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Trading secrecy for transparency
TAKE an Australian, put him through 10 years in Switzerland, and what do you get? Barbecues - the quintessential Australian past-time - even in the middle of winter.
Certain habits might be hard to change for Jeremy Weir, but there has been plenty of change in Trafigura, the international trading house that he heads.
One of the world's largest oil trading firms, Trafigura has in recent years made an effort to raise understanding of the privately held firm in what is otherwise an often opaque sector. It issued its first annual report three years ago, and last year published its first sustainability report.
As the new chief of the firm that last year recorded almost US$100 billion in revenue, Mr Weir says the journey towards greater transparency is but part of the natural evolution of the firm, and also for the sector.
"At the end of the day, we are a large organisation," he tells The Business Times during a visit to Singapore in March. "We deal with 130 financial institutions, we have bondholders, we work with regulators and governments, and we deal with suppliers and customers in many different countries. Therefore to turn around and say we're a private company and you don't want to know much about us - we think that's incorrect."
"The (financial results) numbers would probably have leaked to the press anyway, so we might as well try and control that process," he says, laughing.
The commodities trading industry has, in the past decade, been criticised for its secrecy, which many non-governmental organisations say allows for illicit capital movement and enables corruption, particularly in the developing countries that the commodities trading houses operate in. The companies have also been accused of exploiting legal grey areas, from forced resettlements of residents to creating air and water pollution from their operations.
Switzerland - where many of the trading companies such as Trafigura, Vitol and Glencore are headquartered - has faced pressure to tighten regulation of the sector. When the top brass of the world's leading commodity trading firms gathered for a commodities summit in Lausanne in April, protesters spilled out into the streets to object to these companies' lack of transparency in their operations.
The reaction to the increased transparency has been favourable for Trafigura.
Banks, which are grappling with rising requirements of compliance and credit checks, have welcomed the move. "By increasing the transparency and being highly professional in terms of how we present ourselves, it helps them too," says Mr Weir.
Within the company, too, the reception has been positive - including the unexpected benefit of boosting staff morale.
"People like to belong to a successful company," he adds. "They like the fact that we're sort of leading the process for good governance and dealing with stakeholders openly and constructively."
Trafigura's decision to open up was part of the "natural evolution of the organisation", Mr Weir says in his first extensive interview since taking the helm in March 2014. "You have to move with the times."
"Historically you're developing the company and you've got other focuses. As you get larger, your audience becomes a much bigger community. And we realise that it's a natural progression for the organisation. The board was fully behind the whole process and to be honest, we've never looked back."
Trafigura in late 2014 joined the Extractive Industries Transparency Initiative, under which resource companies disclose payments, taxes and licence fees paid to foreign governments and state-owned enterprises. About 50 countries and 90 resources companies have signed up for the voluntary programme, but Trafigura was the first trading house to do so.
"That to me is a very correct thing to do so that people can understand our business," says Mr Weir. "And they're often probably surprised at how little actually is done with national oil companies."
In its maiden sustainability report last year, Trafigura revealed that it had paid US$4.3 billion to state oil companies in 2013 - a mere fraction of its overall revenue of US$97.2 billion. Transactions with countries that are not part of the programme, such as Russia and Angola, do not have to be disclosed.
Asked whether he has received feedback from his peers in the other commodity trading companies, Mr Weir says: "If other people and competitors don't like them, that's their problem, quite frankly. We feel that this is the appropriate thing to do in the current environment and for our business."
What about the argument by trading houses that revealing too much impedes their competitiveness, which is premised on proprietary views and information flows?
"I disagree with that," Mr Weir says. "Financial results are what they are. It's often an open and transparent marketplace. We're dealing with many different countries, we're dealing with open tender processes, we're dealing with futures exchanges. What's there to hide?"
The success of Trafigura's business model, he adds, is not shrouded in secrecy. It is due to the people, the systems and the business platform. More importantly, it is also how employees service and interact with clients, he says.
"Having good results is the consequence of having a good business, and that doesn't impede your competitive edge.
"To be fair, I'm not going to tell you about particular contractual arrangements we have, party by party, what we're dealing with. That is obviously confidential information. But the fact is that what is the formula for our success is not something that can be built up overnight."
Trafigura's first sustainability report was no greenwashing effort either.
