With Foreign Legion energy, Glencore’s Murray scales business

September 10, 2011

During five years in the French Foreign Legion, Glencore International Chairman Simon Murray was sent on missions ranging from death defying to merely gruesome. ¶ Dispatched to rescue trapped comrades encircled by Algerian independence fighters in the Aures Mountains in 1961, Murray survived an ambush in which the Legionnaire beside him died in a hail of machine gun bullets. ¶ After another battle, Murray was ordered to stuff the severed heads of two enemy soldiers into his pack and carry them back to base for identification, blood dripping down his back. When he quit the Legion in 1965 with the rank of senior corporal, British-born, Hong Kong-based Murray didn’t leave his combativeness behind. He has headed Deutsche Bank in Asia and been taipan — Cantonese for “big boss” — of billionaire Li Ka-shing’s business empire. At age 63, he became the oldest man to reach the South Pole unaided, on a 58-day slog during which he lost 50 pounds.

“Simon is one of the most extraordinary characters I have met,” says Chris Patten, chairman of the BBC Trust and the last colonial governor of Hong Kong before the British ceded it to the Chinese in 1997. “He is brave, outspoken, funny and pushes himself to almost crazy lengths.”

Price plunge

At 71, Murray is facing new challenges. As the recently appointed chairman of Glencore, Murray in May helped to steer the world’s biggest commodities-trading company through a $10 billion initial public offering in London and Hong Kong, the largest IPO to date in 2011.

And as a director of Sino-Forest, a Chinese tree-plantation company listed on the Toronto Stock Exchange, Murray watched the company’s share price plunge 67 percent between June 2 and Aug. 26, when the Ontario Securities Commission suspended the stock from trading, saying the company may have misstated revenue.

The suspension followed similar claims by short seller Carson Block’s Muddy Waters research firm in a June 2 report that Sino-Forest was overstating its assets. Investors, including hedge fund firm Paulson, have lost $3.4 billion.

Sino-Forest has denied the allegations and has commissioned an independent investigation. Founder and chief executive officer Allen Chan resigned Aug. 28, and the company said three other employees had taken leave.

Chan and other insiders, including Murray, sold 81 million Canadian dollars ($82 million) of shares since the end of 2006, according to regulatory filings in Toronto. Murray’s sales totaled 10.8 million Canadian dollars ($10.9 million), the filings show.

Murray denied any suggestion that he had been cashing out of Sino-Forest, saying he had swapped the holding for a stake in a Sino-Forest subsidiary, Hong Kong-listed Greenheart Group, of which he is also a director.

Murray owns 1,246,000 Greenheart shares, and a private-equity firm he heads, General Enterprise Management Services, owns 7 million shares. Those shares were worth a total of 7,499,140 Hong Kong dollars ($962,000) when they were suspended from trading on Aug. 29. The stock has fallen 68 percent since June 2.

“I sold some of my shares in Sino-Forest to buy shares in Greenheart,” Murray said from Cameroon.

‘Bloody sure’

Murray said he couldn’t comment further on the Sino-Forest allegations pending the report of the independent inquiry, which is due by the end of the year. However, he said, he had no intention of quitting as Glencore chairman or as a Sino-Forest director. “I am not planning to resign,” he said.

In June, Murray touched on his role at Sino-Forest. “I am on the side of investors,” he said then. “I have to make bloody sure we haven’t made any mistakes.”

Murray’s involvement with Sino-Forest has intensified the scrutiny he faces in his role as chairman of Glencore, a job for which he will earn $1.1 million a year.

The IPO immediately propelled Glencore, with a market value of $59 billion, into the FTSE 100 Index, which tracks Britain’s biggest companies, although the stock had fallen 20 percent from its initial price as of Aug. 31.

Glencore was founded in 1974 by former fugitive investor Marc Rich. Rich was indicted in 1983 for tax evasion and for buying oil from Iran in violation of U.S. sanctions before being pardoned in 2001 by President Bill Clinton. In 1994, Rich sold the company, then known as Marc Rich & Co., to its managers, who changed the name to Glencore and ran it as a closely held partnership.

