The Times: Shell veteran leads Rio to new frontiers

By Angela Jameson
After a career as an oilman, Paul Skinner is helping a miner to alter its style and extend its reach.
WHEN things are going well, it can be tempting to sit back. In mining right now, that temptation is obvious. Mining companies are making record profits and their shares are attracting a new generation of investors.
However, Paul Skinner, chairman of Rio Tinto, is all too aware of how a carefully nurtured reputation can be damaged. After all, Skinner joined Rio Tinto as non-executive chairman in 2003 after 40 years with Shell. He was a member of Shell’s senior executive committee when the oil reserves scandal broke in January 2003 and in October of that year, when he joined Rio Tinto, the fallout still had a long way to run.
Rio, too, has had its problems. For years it was pilloried by environmental groups. One of the biggest skeletons in its closet was a copper mine in Papua New Guinea, where local people complained that fishing waters were being polluted — a contributing factor to a ten-year civil war. Rio Tinto has since worked hard to carve a reputation of environmental responsibility, with considerable success. The work began under Sir Robert Wilson, Skinner’s predecessor, but the current chairman takes it seriously.
“We are in a cyclical business and markets will not always be so kind to us,” he says. “Our job is to make sure that when they turn, we’re in a strong competitive position. The hate word is ‘complacency’.”
Skinner is just back from Madagascar, where Rio Tinto will begin mining ilmenite in 2008 in a £336 million joint venture with the Madagascan Government. However, Madagascar’s treasures are not just metals. Most of its 200,000 species of plants and animals are found nowhere else on earth.
Rio Tinto has been preparing for its ilmenite mine for years, engaging the local community and developing conservation areas, aided by experts from Kew Gardens.
The company has even managed to convince the WWF, the environmental charity, which opposed the project, that it is worth supporting. Skinner says: “Madagascar has been controversial. But having seen it, I am very reassured about the way that we are going about it.”
The project is based near Fort-Dauphin at the southern tip of Madagascar, the eleventh-poorest country in the world. Before Rio even began exploratory work, the area was threatened by deforestation, as local people relied on forest wood for fuel. Rio will cut trees down, too, but is beginning replanting and is putting precious seedlings in store for reintroduction. Conservationists brought in by the company have already discovered 25 new species.
“What we have done is put in place a very well thought through reafforestation plan,” Skinner says. “I would like to think that in 30 to 40 years’ time, this part of Madagascar will look much better and have much better prospects.
“We will be mining in a sand dune environment and as the dredge advances we will reafforest the dunes. This is a tremendous opportunity not only to execute a successful business project, but to show how to undertake a world-class mining operation in one of the poorest parts of the world and to leave something sustainable.”
It was a wish to work around the world that led Skinner, at 18, to Shell. His first day at Cambridge was effectively his first with the oil giant, since it sponsored his undergraduate studies, which he began by pursuing natural sciences and concluded with exams in law. He certainly saw the world with Shell, taking his wife and family to New Zealand, Greece, Nigeria and Norway. Greece, Skinner’s first posting overseas, saw him in “one of the sharpest commercial environments” he had experienced. “It certainly removed any naivety I may have had,” he says.
In his last job with Shell, running the downstream business, he was chief executive of an operation with 80,000 workers, spread across 140 countries.
Rio Tinto, despite its £30.5 billion market capitalisation, is actually a smaller business. “When I joined I had to think pretty carefully about the way I was going to play a very different kind of role,” Skinner says. “My focus is on managing the governance of the company and maintaining the quality of our board; working with the executive team on strategy, maintaining external stakeholder relationships with host governments, primary investors and NGOs; and making sure there are good succession planning processes.”
When Skinner joined Rio, the experienced Leigh Clifford, who had been Sir Robert’s chief operating officer, stepped up to chief executive. To get to know the business, Skinner spent much of his first two years travelling. More than half of Rio Tinto’s asset base is in Australia and New Zealand, and significant parts are in North America. Rio’s aim is to invest in large, long-life ore assets. The business has grown at an annual 6 to 7 per cent in recent years. At the end of the 1990s, it was involved in an acquisition spree to create sources of growth. Historically, its assets — copper, iron ore, aluminium, diamond, coal and gold mines — have been concentrated in the OECD area. Now Rio is using the cashflow from those assets to enter countries such as Madagascar and Russia, where it recently signed a joint venture deal with Norilsk Nickel, Russia’s largest mining group.
Another responsibility of Skinner’s is to exploit Rio’s lateral links. He wants its mines to share best practice. “Our operational experience across the world can be compared and leveraged to bring our weaker performers up to the standard of our best,” he says. “There is significant value to be created from that.”
Arguably, the new business locations carry greater political and investment risks, making it even more essential for Rio to be aware of its environmental and social responsibilities.
Skinner says: “We have worked hard to understand what those risks are and, in the case of Russia, have equipped ourselves with the best partners we could possibly have.”
China — whose hunger for metals has aided Rio’s performance of late — is another new area where the group may one day dig. At present it is investing to supply China with iron ore from Australia, but there is scope, potentially, to mine in China. Skinner says: “We are doing some interesting exploration in areas of China, but our primary involvement is as a supplier from outside. I wouldn’t exclude becoming an investor on a significant scale in China at some point, but I expect it would happen with partners.”
