The GPR Dehler Complexity in Mining Series: Nick Curtis on managing risk by focusing on the company’s ‘software’.

With limited resources to profile and manage risk, evolving mining companies need to switch their approach from a focus on hardware – the asset – to their organizational software, according to Nick Curtis, Executive Chairman of Lynas Corp. This means building a belief system and effective organizational structure very early on in the company’s life – and not taking on too many risks at once.

The principal challenge for leaders of evolving companies, according to Nick Curtis, is deploying a significant asset with limited resources: money, people, policies and processes.

“That in itself embodies a large amount of risk – and a large number of situations in which risk is not recognized or dealt with,” he says. “In large organisations, the risk profiling is already done, and the resources are generally there to identify, unpack and resolve them to an acceptable standard. Growing organisations need to learn to identify risks on-the-job.”

In Curtis’s view, the most complex risk facing the mining industry involves the social licence to operate – and the process of achieving social acceptance. “When you’re building a company, you’re building a social organism,” he explains. “That social organism operates within society itself. And unless there is a harmonious relationship between them you’re going to die. In the mining industry that’s particularly tough because we’re seen as a highly intrusive industry, and the community’s reaction to that – outrage – is a real risk.”

Mining companies need a new approach to addressing this risk, he continues, to address a new paradigm. “Fifteen years ago, communities said ‘the government says you’re coming – so talk to us about what you’re going to do’. Now they expect to be asked permission – they say ‘the government doesn’t have a right – we’re going to tell you whether we want you or not”. The farmer/miner debate in Australia wouldn’t have happened 20 years ago – there was an acceptance of the regulation of the interfaces that has disappeared.

“Mining companies’ focus was on convincing the government of the benefits of having them there: the change in their economy was our license to operate. Today, we need to engage with communities pre-operations, for example with programmes that prove sustainable shared value with the community. And there’s a long way to go when you’re being painted as a big bad demon that’s about to kill the country.”

 

Controlling the message: spouting the facts isn’t enough

Curtis believes that a revolution in how people communicate has contributed significantly to this new paradigm – and that mining companies must seek to engage them in new ways.

“You can’t control messaging in the way you did before,” he says. “There’s social media, and the need for the media to find a story: there’s more news in controversy, in opposition. Most mining companies tell them the facts and think ‘the facts will speak’. But it’s not what an advertising company would do. It’s not what a fast moving consumer goods company would do. They will deal with perception – so must we.”

“At Lynas, we’re putting ads in the paper and on TV and campaigning on social media…using PR and advertising to help us to get the community in Malaysia to understand that what we’re doing isn’t hazardous and is potentially a very beneficial asset.

“Being the biggest taxpayer in the community is no longer enough for the community to accept you.”

 

Develop the organizational ‘software’

Curtis suggests that while most new mining companies are focused on the technical risk associated with the asset, and getting value out of it, they need to give as much attention to shaping the organisation itself. He says: “It’s the ‘software’, not the ‘hardware’ – the asset – that makes the fundamental difference to your ability to successfully manage and absorb the risk.”

For Curtis, software starts with setting the culture: “The set of aspirational values, vision and mission that espouse ‘why we’re here’. The second part is the symbols that empower and focus people: the logo and brand identity should be developed early on.

“Third is the underlying assumptions you’re going to operate with. You have to know precisely what your business is about, and what you want to do, but also how you’re going to do it and why: ‘just for profit’ is not sufficient, you need to inspire people with a purpose.”

Once the cultural and aspirational framework is in place, it needs delivering into a living, breathing, functioning organisation.

 

Build the nervous system

“As people come on board, keeping the culture alive depends on organizing yourself so the vision, values and aspirations are consistent,” says Curtis. “The organizational structure you put in place is effectively the nervous system of the company.”

This means giving early thought to the type of organisation you want to build. “What kind of structure do you want to put in place? What is the role of process? How will you allocate accountability and responsibility? How do you relate people to each other? If you can do that – even if it’s bare bones with a lot of vacant positions – you know what you’re aspiring to, and you can start addressing risk. You can think about who you need, to solve what problem.”

Getting the right people doing the right level of work in that structure is crucial, Curtis says: “You don’t manage the risk by buying another tool set. You do it by getting the person that will be handed the tools to use them the right way.

“Leaders can’t get caught up in day to day operational risk – they have to learn to delegate. And you need clarity of responsibility and accountability. The more confusion, competition and anxiety there is, the less efficient the organization. The only way you can correct risk is to have teams that work really well – they aren’t anxious, they are empowered and they know their job. They understand the risk profile and the context around what they do.”

 

Internal communication: the slow, steady conversation

As a company that has grown more than tenfold in the last year, Curtis has witnessed how Lynas has benefited from strong cross-cultural, cross-geography internal communication approaches – and he says there is no shortcut.

“You need to give people clarity on the organizational structure, and roll out policies, processes and procedures that will tell them what they need to know about the organization and to feel a part of the team. If you don’t do it you’re going to get very divergent organizations growing – especially if you have multiple sites on the same value chain, in different cultural environments.”

Curtis recognizes the importance of cultural sensitivity – but insists you do need to have absolute standards that you don’t move from. “The paradigms within which people operate are likely to be different to yours. You can’t simply impose your paradigms, but you do need to have stands – on corruption, the environment and social obligations. They are part of the values and cultures you’ve created. If you debase them you’ve discredited the whole organization.”

 

Avoiding the black swan: building resilience and flexibility

A culture of ‘imagination’ is crucial for managing risk in a growing company, Curtis believes. “If you ignore the possible variability of outcomes, you don’t have the capacity to build in contingencies. That’s when the black swan event can take a smaller organization out. As a leader, you need to create a culture in which alternative ideas are accepted, and people debate things properly in a way that gives you insight.”

The leader must also create a sense of certainty. “Certainty of delivery of next quarter’s results, delivery to customers, delivery of product…this means defining all the key risks at a very detailed level. It might also mean embedding more and more process to provide certainty on how to do things. It involves people understanding their role and what is expected of them, knowing they have adequate resource, and being empowered to do their job.”

“The challenge is achieving the ambiguity: keeping the imagination alive, while allowing people to feel confident they can do what needs to be done do to get to the required outcome.”

 

Defining the risks: good asset or bad asset?

In Curtis’s view, there are four areas of risk that occur in mining. “Be prepared to take two of them on – you’re not battling too many fronts – but any more and it’s not worth pursuing,” he says.

  1. The geological/resource risk.
  2. The metallurgical risk.
  3. The financial risk – this could be commodity price risk, or that the mine needs a lot of capital to get up and running.
  4. Social/geo-political risk.

Once you know your risks, you can start defining what to do to get on top of them. “I know I have geological risks – and I have to get more resources, organize myself and get drilling. I have political risks – how do I diffuse them? You then need to analyse and identify your internal risks – the risks involved in getting on top of them.”

 

Nicholas Curtis

Nicholas is the Executive Chairman of Lynas Corporation Ltd. He is also Chairman of Forge Resources Limited and of the private advisory firm, Riverstone Advisory.

Nicholas has more than 25 years’ experience in the finance and resources industries. He was a Non-Executive Director of Conquest Mining Limited form May 2010 to October 2011 prior to the company’s restructure to become Evolution Mining. Nicholas also serves as a Director of the Asia Society Australasia Centre and as Chairman of Faces in the Street Urban Mental Health Research Institute at St Vincent’s Hospital, Sydney.