The Andrew Davidson interview: John Buchanan
New Zealander John Buchanan is one of the most influential men in British industry. Now he wants nonexecutives to play a tougher role. The great thing about being a Kiwi, says John Buchanan, is it makes it hard for people to pigeonhole you. “When I arrived in Britain, I had a distinct advantage, people had to judge you on what you did, they couldn’t put you in a box.
Four decades on, as nonexecutive chairman of medical device maker Smith & Nephew, deputy chairman of mobile-phone group Vodafone, head of the audit committee at drug giant Astra Zeneca and board director of world No 1 miner BHP Billiton, he still likes to keep people guessing.Best connected man in the City? Possibly. And I haven’t even mentioned the UK chairmanship of the International Chamber of Commerce, which he also holds.
But put a face to his name? Harder to do. Buchanan, born in New Zealand but based in Britain for four decades, is a man who has always worn his ambition lightly - a style he learnt at BP, where he was finance director alongside chief executive Lord Browne and chairman Lord Simon. “No,” he says drolly, “unlike other colleagues who would endlessly worry about whether they would get on the board, I never got an ulcer about promotion.”
For reasons of self-preservation? He laughs then shoots a sharp look. Former colleagues say his steely, team-first ethos is closer to the All Blacks rugby team then his flyweight physique would suggest.
Since leaving BP in 2003 he has become one of the most in-demand directors around. Now aged 65, his continuing involvement with four FTSE 100 firms - three in the top 10 - gives him unusual insight into today’s corporate governance.
Dick Olver, chairman of BAE Systems and another former BP executive, describes him as “the role model” for what you want from a nonexecutive: “huge intellect, loves complexity, but tough”.
And at a time when many are asking hard questions about how well the system of nonexecutive directorship works in British big business, Buchanan might just be the man to answer them. So, more governance needed? Buchanan frowns. He says he wants to see more analysis done before any more changes are forced through.
“Here’s one of the problems that intrigues me,” he says. “How is it that Australian and Canadian banks have done so well in this financial crisis? Is that about regulation or something else? Before we start messing things up with the wrong regulation, let’s be clear where we are going.”
Buchanan, who initially came to Britain to complete his chemistry PhD at Oxford, likes to unpick problems with a process. At BP he helped mastermind its merger-turned-acquisition of rival Amoco - at the time, it was the biggest merger of its kind.
Unlike many academic chemists, though, he is also a nimble communicator, if disappointingly discreet. In recent years he has had an insiders’ view over some of the more tangled stories in the corporate world: BHP Billiton’s long-running bid for Rio Tinto, and Vodafone’s change of chief executive - to name just two.
He is also known to have turned down a bank chairmanship - he says he simply wanted a broader portfolio of business interests than just finance. Does he feel like the man who narrowly missed a car crash? His grey head bobs and he proffers a crafty smile. “I’m not disappointed.”
Sitting in a meeting room at Smith & Nephew’s London headquarters off The Strand - he doesn’t keep a permanent office at any of his companies - Buchanan says he prefers to talk about what good nonexecutives do, rather than what bad ones fail to do.
First, they have to challenge the executive team. “As Woody Allen said, ‘the meek shall inherit the earth, right in the mouth’. Then think of what happened to bank boards . . .”
Also, nonexecutives have to admit it when they don’t understand something. “If you don’t understand, don’t do it. And if you still don’t understand after a teach-in, then maybe ask yourself why are you on that board.”
As for executive salaries and the “war for talent”, he puffs his cheeks. “Banks tell us there is this amazing battle for talent. Look, I have worked with talented people in telecoms and pharma and natural resources; these people were found without paying huge numbers. Boards need to challenge more and I’ve seen good boards do that.”
Yet how much is too much? Some would argue that those in the system are already complicit. Buchanan himself takes £350,000 a year for chairing Smith & Nephew, the world No 4 hip and joint maker. He describes that salary as “modest”. Others would say it’s well rewarded for a two-day-a-week job.
His point is that he expects nonexecutive directors to work hard for the money. “They have to get out, they have to listen to staff, they need to see if the words and music are the same as the song they are hearing around the boardroom table.”
They also need constant peer evaluation, preferably with third-party facilitation, and regular contact with investors.
“Vodafone and BHP do this particularly well. But here’s another problem. Who are the shareholders now? We have hedge funds, and algorithms going in for seconds.”
But the companies that come unstuck are often those where nonexecutives and investors are bullied into insignificance by a star business leader. Buchanan nods. “All chief executives are different,” he says, “but what you are looking for is a good value set, and good checks and balances.”
The difficulty is evaluating ambition. “There is nothing wrong with ambition, but where is it directed? For the good of the enterprise or the individual? These are important questions.”
And there are also, he acknowledges, different types of leader. “At BP, I saw so many,” he adds.
Old workmates say Buchanan was one of the few who stood up to Browne’s forceful personality. “John Buchanan is down-to-earth and determined, he encapsulates the nononsense style,” says Lord Simon.
Buchanan says simply that Browne was brilliant, but flawed. And of Browne’s downfall after he left? “I think it was unfortunate that David Simon was lured away by government.”
Buchanan is adept at keeping his own counsel. Likewise he won’t commit on chief-executive tenure. How long is too long? No rules, he says. The world keeps changing; you have to stay fresh. “Maybe the Americans have it right with the presidency. Two four-year terms is the most anyone should do.”
Yet you regulate that at your peril. He argues that one of the reasons why boards failed to assess risk properly before the current crisis was because they were distracted by legislation like America’s Sarbanes-Oxley (SOX) Act.
“It’s the SOX paradox. They were so consumed with the structure and process of governance they lost sight of the big picture like risk and opportunities. And what about the behavioural aspects?”
His stance echoes that of lobbying group the International Chamber of Commerce (ICC): business works more effectively with the minimum of government intervention. But surely that is now discredited?
“It depends what is the minimum,” says Buchanan. “You want the rules of the game to be absolutely clear and nonnegotiable, to allow the maximum of creativity to come through.”
In his ICC role, he briefed government ministers before the recent G20 meeting. He is particularly concerned that countries should complete the Doha international trade negotiations, currently stalled. The benefits are plain. “We’ve already lifted 500m out of poverty in China and India. If we get it right, we can be thinking of the next 500m in sub-Saharan Africa. How big a prize can that be? And for business, that’s 500m new customers.”
That won’t please antiglobalisation protesters but Buchanan’s colleagues think he should now push harder to get these arguments through. “With a higher profile, John could get into other conversations,” says one.
However, Buchanan says he’s happy with the balance that nonexecutive life gives him. He jokes about how he still wakes at 6am, but now can listen to the radio, rather than rushing into the office.
He still has pressing concerns. At Smith & Nephew, where he became chairman in 2006, he is overseeing a shift in style, driven by its American chief executive Dave Illingworth.
“We have a history of producing good top-line growth, but we are less good at moving that top-line growth into bottom-line growth. We’re improving margins now, but not at the expense of innovation.”
The recession, however, is “not easy” for the company. “In the US we’ve seen some of the froth knocked off elective surgery.” Even a downturn in skiing holidays - and the drop in injuries caused - may be affecting demand. How odd is that?
Then he laughs. Before I leave, he shows me photos of the beachside village outside Auckland where he takes his holidays. Home beckons, perhaps, but not just yet.