2008 BHP-Billiton AGM transcript

Stephen Mayne: Good afternoon, Don. Firstly, apologies that I'm late. I was running for the Centro Retail board across town, and the meeting dragged on for a bit. So apologies for that. I'd like to speak in favour of Mr Morgan, the re-election today, and I'd actually also like to put the case that I think he should be our next chairman. I think the time has come at BHP – Don, you have been here for – on the board for 11 years

Don Argus: Stephen, do you have a question on the election, please?

Stephen Mayne: Yes, I do.

Don Argus: Yes.

Stephen Mayne: I'm – I'm getting to it, if that's okay.

Don Argus: Thank you.

Stephen Mayne: I think that David Morgan's reputation at Westpac, he took them from number four to number one. Clearly, his risk management skills were excellent. He hasn't overloaded his – his workload. He doesn't have too many other directorships, and I think there is time now for a regime change at BHP. I think you have been here for a long time, Chairman. I think we have had – we almost copped a bullet with Rio. Clearly, the change of value from the share prices yesterday was

Don Argus: Stephen – Stephen, do you have a question, please?

Stephen Mayne: Yes. My question is, is David available to serve as chairman?

Don Argus: He's just – just made – he's available to serve on the board, and the board elects its chairman, Stephen.

Stephen Mayne: All right. But I – I'd like to hear from David. There was reports in the press today that he led the charge in stopping the Rio deal, which – which stopped us from copping a bullet. He's got a great risk – risk management reputation. He led the charge, if you believe the Fin Review this morning. He's not overloaded. Is he available? Does he have the time commitment? Would he be interesting in serving as the next chairman of BHP in a sensible transition over the next 12 months?

Don Argus: Thanks, Stephen. He's already addressed the meeting. It's not a matter of the chairman's position. It is about the board electing its chairman, and it's the shareholders electing the – the members of the board, and David's done that, and we have – we have now to vote on
– on David's election.

Stephen Mayne: Chairman, is this an unlimited authority? If we approve this will you have authority to buy back every single BHP Billiton Plc share?

Don Argus: Yes, up to – up to a – sorry, up to 10 per cent. I beg your pardon.

Stephen Mayne: Only 10 per cent?

Don Argus: Yes.

Stephen Mayne: Because there's some press speculation today that, after Rio not happening, we should do a massive buyback of the Plc shares because they traded at a discount to the Limited shares, and maybe even should collapse the DLC totally like you did at Brambles and just come back to being a limited Australian company. So, clearly, if you were to do that - we're not giving you authority today - you'd need to come back and get separate authority from us. Could you comment on that press speculation about the merits, and whether you will look at a far larger scale buyback than 10 per cent and/or a complete collapse of the DLC and taking away the London listing?

Don Argus: Yes, look, the – as you know, Stephen, the buybacks are a capital management tool that the board uses to try and develop shareholder value, and it's just one of the many options that we have, including dividends and other like instruments. On the collapse of the DLC, there's no reason to collapse the DLC. The DLC is a different animal to the Brambles DLC. It's got tremendous shareholder support in South Africa and in the UK, and there's no reason to do that, because it gives you the access to the world capital markets, and that's pretty important for a company of this size and complexity. So I – no, it's not a consideration, but I don't comment on press speculations, no.

Stephen Mayne: Chairman, I just wanted to deal with the issue of what happens in the event of termination or departure. You have been on quite a journey yourself on the question of the termination. I think when you left NAB you got to keep your options even though they were only issued a few months earlier. Then when John Fletcher left Brambles, you let him keep his options which was against the government's practices of today. I previously said you are the king of terminations; that if you look at all the boards you've been on, there was about nine different CEO payouts which totaled almost $100 million across NAB, Brambles, BHP and Southcorp. Obviously, when Brian Gilbertson got terminated, he got a guaranteed pension for life of about $1.6, $1.7 million. If he lives to 100, that will be about $100 million of our money which will go to Brian, which is not bad for a few months work. Obviously when you spun out Blue Scope Steel.

Don Argus: Stephen, Stephen, Stephen – can I just correct you there? The pension was a pension that had started a long time ago and as you well know, pensions take a long time to bring to – to be in the money.

Stephen Mayne: But you bumped up his base and then he got locked in and he farewelled on the higher base that you put him on.

Don Argus: He – he did have an existing pension under his contract.

Stephen Mayne: But even when you spun out.

Don Argus: Please put the facts right, Stephen.

Stephen Mayne: Okay.

Don Argus: Because I will correct you if you don't.

Stephen Mayne: All right. Well, you agree with $100 million at

Don Argus: No, I don't. I don't agree with that.

Stephen Mayne: What do you think it will be?

Don Argus: I don't know. I would have to work it you.

Stephen Mayne: All right. Well, let us know when you have worked it out.

Don Argus: Have you worked it out?

Stephen Mayne: Well, 1.7 indexed, you know, if he lives another 35 years and he's been on it for five years, roughly 100 million.

Don Argus: Stephen, you'd be a great add to a board, working it out like that.