Those managers still own 83.6 percent of the company and have built it into such a dominant force that, according to the company’s Web site, it’s involved in shipping more than half of the world’s seaborne zinc, one-fourth of the copper and coal and 3 percent of all oil that’s traded by third parties. The company also owns 34 percent of Xstrata, the world’s fifth-biggest mining company.

Last year, Glencore profit surged 39 percent to $3.8 billion on revenue of $145 billion as commodities prices soared 80 percent in two years to March 2011. Profit in the first half of 2011 jumped 54 percent, to $2.45 billion, the company reported Aug. 25.

IPO billionaires

As a result of the IPO, five of Glencore’s 500 managers have become billionaires, led by chief executive Ivan Glasenberg, 54, whose 15.7 percent stake is worth about $7.2 billion, according to data compiled by Bloomberg.

Murray’s job as chairman is to convince investors such as James Bevan that Glencore can achieve the transparency they expect of the world’s biggest public companies. Bevan, who oversees about 6 billion pounds as chief investment officer of CCLA Investment Management, says he didn’t buy the stock in the IPO partly because Glencore doesn’t match the level of disclosure of BHP Billiton or Rio Tinto Group and because the managers had sold shares when commodities prices were close to their peak and likely to fall.

“There’s no alignment between the interests of the controlling owners and the public shareholders,” Bevan said.

Bevan said before Sino-Forest’s suspension from trading that Murray’s presence as chairman may help him change his mind about Glencore.

“It gives me much greater confidence,” Bevan said then. “It would have been very easy to find a figurehead from politics who could be spoon-fed information and not ask inquiring questions. He’s very competent, and he won’t be pushed around.”

Following last month’s developments at Sino-Forest, Bevan said he’s not so sure. “We continue not to hold Glencore shares and certainly won’t consider purchases until this is now fully resolved, and Simon Murray’s position is clear and confirmed to be fine,” Bevan said. “If it isn’t, his position as chairman is untenable.”

Murray said he had come under no pressure to stand down.

Murray’s appointment to the Glencore chairmanship didn’t proceed smoothly. In April, British media reported that the job would go to former BP chief executive John Browne. By the time Glencore announced its IPO plans April 14, it still hadn’t disclosed who the chairman would be. A statement naming Murray followed hours later. “It was clumsy,” Bevan says.

Then came the Muddy Waters claims about Sino-Forest, on whose board Murray has served since 1999. Murray said in June that he had taken a paper loss of $3 million to $4 million on shares he owns in Sino-Forest and Greenheart.

A bigger loss, should the allegations be proved, would be to his credibility as an independent director. “When you’re a company director, your reputation is always on the line,” says David Webb, a shareholder activist.

Luxury goods

As well as chairing Glencore, Murray is a director of eight public companies, including Geneva-based luxury-goods maker Cie; Financiere Richemont, owner of the Cartier brand; and Li’s Cheung Kong Holdings, Hong Kong’s second-biggest property developer. Murray also runs his own $800 million private-equity firm, GEMS, which boasts former secretary of state Henry Kissinger as an adviser.

Murray will continue to be based in Hong Kong but will keep an office and secretary in Baar, Switzerland. He says he’ll attend 20 Glencore board and other meetings a year and will spend time daily on e-mails and regular contact with Glasenberg.

Murray — who’s 5 feet 8 inches and wiry — still treks in the Himalayas and said he can handle the pressure. On his desk, a model Legionnaire stood at attention near a copy of the latest reprint of his memoir, “Legionnaire.” He said he is fairly stoical about criticism. “But I get irritated when things get twisted,” he said.

After spending five years in the Legion, Murray can survive anything, said a friend, British novelist Frederick Forsyth.

