Leadership Matters

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April 4, 2017

FT Commodities Global Summit 2017: Five Key Takeaways

As a sponsor of the 2017 FT Commodities Global Summit, Spencer Stuart was delighted to invite a number of senior leaders from across the commodities sector to participate as speakers and moderators. From our privileged conversations with them and others at the Summit, we identified five key themes that leaders will be focusing on over the next 12 months. Our particular focus at this year’s Summit was the growing impact of digital and the organisational and talent implications for leaders in the sector.

FT Commodities

Julia Westland moderating a panel on digitising commodities at this year's Summit.

1. The impact of digital

Digital transformation has begun to take effect in the commodities sector. Several CEOs are talking about technology and digital disruption as a major catalyst for change, with data and analytics bringing new insights and other forms of technology helping to streamline processes. One such example is the introduction of blockchain. Some of the larger commodities trading houses have started to experiment with this open source, secure electronic ledger technology that promises to make contracts and the settling of trades more efficient and transparent. Mercuria, for example, ran blockchain in parallel with its conventional paper-based documentation process for a shipment of crude oil from Africa to Asia, reducing the time taken for documents to circulate among all the participants in the supply chain from 40 to seven days. Given contractual complexities and the number of participants involved in many physical trades, full-scale adoption will take time, but most players acknowledge that the enhancements in speed, authentication and security offered by blockchain means that it is likely to become widespread, resulting in significant savings and efficiencies in the trading of commodities.

Digital disruption is making its mark elsewhere in the commodities value chain, from source to destination. Speaking at the Summit, Sir John Parker, chairman of Anglo-American, emphasised that technology-driven mining is making it critical for companies not only to invest in the right talent but to ensure that there is the requisite knowledge and experience around the boardroom table. Companies in the commodities sector are also well placed to take advantage of almost unlimited amounts of data, from increased use of IoT and sensor technology to real-time GPS-based cargo tracking. Improvements in data analytics are expected to have an effect on price discovery and deliver significant efficiencies throughout the value chain. However, to realise these gains companies will need to invest wisely in both people and information technologies. (Read more about digital transformation and what it means for leaders here.)

2. Optimism in a world of uncertainty

An optimistic mood prevailed at the 2017 FT Commodities Global Summit in Lausanne despite a general acceptance that there will be no return to the high growth that preceded the financial crisis and no prospect of another super-cycle on the horizon. Gas and renewables are growing fast and technology is promising to bring new efficiencies and support more sustainable business models. However, when it comes to geopolitics the sector is facing deep uncertainty. A new era of nationalism is sweeping the globe and bringing with it the prospect of protectionism and trade tariffs. Commodities companies have been built on the premise that inclusion is better than exclusion. They have thrived on open trade and the free movement of resources, but now they may find themselves having to adapt to the forces of anti-globalisation. Increased interactions with governments and NGOs will test leaders’ negotiating skills and local knowledge will be at a premium.

3. Widening skills gap

The growing emphasis and investment in technology is prompting commodities companies to look outside the industry to bridge the skills gap. As David MacLennan, CEO of Cargill, said to his peers at the Summit, “the jobs of today won't be the jobs of tomorrow; we need to immediately address the skills gap, and we all have a role to play.” Traditionally, trading houses have been quite insular, reluctant to bring talent and different perspectives from the outside. However, the speed of change and the need for competitive advantage is forcing companies to look outside the industry for specialized skills, particularly in the areas of technology, digital and data analytics (e.g., data scientists). The fourth industrial revolution is rapidly becoming evident in the commodities sector and companies will have to invest heavily in life-long learning to optimise the impact of technology automation on jobs. More will need to be done to develop transformation programmes and redesign ways of working; for example, traders and analysts can work together with new software tools based on machine learning, including artificial intelligence, to spot opportunities quicker. That said, the pace of technological change means that while the talent available in-house continues to play an important role, it is unlikely to be sufficient to meet an organisation’s needs.

4. Diversity and inclusion

As commodities companies seek to broaden their talent pools, they will also need to focus more attention on diversity and inclusion. It is important that commodities companies embrace all forms of diversity, including gender, nationality, ethnicity, culture, age and background. Commodities companies do not have a good track record on gender diversity in many Western markets and are also struggling to attract the brightest talent out of university, even though they are becoming high-tech businesses. However, examples of best-in-class diversity do exist, particularly in societies where mining is highly regarded, such as at Rio Tinto’s Oyu Tolgoi copper and gold mine in Mongolia, where 40 per cent of the workforce at all levels are women. Hiring people from the local community, especially into management roles, not only demonstrates that the business values diversity and inclusion but also enhances its understanding of local needs and preferences.

5. Sustainability

Sustainability in the commodities sector is a broad-ranging topic and one that is of increasing concern to CEOs and boards. Securing the social licence to operate is an essential success factor for any upstream or in-country operation and leaders are putting more effort into embedding a sustainability mindset in their organisations and driving sustainable practices throughout the whole supply chain. Investments in local communities and infrastructure projects that may once have been described in terms of philanthropy are now viewed as economic imperatives designed to leave behind strong, resilient communities. The sustainability of the whole supply chain is under increasing scrutiny and Cargill, for example, sees itself at the intersection between food security and sustainability. Water shortages are a major factor not just for agribusinesses but in mining, where technology is driving more water recycling and even waterless processing methods. Indeed, concerns about the environment across the commodities sector has given rise to the new discipline of “sustainability analytics”. We can expect the internet of things to have a major impact on sustainability strategy over time.

The steady rise of renewables is set to have a disruptive effect on the energy industry (although the switch from coal to gas is currently having a more significant impact on carbon emission reductions). There are still issues to be resolved with renewables, such as the problem of intermittency, battery storage capacity and pressure on margins. However, in the words of Mark Crandall, CEO of venture capital firm Postscriptum, “you can see the grim reaper in the rear view mirror”. Sustainable energy sources are becoming increasingly viable with continuing gains in technology lowering the cost of energy production.

Without doubt, the question of sustainability, including the evolution of renewable energy, is going to be a major factor preoccupying leaders in the commodities sector over the coming year. Companies that embed a culture of sustainability in their strategies will become increasingly attractive places for highly talented and socially conscious millennials. As we reported in our article Culture and strategy in the commodity sector, when asked to rank the impact that culture has on their organisations, most leaders we spoke to rated it as 10 out of 10.

Commodities companies are facing challenges on multiple fronts, from risk management and regulatory pressures to digital disruption and attracting talent. They are having to pay closer attention to the suitability and effectiveness of their cultures in order to maintain competitive advantage and attract the best global talent.

Marco Guisti is based on Sao Paulo and leads Spencer Stuart's Industrial Pracitce. You can reach him via email and follow him on LinkedIn.

Sebastiaan Stoové is based in London and is a member of the Energy and Industrial practices, focusing primarily on senior-level roles in the energy and natural resources sectors. Reach him via email and follow him on LinkedIn.

Julia Westland is based in London and is co-head of Spencer Stuart’s Data & Analytics Practice. Reach her via email and follow her on LinkedIn and Twitter.

Rowen Bainbridge is based in in London and a consultant in the Energy and Industrial practices, focusing on clients in the upstream and oil field services sectors in Europe, the Middle East and Africa. Reach him via email and follow him on LinkedIn.