Stephen Mayne: Now, I am almost finished. When you spun out Blue Scope Steel and you put Kirby Adams on an open ended contract with a guaranteed two year pay out. [? Metrics] have just produced a report which has gone public today saying that the average termination pay of the top 100 companies is $3.4 million. There is a lot of outrage about this. Politicians are talking about it. [? Metrics] is proposing a $1 million cap in any pay out. So, any cap of – any pay out of more than $1 million would have to go to the shareholder vote. So, the questions I've got for you, Don, are have you – do you feel you have gone on a bit of a journey yourself and the practices are now better than what we saw when you left NAB and in the early years of the Southcorp pay outs, the Kirby Adams pay outs, etcetera, etcetera? Tell us what happens in the event of termination today, with Marius.

Don Argus: Sure.

Stephen Mayne: Like, how – how – how much tougher are you today and do you think, if we have this $1 million cap with shareholder approval being required, do you think there would be unintended consequences where you, as a board, would have to pay more cash, more guaranteed cash, etcetera, because the guaranteed balloon payments would be legislatively restricted?

Don Argus: Let me answer the question of Marius. The difference between today and yesteryear is that all of these guys are on a 12 month rolling contract. And if they – unless they leave for cause, then they are entitled to all of their entitlements under the 12 month rolling contract. They are also entitled to their pro rata entitlements under their deferred shares and also under their short term incentive plans. If they have worked for part of the year then they would be entitled to the bonus attaching to the short term incentive plan, and they are entitled to the pro rata entitlement of their long term incentive plans and, of course, none of those that are attaching to shares or the long term – or the performance shares, would attract anything at all unless they have met the hurdles that are there in the existing plan.

So, they are entitled to that under their contract, and I am not sure how you are ever going to cap that. If you want to attract international executives to run this organisation then that is what they are looking for, and you must make it attractive for them. So, I don't know how you are going to cap it. I think the whole secret of this is getting the key performance indicators right and I think that is where the concentration should be to make sure that the shareholders understand the linkage between the key performance indicators and the shareholder value.

Stephen Mayne: Chairman, I'd just like to briefly speak in favour of this resolution. I think, as a general rule, Australian non-executive directors aren't paid enough. It's a ridiculous situation that Paul Anderson can – I think his final was what? 18 million or something, and now he's working as a non-executive director on what? 350 Australian or something. You walked out of NAB, I think your final year the – the figure in the annual report was – was 10 or 11 mill. You're struggling on, struggling along today on not much more than a mill. So I think we – we have got too – too few directors doing too much in Australia, because you have got to sit on five or six boards to make a million bucks a year, which is ridiculous when your average CEO is on five.

So we should be paying our NEDs more, and probably paying our CEOs less, and as a general rule, you shouldn't have a CEO getting more than a – than a whole board. It's ridiculous that Marius Kloppers is worth more than the combined talent of these 12 top international directors. So I think we should support this resolution, and, generally in Australia, accept the theory of having good directors paid properly and not, therefore, sitting on too many boards.

Don Argus: Thank you.

Stephen Mayne: Very first quick one, Chairman. Is it your current intention to nominate for election at next year's annual meeting?

Don Argus: I'm up – I'm up for review on an annual basis, Stephen, and my board colleagues go through – as I do – the – I suppose, the assessment program, and I'll make a decision once I have completed that.

Stephen Mayne: So it's – you have got an open mind at the moment. It's not – there's no firm idea in your mind that you will nominate again?

Don Argus: I – I have been elected for 12 months, as I have been elected for 12 months since 2006, and that's where we'll be, Stephen.

Stephen Mayne: Okay. Now, you sent out a DVD with an interview with Robert Gottliebsen from Business Spectator to the shareholders. Robert Gottliebsen's colleague, Alan Kohler, wrote a column in September 2006 in the Fairfax press, saying that the Billiton merger was a disaster. He called it terrorism. He said it was a hijacking, and he claimed that it represented a $26 billion transfer of value from BHP shareholders to Billiton shareholders, on the basis that we gave Billiton 42 per cent of the shares, and these days, those same assets only produce roughly what? 20 per cent of the profits. If you look at the move in the share prices yesterday, there was a $35 billion transfer of relative value away from Rio Tinto, back to BHP, after you walked away from what was clearly a – a – would have been a disastrous deal for us.

So, my question to you is, in hindsight, looking at the massive dilution from the Billiton deal and what would have been massive dilution from the Rio Tinto deal, where you were attempting to do the same thing again, which of those two proposals do you think would have been more dilutive, and do you agree that the combined loss from those two proposals, based on share price movements and profits from the assets, would have been somewhere around $70 billion if we hadn't come to our senses before yesterday?

Don Argus: I stand by the scoreboard, Stephen.

Stephen Mayne: But you would have to agree that

Don Argus: I stand by the scoreboard, Stephen. If you want to extract any piece out of any transaction we do, you'll make news comment – whatever you like. You cannot just look at something in isolation. That's what you should look at. If – if you're a good investor, Stephen, and you say you are – if you're not – if you're not following that, you have got a problem.

Stephen Mayne: But you have to agree, Don, the stock would be north of $50 if we hadn't done Billiton.

Don Argus: That's hypothetical, Stephen. Here – here's – here's what the market's done, and the basic fundamentals of what we do are there for all to see.

Stephen Mayne: So that – that

Don Argus: I rest by the scoreboard, Stephen.

Stephen Mayne: So that Kohler claim about it being a disastrous deal, you disagree with that?

Don Argus: If you – if you want to –if you want to quote somebody else, that's fine. I'll keep pointing to the scoreboard.

Stephen Mayne: Okay. Thank you.

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