“It was sadistic stuff. I have met Legion generals who have enormous respect for Simon,” said Forsyth, 73, who as a Paris-based journalist covered the Algerian War of Independence and whose 1971 novel, “The Day of the Jackal,” was based on its aftermath.

‘Good governance’

Murray says he plans to work with Glasenberg to improve Glencore’s image. “I think the word ‘secretive’ is misapplied here,” he says. “When you are a private company, you get on with your business. This isn’t whispering-out-of-the-corner-of-the-mouth stuff.”

Murray says he and Glasenberg both know their roles. “Ivan’s is to run the business, and mine is to run the board — and the board functions in great part to look after the interest of shareholders,” Murray says. “That’s all about good governance. Ivan’s the sort of guy who will listen. He has not run a public company and is very conscious of the fact.”

There are eight directors on the Glencore board, including former BP chief executive Tony Hayward, now head of investment company Vallares, and Leonhard Fischer, chief executive of RHJ International.

Another issue Murray says he wants to tackle is public relations. Glencore owns mines in developing countries, and advocacy groups such as Global Witness have alleged that it pollutes, offers low wages and doesn’t pay enough in taxes.

In May, the European Investment Bank, the European Union’s lending arm, announced it had barred Glencore from receiving loans because of corporate-governance concerns and a tax dispute in Zambia. Glencore spokesman Simon Buerk said the company, which denies wrongdoing, welcomes an inquiry.

“You have pension funds that zero in on this stuff,” Murray says. “People talk about Glencore taking out, but we’re also putting back. We’re building hospitals and schools.”

‘Laundromat of thugs’

When Murray was 20, he took a train to Paris and enlisted in the Legion, the 180-year-old force of mostly foreign mercenaries that fought in France’s colonial wars and carries on as an elite military unit.

Murray was posted to Algeria, fighting guerrillas of the National Liberation Front. In his book, Murray tells of conditions so tough that some recruits deserted. Murray stayed but declined the offer of officer school. Instead, he headed to Asia.

“Simon came out of a laundromat of thugs,” says Ken Courtis, former Asia vice chairman of Goldman Sachs Group. “Through extraordinary ambition, energy and drive, he made the world his school.”

In 1980, he set up his own company, Davenham Investments. Then, in 1984, he teamed up with Li, who had risen from poverty to acquire Hutchison Whampoa, making him the first Chinese national to own one of Hong Kong’s great trading houses. Li wanted Murray to run it.

Murray was doubly unique among Hong Kong business leaders: He believed in transparency and was prepared to speak his mind, says Stephen Vines, author of “Hong Kong: China’s New Colony.”

“There were only three ways to rise to the top in the Li Ka-shing empire,” Vines says. “You were either family or a sycophant or you were Simon Murray.”

Murray’s independence wasn’t confined to business. In 1992, London dispatched its last colonial governor, former cabinet minister Chris Patten, to manage the handover of Hong Kong to China five years later. Patten began to introduce a limited form of democracy. Chinese government spokesmen objected loudly. Most business leaders, including Li, sided with Beijing. Murray, equally loudly, backed Patten and quit as Li’s taipan.

‘March or Die’

In his book “East and West,” Patten says the Chinese Communist Party must have had a fat file on Murray. In reality, rather than blacklisting him after the handover, leaders of some of China’s biggest companies embraced him, appointing him to the advisory boards of offshore oil giant Cnooc and Huawei Technologies, China’s largest phone equipment maker.

When he’s been able to break away from the corporate suite, Murray has continued his adventuring. In 2000, three years before his trek to the pole, Murray completed the Marathon des Sables, a six-day, 151-mile foot race across the Sahara.

“A slogan of the French Legion is ‘March or Die,’ and that’s one of the enduring features of Simon’s life, both in business and his other adventures,” says Daniel Mudd, a former Marine Corps officer who oversees $43 billion as chief executive of New York-based Fortress Investment Group.

— Bloomberg News

The full version of this Bloomberg Markets magazine article appears in the October issue.

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