Critical Resource specializes in political, sustainability and stakeholder risks facing natural resource investments. We advise senior executives and investors in some of the world’s largest companies. http://www.c-resource.com/
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.
For the rest of this interview, click here: http://www.c-resource.com/q-a-with-sir-mark-moody-stuart-former-chairman-of-shell-anglo-ceos-must-listen-and-visibly-engage/