Speaker A If one tries to run a company with an annual target, which is very, very common and certainly very common at operating levels, one can understand it in some respect because we all wish to know that we can cover our costs in that period, that we're doing all the essential things we should be doing. But it is wrong to imagine that if we have a series of one year objectives that that in itself adds up to a long term strategy. It doesn't. There is only certain things you can do within a year and one would want to see them done sensibly. But if you've been asked to build one of the world's great companies or a sustainable company, and let's say you wish to taking a common example, you feel today that you should be investing much more heavily in production facilities in Asia or in Eastern Europe or in Latin America, then you cannot expect the results of that. You can't actually even begin to put in enough investment in one year and you certainly can't see the rewards at all. The rewards may be many years out. The best you can hope for is that you can get away with a modest investment of perhaps 10% of your available capital in longer term projects in the hope that the profits on the existing business will cover for you until such times they start to deliver. But it's a very long way from delivering what is best. That said, it is not unimportant to look at how people do over shorter periods because if somebody is going off the rails because they're not doing a good job at an operating level or even at a corporate level, then the evidence starts to show up. So if you've got somebody who's patently not doing the right thing, you must have the ability to either caution them, rein them back, reassign them, or in the limit, get rid of them. Because you can't say, well, it might turn out all right in five years. That would be the height of irresponsibility. But it seems to me the exceptions to this are so obvious that companies that are only planning on a one year basis are simply missing out on how to run the business. Well for the long term they just can't be done that way.
Speaker B Do you have any comments on any mechanism?
Speaker A The best companies that I've worked for. And I have to accept this in the past, but I think the lessons would apply still that if a company is orientated to the long term, it has some idea of what building blocks should be in place year by year by year in the way of facilities, trained staff becoming familiar with another part of the world. Becoming familiar with another industry. And therefore I would say that the right approach is to identify in a longer term plan, say a five year plan, what the building blocks would look like and are they being put in place, and are they sensible? You would also have to keep revisiting this. Even the best run companies that have the longer term horizons constantly, annually, even revisit their longer term assumptions to make sure the markets aren't changing on them or they're missing something. But essentially it is identifying building blocks. And you say to a manager, not just what profits have you made, but what investment have you made in your team and in your market research for the longer term plan. That is the kind of thing to be judged. But most objectives that I'm familiar with are financial objectives, which don't capture that kind of information.
Speaker B When you were talking about the development of the Hammersley range, exporting it to Japan, dismantling the mountains and so on.
Speaker A That was you're, right? Yeah, okay, we can talk about that.
Speaker B There may have been longer, more substantial ones than that.
Speaker A The question can fairly be raised how far ahead can one and should one look in different industries? Well, the industries that I am most familiar with are mining, natural resources, and power generation. I've spent most of my career in these things, and in all of them, you could actually look quite a long way ahead, and indeed, you had to look a long way ahead. If you take something like a power station, which is going to last 40 to 50 years, or a huge hydroelectric project, which will last 100, you have to have enough confidence that there is a market for the end product way beyond your normal planning horizon of five to ten years. But the way one looked at those sort of things was to say, are we likely to be competitive looking 20 years ahead? Are we likely to be producing something that will remain competitive? And if we are likely to be, say, in the top quarter or the top third of the world's producers of that commodity or energy, whatever it was, one has reasonable confidence. Most of the mining contracts which we signed for very large mines ran for 15 years. Plus a mine could take two to three years to build, and bigger mines longer than that. You would have to have the confidence that the markets were there. But if you're selling, say, iron ore to the Japanese steel industry, you would have reasonable confidence that the Japanese steel industry is going to be there in ten years time or 15 years time, and that you are a perfectly economic supplier who needn't fear other competition. So one can look a long way ahead. If you have a reputation that you do this sort of job thoroughly, the markets will certainly trust you. Thank you very much. You sense there's a problem, and you develop some ideas on how to solve it, and then you publish, and you find you can't answer certain criticisms or can't answer them very well, or there's a whole area you've left out. So you go back to the drawing board. And eventually, if you've got enough patience, you refine it down until you find either there's no solution at all, which has never occurred. I don't think it exists in economic problems. There is no solution. There's always a better way to do it, and then you find out which it is. But it's a scientific process, essentially, of trial and error, and eventually you get the ones that work. So if someone talks to you at the end of the period, they're getting your final product. But if they talk to you five years earlier, they might not have done.
