Resource magnate Sam Walsh becomes Japanese company's external director

TOKYO -- Japanese trading house Mitsui & Co. stunned the market by announcing on March 22 that Sam Walsh, who just stepped down as chief executive officer of British-Australian mining giant Rio Tinto last July, will become its external director in June.

Walsh spent about twenty years in the auto industry after graduating from university, and held senior roles with General Motors and Nissan Australia. He joined Rio Tinto in 1991.

Walsh served as head of Rio Tinto's core iron ore division between 2004 and 2013 before becoming CEO. He slashed costs by adopting Toyota Motor's kaizen, or continuous improvement, production system and Japanese construction machinery maker Komatsu's driverless trucks. That helped Rio Tinto weather the plummeting resource prices in 2015 and 2016, which put other resource giants in significant difficulty.

Mitsui, which logged its first net loss after posting an impairment loss in the resource business in the year through March 2016, is pinning big hopes on Walsh's extensive experience. Market players are also looking to Walsh's capital policy.

Walsh rejected a takeover bid for Rio Tinto from Swiss-based commodities giant Glencore while CEO in 2014. Around that time, he also increased shareholder payouts. Rio Tinto generated a positive operating cash flow of $8.5 billion and spent $3.6 billion on dividends and stock buybacks for the year through December 2016.

As CEO he was also responsible for bolstering the company's financial standing to better cope with fluctuating commodity prices. S&P Global Ratings' last summer revised its outlook on Rio Tinto from "negative" to "stable" and affirmed its A- long-term credit rating. Instead of boosting shareholder payouts with financial leverage, he focused on liabilities, shareholders' equity and cash flow in a balanced manner.

Akifumi Hayashi, senior analyst at Mizuho Securities, said Walsh is an excellent manager, not only because he turned around the business, but also because of his disciplined allocation of capital. Market watchers expect that his stance toward capital policy and expertise will have a positive impact on Mitsui's management.

Mitsui is expected to formulate a new dividend and capital policy when it releases its medium-term management plan in May. The company's earnings and shareholder payouts have been subject to commodity prices, as it has determined the latter based on free cash flow.

Mitsui's decision to cut dividends for the year ended March was also a disappointment to market players. If Walsh's expertise can help Mitsui stabilize its earnings and shareholder payouts, market evaluations may change for the better.

Australian media reported that Rio Tinto has been under investigation on corruption charges for a mine interest in Guinea. Mitsui stressed there is no evidence that Walsh has any involvement. The focus is now on what kind of role Walsh will play at Mitsui after obtaining approval at the annual shareholders' meeting in June.

Published Date:2017-04-17