In a wide-ranging interview with Critical Resource, Sir Mark Moody-Stuart – former Chairman of Anglo American and Shell gives his top tips on managing stakeholder expectations, resource nationalism, and other social and political pressures facing resource firms.
CEOs should focus hard on engagement
CEOs need to be open and talk to people. They need to visibly engage and communicate both inside and outside the organisation. This is extremely important. First, CEOs have to listen and secondly, they need to be extremely clear. When a project opens, local people often hope to become wealthy and gain employment. It is important for companies to speak about the realities and explain what is really going to happen. People need to be told early if they lack the education levels to fill jobs. Be clear about what jobs are likely to be available so as to ground expectations in reality. Companies then need to challenge themselves to raise education levels so that kids who are now eight can think about going to university when they are 18. They need to commit to creating a mechanism and to test progress towards that goal – consulting stakeholders on progress.
Really addressing concerns is critical to building trust
Stakeholders need to see that you do actually respond to the information they give you. People may feel that you sit around the table and talk but don’t actually do anything. If you actually address their issues it really builds trust. In Canada, with the oil sands, we [Shell] had a climate panel. In the first meeting it discussed the mine overburden and how that should be treated. For the next meeting, the overburden was redesigned based on stakeholder concerns. This showed not only that we were they listening to them, but that we were also prepared to spend some money on meeting their concerns. If a company is seen to be spending money on something, people tend to believe it. If you say safety is a priority, people will assent but won’t take notice. However if people see that a company has stopped an operation because it is unsafe, and that is costing it money, it makes a big impact.
Resource nationalism won’t fade – flexible contracts can help
Resource nationalism concerns become more serious when prices are high, as resource-producing countries seek to take a larger share of the gains. However, when mineral, oil or gas prices go down, it doesn’t mean resource nationalism goes away. As countries feel their revenues being squeezed, they look to companies for more.
Production Sharing Contracts (PSCs) have the supreme advantage of being a tax system which flexes with price. This is in contrast to a tax and royalties system which is fixed, so that when the prices go up the proportion of spilt doesn’t change at all. This leads to temptation by government to change the rules as the split becomes seen as unfair. A PSC splits the upside so that the company benefits from keeping costs down, while the government also benefits at higher prices. I have for many years suggested that PSCs should be considered in mining. The major mining firms should model how it would work at a big iron ore mine or copper mine. 40 years ago the oil industry was very worried about PSCs, but now has become completely relaxed with the system.
The oil and gas sector needs its own version of the ICMM
The oil industry has not created an equivalent of the International Council on Mining and Metals. The ICMM was set up out of a multi stakeholder process, which said, ‘the world needs metals and therefore what do companies need to do to deliver sustainable development?’. It was founded by a group of leading companies. The fact that it is CEO-led gives it the power to make real commitments. For example it took a collective decision to report in line with the Global Reporting Initiative mining sector supplement. The Council also decides whether firms will be admitted, meaning membership is peer approved. The trouble with IPIECA is that it is not CEO-led.
Mining projects should focus foremost on water and enterprise development
If you look at the challenges for a mining company and look at all the issues – for example, education, environmental challenges, HIV/AIDS, and so on – there has to be some prioritisation. There are two key priorities wherever in the world you look. The first is water. Are you going to pollute it or divert it from another use? If you can’t answer the water question you are not going to get a mine started.
The second priority is enterprise development in the area in which you are working. All resource companies have got much smarter about this. What companies must do inside and outside their supply chains is to work with partners to build an economy which spills over from the mine into the wider economy. People want livelihoods but they cannot all be employed by the mine. If you want to have a sound engagement with the local community you have to get the community onside, and therefore try to assist in this. Within your supply chain the steps to take are fairly obvious, but outside your supply chain it can seem as though it is not related to your business – but it really is. With many projects, if you had to ask what the key problem is, well: ‘it’s the economy, stupid’.
Shell’s experiences and mistakes in Nigeria hold lessons for community engagement
A lot of the issues around Shell Nigeria focused on revenue distribution. Shell lobbied the government to send more revenues to local communities and revenue-producing regions. We tried pretty hard on that, but there are a lot of ‘leaks in the pipeline’ on the way down from federal revenues to the communities. You can notionally increase the percentage, but it won’t necessarily get through and do any good.
One mistake we made was to trust the visible authority structures. In many communities we assumed that the traditional chieftaincy structure was the actual authority structure. We would give contracts to the community, but very often this would be captured by a chief who would sub-contract to somewhere else, and the benefit didn’t really reach the community. It is very difficult for resource companies when governance structures have broken down, and those who apparently represent the community actually don’t represent them at all. The solution is third parties which are trusted by both sides. This is vital so that industry can understand the community, and communities can be helped to make decisions that are representative of them. If companies try to do this there is an inherent conflict of interest.
Projects can be caught between different stakeholder views – as Anglo has found in Alaska
At [Anglo American’s] Pebble project in Alaska, I talked to a woman who was from the area in which the actual mine would be. She said they had a traditional way of life and that they needed to preserve it and ensure it wasn’t lost. However the younger inhabitants of their community were under competing pressures. They enjoyed the traditional way of life, but they also liked modern things like iPhones and other goods that require cash. As the traditional way of life involved very little cash, the young people were leaving in order to find jobs in other places, which kills the community. This lady wanted the project to be developed so that the young people could get cash employment in the mine without leaving the community. This would both preserve the traditional way of life and provide for the needs of young people.
Alaska as a whole is likely in favour of the project, and people directly in the project area may also be positive; but for others who feel Bristol Bay salmon (their main livelihood in the area) are threatened even a little bit, they can’t see that the benefits outweigh the costs. Cynthia Carroll [Anglo American’s CEO till 2013] recently said, ‘if you don’t want this project we won’t do it’, but the important question is: who is ‘you’? The immediate community, the wider community, the people of Alaska, or the people of the US (or their representatives). Each would probably give a different answer.
Mining firms in South Africa need to accelerate progress in building trust with employees
In the bigger underground mines in South Africa you might have 5,000 people going down for each shift making the work environment very impersonal. A workable unit in any business is about 600. In a unit of this size the employees know each other and recognise each other, and it is also possible for a workforce of 2,000-3,000 people to be split it into cohesive units of this size. It should be possible even in a big mine. The building of trust between different jobs in the mine has been difficult and slow. It takes real leadership from the mine management to achieve this.
The mining industry in South Africa hasn’t made as much progress in trust and communication as it might have. Because of the history of apartheid, trust is very low. Work was being done toward providing single occupancy in worker accommodation and opportunities for family visits. All of these changes are necessary and the industry as a whole has not moved fast enough, particularly in the deep mines where working conditions are difficult. This is particularly the case in platinum where the ore body is very narrow, working space is tight, and mechanisation is difficult.
It is nearly 20 years since the end of apartheid. Progress has been made by the mining community but probably not fast enough. The drive for Black Economic Empowerment has created a lot of wealthy entrepreneurs but hasn’t necessarily benefitted local communities or individual miners.