NIC NORMAN-SMITH: Growth at any cost
The bigger the company, the larger the compensation package (and the bigger the private jet)
Resource companies have a notoriously poor record of capital allocation. Just think of the billions that mega-miner BHP spent on buying back shares at record highs in 2011, only to suspend the programme when the share crashed by two-thirds over the next few years — before plunging in again once the share rallied.
Everybody makes mistakes, but this sector has a particularly egregious history. Why? Are resource CEOs really just less capable than their peers? This seems rather unlikely for a group of experienced individuals who are able to run complex operations, often under very trying conditions. But understanding management’s incentives and the external pressures that they face is helpful. This is often referred to as the institutional imperative...
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