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Change at the top: what next for BHP Billiton?

The board of BHP Billiton Limited today announced the retirement of chief executive officer and inside director Marius Kloppers. Dr Kloppers is a 20-year veteran of the company, serving 12 years as a senior…

Outgoing BHP Billiton CEO Marius Kloppers shakes hands with his successor, Andrew Mackenzie. AAP

The board of BHP Billiton Limited today announced the retirement of chief executive officer and inside director Marius Kloppers.

Dr Kloppers is a 20-year veteran of the company, serving 12 years as a senior executive. He was appointed CEO in October 2007. Dr Kloppers' retirement from the CEO role will be effective 10 May 2013, and from the group effective 1 October 2013.

BHP Billiton chairman Jac Nasser praised the efforts of his retiring CEO in today’s board announcement. Mr Nasser drew attention to Dr Kloppers' steady stewardship of the company in the global financial crisis environment, driving new investments, and delivering strong shareholder returns during his tenure, with the group outperforming its peers.

The decision has been taken that Dr Kloppers will be succeeded by Andrew Mackenzie, currently BHP Billiton’s chief executive non-ferrous.

Dr Kloppers described working for BHP Billiton as a “privilege”, paying tribute to current and former colleagues, in particular former chairman Don Argus and former CEOs Paul Anderson and Chip Goodyear.

Media reporting in recent weeks has focused on the need for the group to rework its strategy. The commodity price boom encouraged strong spending from mining companies to increase productive capacity. Federal Minister for Resources and Energy Martin Ferguson is on the record in 2012 as saying the mining boom is over, so times have changed.

Big miners such as BHP Billiton set the tone for strategy in their industry. In 2012, BHP Billiton communicated to the market that their strategy focus for the current year is on reducing operating costs and non-essential expenditure. There has been suggestion of a slowdown or stop of some development programs, closure of higher cost operations and a significant targeted cost reduction program across the group. However, there have been few specifics provided to the investment community on details of this cost-cutting program.

The financial result presented today was in line with analyst forecasts, but a little disappointing. First half total revenue was down 14% at US$32.2 billion with net profit down 58% at US$4.24 billion.

Against the backdrop of these announcements there has been some media and shareholder chatter on succession planning at BHP Billiton in recent months.

Not all media commentators have seen Dr Mackenzie as a clear choice for the prized position of BHP Billiton CEO. Names including Marcus Randolph, Alberto Calderon and Michael Yeager have been suggested in the Fairfax media, with the view that a CEO with a strong operations background may be best suited to the role.

Dr Mackenzie has occupied a variety of roles in oil and gas, petrochemicals and minerals with organizations including BP and Rio Tinto, as well as enjoying a distinguished academic career. Dr Mackenzie joined BHP Billiton in 2007.

Dr Mackenzie will join the BHP Billiton board in May. BHP Billiton pride themselves on succession planning, though none of the contenders for the CEO succession currently are on the board of the world’s biggest miner. A small number of quality inside directors balanced by a strong chair and a majority of outside directors can make a strong and sound contribution to organisation strategy. Such an environment can also help to prepare senior executives for succession.

Looking to the future, the challenge for BHP will be to reduce costs, develop the right growth assets, and deliver strong returns to shareholders. Investors have become more vocal on the need for mining companies to improve their yield to investors, which are a fraction of what financial services companies can deliver.

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