Vedanta CEO-elect faces tough task; has to please both investors, agitating locals

Srinivasan Venkatakrishnan couldn’t have chosen a worse time to join Vedanta Resources. It will be a trial by fire as he prepares to take over as CEO in August and hit the ground running to address anxious investor concerns in London as well as agitating locals in Tuticorin and power-hungry Tamil politicians who are hoping to reap a harvest at the copper smelter plant.

The 53-year-old, Chennai-born CEO of AngloGold Ashanti, has dealt with similar challenges in the past but not on this scale. Awaiting him are an underperforming share price and an industry that not just needs government and environmental consent but also social approval to operate in an unfriendly environment.

Venkatakrishnan or Venkat spent 18 years in AngloGold, the last five years as the chief executive. He took over as CEO in 2013 when commodity prices were collapsing and debt was threatening to bury the gold miner. Venkat is said to have taken this challenge in his stride and pulled a remarkable turnaround of the company, paring debt and costs and thus earning plaudits from investors.


There are misgivings too: does Venkat have the experience to handle Vedanta Resources, a company that is more diversified and bigger in scale than his current employer?

After Albanese
Vedanta’s last CEO, Tom Albanese, joined in 2014 and resigned in 2017 due to personal reasons. Albanese, during his term, brought in best practices in mining and improved the safety record of the company. Unfortunately, just a year after he joined, metal prices started crashing from July 2015 due to slowdown in the Chinese economy and devaluation of the yuan. Metal prices kept falling and bottomed out in February 2016. All commodity producers were badly hit during this period. Many international companies, including Glencore and ArcelorMittal, had to raise funds through rights issues to fund their way out of a debt squeeze.

Insiders, who are privy to the Vedanta boardroom, say that Albanese had a free hand for about a year, till the metal commodity prices collapsed. Agarwal, concerned by external development, took a direct interest in running the company as Albanese stepped back to accommodate the promoter. Will Agarwal give Venkat a free hand? A third-generation accountant from Chennai, Venkat’s Tamil will come in handy at Tuticorin. He prefers to operate with people who are frank with their opinion and give him the bad news first. In South Africa and Ghana, Venkat, a Hindu, is known to have won the trust of the local communities by attending church services and engaging with them.

This trait may be useful, as along with government approvals, social consent — both explicit and implicit — is important for natural resources companies.

Industry experts say this is an area that Venkat and Agarwal will have to focus in the coming days. “Tom (Albanese) understood this patchy track record of safety and social approval, and put his efforts in that,” says a person who has worked with him but does not want to be named. “It takes five to ten years for reality and perception of a company to change.” Albanese had taken the longer route but the melting commodity prices saw his initiative slowing down.

“It is like climbing Everest,” says another person who was at one point associated with the company. “Even to get back to square one takes time.” With Indian general elections a year away, it is unlikely that politicians will take any risk to recant at this juncture. Except for Tamil superstar turned politician Rajinikanth, no one has spoken against the agitation.

What happened on May 22, when 13 people were gunned down by the police, “was a big failure of risk management,” says an executive working with a peer company. More than the Tamil Nadu government, Vedanta has to find out what went wrong, he adds.

Locals will always agitate against a facility coming up. Whether it is an airport, a nuclear power station or a copper smelter plant, the common riposte is: Not in my backyard. Should Vedanta have divided the risks? When you have problems at one place, it is better to set up another facility in a friendlier environment. Instead, the company went head-on expanding its existing facility. Natural resources companies such as Rio Tinto and BHP Billiton have evolved and matured as sensitive miners. Anglo American and Glencore are reaching the same level, and it is time that Vedanta Resources moved in line to acknowledge public sentiments.

“Expectations are rising. You are dealing with a moving target,” warns a former executive. Venkat, who worked with consulting firm Deloitte early in his career, is known for his acumen to deal with crisis situations.

In an interview in 2015 to London-based Financial Times, Venkat said: “Mining is not a business for the faint-hearted. It comes with numerous challenges, (But) the impact you have when you take decisions for the long term is phenomenal.”

For Agarwal, an intrepid businessman, who built his fortune from ground-up — starting from the humble origins of a scrap dealer to running a global natural resources company — through a slew of aggressive acquisitions, time has come to delegate charge to independent professionals. In the past, he had declared that he would give his CEOs a free hand, as he focused on pursuing his interests, which include philanthropy.

At Vedanta, Venkatakrishnan will require that independence and time, to build bridges with environmental groups and local interests and invest in intangibles on the ground which will ensure Vedanta’s legacy is not tainted.