As Rio’s assets become farther flung, motivating a workforce made up of many diverse cultures becomes even harder. “It is a challenge here and for any global business,” Skinner says. “What is important is that the strategy of the business is clearly articulated.”
Respect for local cultures is critical, Skinner adds. “ ‘Think global, act local’ is a hackneyed phrase, but it does reflect our aim,” he says. “A mining company is very much about the way we relate to communities in which we operate. Perhaps the best example from Rio is the way that we have learnt to work with native tribes and aboriginal people in Australia, Canada and the US. It’s something we attach a lot of importance to.”
After running such a huge business at Shell, one might think it tempting for Skinner to walk away from the watchdog role of chairman of Rio. However, he says: “Every day that I go to work, I learn something new about the business around the world. It’s very satisfying. The day that I wake up and have a negative thought about going to work is the day I stop.”
There must have been plenty of negative thoughts, however, in those last few months with Shell. Skinner had been tipped for its top job, but lost out to Sir Philip Watts, the chairman on whose watch the oil reserves scandal occurred. Some observers have suggested that if Skinner had been chairman, the problem might not have arisen. Others argue that, as a board member at the time, Skinner was culpable by omission.
Asked what went wrong at Shell, Skinner says: “That’s a difficult question to answer because of the legal cases still running. My own prime involvement was in running the downstream business, I take a lot of satisfaction out of seeing that business doing so well now.”
Any regrets that he never got the top job at the company that dominated his working life? “I don’t think I ever laid awake at night thinking about that too deeply,” he says. My philosophy has always been very simply to play the hand the fates deal. To have arrived here in this great company, in the role I have, is all the satisfaction that I ever wanted.”
POWER CV
Name: Paul Skinner
Age: 61
Education: Pembroke College, Cambridge; Manchester Business School
Home: Winchester
Job: chairman, Rio Tinto, since 2003
Previous career: with Shell from 1966, including posts in Nigeria, Norway and New Zealand. President, Shell International Trading Company from 1991 to 1995; chief executive, oil products, Royal Dutch/Shell from 1999 to 2003; group managing director, Royal Dutch/Shell from 2000 to 2003. On Shell’s executive committee of five managing directors
Other positions: non-executive director of Standard Chartered and Tetra Laval. Chairman of ICC UK, which promotes trade. Board member of Insead, the French business school
Family: married, two sons
Hobbies: skiing, outdoor sports, opera and history
THE LEADER IN TEN QUESTIONS
Q Who is or was your mentor?
A It would require an Oscar-type speech to list them all. Peter Holmes, former chairman at Shell, is one. We first met in Nigeria in the 1970s. He taught me a lot about managing governmental relations for a global company. More recently, Dick Giordano, who was the senior independent director when I arrived here at Rio Tinto. He’s an individual of huge experience who really helped me in understanding what chairing a global company is all about.
Q Which businessman or woman do you most admire?
A It’s difficult to pick an individual but certainly Dick Giordano for his strategic vision. At BG Group he was responsible for one of the great value creation stories of modern times. I would also say Willie Purves, who was chairman of HSBC. He was really the person who took HSBC from a localised Asian bank to a major force in global banking.
Q Do you read books on management? If so, which has influenced you the most?
A I tend not to but I am a member of the board of Insead business school in France and Singapore so I try to follow the work that the faculty of the school publish. The book that’s impressed me the most in the last year is Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, which is a tremendous framework for thinking about developing strategy and strong competitive positions.
Q Which is more important: what you know or who you know, and why?
A What you know is more important. What you know is having a very clear theory of the business that you are in and what drives value in that business. The era of who you know, defined in terms of someone who can do you a favour, is long gone. But who you know in terms of a network of people who can be helpful advisers can be hugely powerful support.
Q What does leadership mean to you?
A Creating a winning vision and then inspiring people at all levels in the business to understand and deliver it. But the really important word is winning. My experience over many years is that people love to work for a winner, which means being the best in your business.
Q If you could change one thing about the business, financial and commercial environment, what would it be?
A I’m a great believer in free and fair trade. If I could choose one thing to change it would be something that would really help deliver the Doha development agenda. That would require a major restructuring of the agricultural subsidies that seem so embedded in the US, Europe and Japan.
Q What is the most important business event, good or bad, to occur in your working life?
A The oil supply upheaval in 1978-79, after the Iranian revolution. At that time I was responsible for Shell’s crude oil supply from the Middle East. Oil was in short supply and I spent two to three years running around the Middle East trying to ensure that Shell was adequately supplied.
Q Does money motivate you?
A It’s nice to have enough money to do the things that you enjoy doing in life but wealth accumulation comes trailing behind good health and family life.
Q What gadget/piece of technology can you not do without?
A I try to look at everything that comes along but in the last few years the words BlackBerry and iPod have begun to feature in my life.
Q How do you relax?
A Skiing and outdoor sports. I have only done three hours this year but I have more planned. Listening to opera on my iPod and reading. I’ve just finished a biography of Mao Tse Tung.

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