De Beers: Moving into the Future at High Speed

Philippe Mellier, the current President of Alstom Transport and Executive Vice President of its mother conglomerate, Alstom, will become the next Chief Executive Officer of the De Beers Group. Born in 1955 in Lyon, Mellier previously held the positions of Chairman and Chief Executive Officer of Renault Trucks, and, from 2000, he also served as a member of the Volvo Group Executive Committee. From 1999 to 2000, he was Senior Vice President, Market Area Europe at Renault SA. Prior to that, he had a long career at Ford Motor Company, including senior management responsibilities in several countries.

For this high-speed mover, the time has apparently come to make the next career move.

An Unconventional Choice

Chairman Nicky Oppenheimer's unconventional and surprising choice for taking De Beers forward seems rather odd at first sight – but upon reflection, it may turn out to be a brilliant move that will take De Beers into entirely new directions and, one might add, probably faster than expected. As Mellier is a total outsider to the mining and diamond business, it is expected that the choice is deliberate for someone with a fresh look and no preconceived notions "to take De Beers where it isn't today." Expectations are that Mellier will position the De Beers "Forevermark" around the globe – and do so at accelerated speed. At some point, the company's core business may be redefined.

Indeed, Mellier's appointment is not expected to be an "isolated" event, but rather, part of a future restructuring. He isn't being brought in just to manage De Beers but to engineer fundamental changes in the almost 125-year-old company. More about this later.

Mellier's Background

Where does Mellier come from? Alstom is a company that operates in 100 countries. It generates US$20 billion in annual turnover and employs 93,500 employees. The Alstom Transport subsidiary, which is the company led by Mellier, operates in over 60 countries and employs "only" some 27,000 people. The company recorded a €5.6 billion turnover last year (slightly down from €5.8 billion in the previous year). Looking at all these parameters, De Beers is really a smaller and less sophisticated business in comparison.

A promoter of sustainable mobility, Alstom Transport develops and markets the most complete range of systems, equipment and services in the railway market. The company is globally Number 1 in the high- and very-high-speed train sector and ranks second worldwide in the urban transport market, regional trains, signalling, infrastructure equipment and all associated services. Alstom Transport commands 18 percent of the global market share.

To the railway-focused Mellier, China represented probably his single-most important future market, and he has fought for Alstom to become a long-term and reliable cooperative partner of infrastructure construction in transport on that continent. When he leaves for De Beers, his successor will have to compete with an 18,000-kilometer high-speed passenger rail project, where trains will run at an average 250 kilometers per hour. Actually, a few years ago, Mellier's team designed the world's highest speed trains running at a record of 574.8 kilometers per hour, which almost sounds like competing with several types of airplanes.

Looking at recent marketing accomplishments, during fiscal 2010/11, Mellier’s Alstom Transport booked large orders for locomotives in Russia and Kazakhstan, regional trains in France and Sweden, very-high-speed trains in Morocco, metros in Canada, Santo Domingo, Panama, India and Brazil, as well as tramways in France and Tunisia. Maintenance contracts for mainline fleets were registered in the USA, as well as a number of signaling contracts in Europe and China.

Nicky's Choice: A Marketing Genius

What, one might ask, is this executive looking to do in a totally different, relatively small, straightforward mining company called De Beers? During the almost full year in which the recruitment search was conducted, it looked for an individual with an absolutely impeccable and outstanding marketing background. Mining experience was not a requirement. In that aspect, Mellier probably exceeds even Nicky's own wildest expectations.

Bringing in an excellent outsider also solves potential internal company problems. The current Co-Managing Director, Stuart Brown, had intimated that he would not remain at De Beers if he didn't land the top job. Though he is well-liked, especially at Anglo-American, he apparently didn't have what the shareholders were looking for. Stuart has come a long way since he was a bookkeeper at the Botswana Teemane polishing factory – at the same time that former De Beers CEO Gareth Penny was the plant manager. He might move to Anglo-American rather than out of the business.

The position of the DTC Chief Executive Officer, Varda Shine, had been understood to be more pragmatic. Though she considered herself a worthy successor to Gareth Penny, and had put forward her candidacy, she also intimated that if Nicky Oppenheimer would bring in a really impressive and exceedingly qualified CEO, she would be most happy to continue to serve. It is expected that she will become the second-in-command, especially given the importance of marketing in the future.

Mellier met with the important Botswana counterparts some weeks ago. Our London sources tell us that one of Mellier's first official tasks will be the signing of the new marketing contract with Botswana, heralding in the new era of "independent marketing" (window) of part of the Debswana production.

What is Mellier's Agenda?

We are not privy to the plans of the De Beers shareholders – and have no idea what attracts Mellier to the company. Those who have spoken to him believe that he wants a change in life, and that turning around a company "that is clearly at a crossroad" is seen as a fascinating challenge. Sounds great – but not convincing.

There are others who believe that Mellier, whose Alstom Transport business has been managed in accordance with the highest ethical and legal standards, had grown restless with some of the many ongoing corruption and bribery investigations going on in other Alstom units, which distract management.

Like several other huge global companies working in energy and infrastructure projects in the developing world, Alstom is under continued scrutiny at Transparency International (TI) and by law enforcement officials in many countries. TI annually reports extensively on the enforcement of the OECD Anti-Bribery Convention, and its latest 2010 report (dated July 2010) makes (too) frequent mention of Alstom units, but not about Alstom Transport. Some London sources recall that last year, three members of the Board of Alstom in the UK were arrested on suspicion of bribery and corruption, conspiracy to pay bribes, money laundering and false accounting, and questioned by the Serious Fraud Office (SFO).

Code-named "Operation Ruthenium," the SFO investigation centered on the suspected payment of bribes by companies in order to win contracts overseas. This allegedly is associated with money laundering and other offenses. British investigators are working closely with the Office of the Attorney General and Federal Police in Switzerland, which conducts its own inquiry. Simultaneously, there are also investigations going on in the United States (World Bank).

My sources told me that the due diligence that had been conducted on the CEO candidates was extremely thorough and that Mellier and his Alstom Transport passed with flying colors. It is not ruled out that the "atmosphere" in Alstom may be part of Mellier's reasons for wanting a change. Alstom's loss is De Beers' gain.

Future Directions

It isn't clear yet when De Beers Chairman Nicky Oppenheimer will make the formal announcement and introduce Philippe Mellier to the company's stakeholders, including sightholders. We expect that, since now "the word is out," De Beers will want to take stewardship in managing the message and release more details about the appointment and the company's future plans.

It is obvious that having someone with the background and qualities of Mellier at the helm of the team may become a defining moment in the company's corporate life. It may enable De Beers to divest of mines and become more of a luxury and leisure company rather than a mining company. This would do wonders for the company's value – something that, at the end of the day, is what business is all about.