankly it will always be there. Our products will stand the test of time; we don’t have to do a lot of innovation on the product side.

We do need to do a lot of innovation on the process side. Because our capital intensity is so high its actually quite different to do anything more than what I call incremental change on the process side, as compared to fundamental change. Right now we are seen in the mining sector as being a leader in automating things. These are the neatest toys in the world. We are using a truck the size of a three-story building. It has tires that that are 12 feet high. We’re making them robotic. But it is not fundamental change of the business. It is basically taking a truck driver out of a truck. It’s not replacing the truck with something else.

Russ:  What about the political and economic dynamics that you’re having to deal with in the world. Are you seeing opportunities for more innovative approaches there because you’re working within and across so many cultures?

Tom: That’s a different type of innovation. There is cultural innovation in which we reshape the organization. We have made great strides. I think we are seen to be a leader in the sustainable development arena in our sector. I’ve spent a lot of my personal time on issues of employee safety, employee health, and particularly global environmental challenges like carbon, biodiversity, etc. As an organization we have to be seen to be more sensitive to – I use regularly the term flirty – to the bulk of the population.

The tricky part is the people who are easily swayed by arguments, one way or the other. I will never try to change the minds of those who just don’t like mining or those who don’t like consumption. They’ll always be where they are. We won’t change their minds. I don’t need to sway those who are mining boosters. But there’s a big spectrum of society that is in between those two boundaries. They are incredibly influential and can either be supportive or disruptive. We need to look at this more than just from the mining perspective. In Rio Tinto our reputation is always as good as our worst business. In Rio Tinto we have to have higher levels of standards across the board, no matter where we operate. But frankly our reputation in the mining sector is only as good as the worst miner in the world and I can tell you there are some really bad actors out there.

Russ: This touches very much on the values that you bring to your roles as leader. You’ve spoken quite particularly about biodiversity and sustainability and the like. What are the key values that you want to manifest in regard to the challenges facing the world these days?

Tom: First of all, I’ve got to set the example. The challenge has to come from the top. We now have a third edition of what’s referred to as “The Way We Work”. That document is publicly available on our website. It lays out the company’s position and the company’s standards in fundamental areas of human rights, employee engagement, government engagement, environment health and safety. It discusses the political role we play in countries. That is something that we have to consistently apply in all businesses of Rio Tinto.

Russ: You recently went to a conference at Davos. The theme was on reinventing capitalism. What were the takeaways from that conference for you that you thought were valuable either for your role as a leader or for Rio Tinto in general?

Tom: That was only my second Davos conference. Historically, the Chairman has gone, but two years ago he said “Tom, I had rather you go to this thing so I am going out”. I frankly spend almost all my time either in conference presentations or in bi-lateral discussions. The tone of the conference generally is more related to what are the issues of the day. The three big takeaways from Davos ar, first,  that it is Euro-centric and entirely consumed by the problems of the Euro and the crisis in Europe. The rest of the world did not hold as prominent a position as it should have.

The second theme was the rebuilding of trust. The trust deficit between countries, between companies, between the public and political leaders, between the public and business leaders is at an all time low. It is very difficult to construct any solutions without a better environment of trust.

And the third thing ­ which is quite unusual given it was the topic of the day two years ago ­– was that no one is talking about carbon anymore. Carbon is sort of out of fashion. It’s one of these things that the world can’t afford at the moment.

Russ: What do you see as your role as the CEO of Rio Tinto in helping to rebuild trust?

Tom: The biggest problem around the trust deficit is frankly the world and its difficult economic conditions. The Western world in particular has outspent itself and now it’s going through a period of slowly getting poor. If you’ve overextended your personal or sovereign debt you have to reduce your lifestyle until you’re back in balance. People have to adapt to that. That’s a difficult time for the majority of the population in Europe where you have plus 20% unemployment of youth. It’s going to get a lot worse before it gets better. While CEO’s can set the right tone at the top, we also need to help the economies get back on their feet so the economies are growing again.

Russ: Have there been any other philosophies or writers that have influenced you and the way you think about yourself and your relationship to your role?

Tom: I say do unto others as you have done unto yourself.

Russ: [Laughter] okay, have you read about leadership at all?

Tom: I’m not an avid reader of business books. I do get them from time to time. I read more history than business theory.

Russ: Is there a role model that you have a lot of respect for?

Tom: I’ve watched the best of the best and try to follow individual examples, but I don’t think there’s anyone I would want to emulate in their entirety.

Russ: Tom, is there anything I haven’t asked you that you wished I had?

Tom:  I think we covered it well. Just to summarize for people coming up in their career, I think the key things would be to be enthusiastic about your job and be seen to be enthusiastic. Don’t be afraid to take measured risks, like taking lateral moves organizationally and learn as you go. Work as a member of a team, not as an individual. During periods of crisis or takeovers or mega change, focus more on what you can do to help the solution and never use the term either to yourself and certainly never to others, “What’s in it for me?”

Russ: Thank you, Tom.