Holding up a mirror to the company's progress, the report is meant to be an honest scorecard, says Mr Weir.
He wrote in the report's introduction: "I want to be very clear about our intention in publishing this report. It is not to glorify our achievements or to convey the impression we think our responsibility mission is somehow accomplished.
"On the contrary: it constitutes a staging post in a journey on which Trafigura embarked many years ago and is still travelling. It discusses our shortcomings as well as areas where we believe we have made progress."
And to remove any lingering doubt at this point, he added: "To be even clearer: the Trafigura Management Board is far from happy with our Health, Safety, Environment and Community (HSEC) performance in 2015."
Two of the company's staff died at work last year, and the most important objective for this year is to reduce this to zero, he said in the document.
"This is not just a window-dressing exercise for the broader community," he emphasises in the interview. The HSEC committee, on which he sits, meets regularly to monitor the firm's progress against the benchmarks it has set.
New staff, too, have to sign anti-money laundering agreements and also fulfil other requirements, he says.
For the firm, the awakened conscience was sparked, in large part, by an environmental scandal in Ivory Coast in 2006.
Trafigura is said to have dumped toxic waste from the ship Probo Koala in several public landfills in the capital city of Abidjan, after it chose an unlicensed local company to dispose the waste over other more expensive options.
The black sludge caused eight deaths, dozens more to be hospitalised and 85,000 to seek medical attention, the New York Times reported.
When the co-founder of the firm, Claude Dauphin, visited Abidjan with a company delegation to see what could be done to help the city, he was arrested and jailed for five months.
Trafigura paid US$160 million to the Ivory Coast government in 2007 without admitting any wrongdoing. One year later, an Ivory Coast court found two employees hired by the contractor guilty of illegally dumping the waste.
The incident was "undoubtedly the darkest period" of Mr Dauphin's career, said Trafigura in an obituary when the former CEO and chairman died of cancer in September last year.
"For Claude, the lessons learned as a result of the Probo Koala affair were profound," it added. "He realised that Trafigura was now of a scale and scope that required an improved approach to managing its impact on the environment and society."
The company, long skilled at managing key commercial and financial risks, will now have to "pay greater and more systematic attention to potential operational and reputational risks".
Mr Weir does not mention the unhappy incident in the conversation with BT, but says that the key challenge in sustainability for Trafigura is engaging with local communities.
"We are operating in many different countries globally. When you're on the ground, you've got to understand what the different sensitivities are of each relevant community that you engage with, so therefore to ensure you comply with that in a responsible and meaningful way."
Again he says that it is an evolutionary process. "That's one of the key messages of the report: this is what we've achieved so far and this is where we're trying to go to."
Deepening Asian presence
Besides forging ahead into the new realm of sustainability, another move by Trafigura that has attracted global attention was its decision to move its global holding entity from Switzerland to Singapore in 2012. This, the firm says, establishes greater alignment across its reporting structures and business activities as Singapore grows in importance as a regional hub.
Last year, the firm also appointed Tan Chin Hwee, a Singaporean, as Asia-Pacific CEO, a new position in the group. This comes as the trading firm seeks new opportunities to deepen its presence in Asia.
"We want to feel very integrated and part of Asia," says Mr Weir. Rather than being a mere service provider, Trafigura wants to seek opportunities where it is able to add value in terms of financing or logistics, he adds. This could come from partnerships - whether in mining, refineries or in storage infrastructure.
"We will invest our time and effort into areas that are complementary to our trading business. So it can be pure trading where people see an alignment in trading interest. We can provide logistical and trading capabilities to support their activities from a financing point of view and from an investment point of view too."
And while China's sputtering economy has caused concern, Mr Weir is optimistic.
The country has gone through "enormous structural changes" in the past two years, the effects of which are now showing. While the economy of the second largest energy user in the world is slowing, "this is off an extremely high base", he points out. "We are seeing volumes that we are doing in China actually increasing."
As competitors - especially listed ones - got distracted with restructuring balance sheets and dealing with unhappy shareholders last year, the group swooped in to pick up market share in China and other parts of the world.
The group's revenue in 2015 was 23 per cent lower than the US$126.2 billion it recorded in 2014 despite higher trading volumes, as commodity prices fell across the board. Its gross profit, however, rose 30 per cent to US$2.6 billion, and gross profit margin inched up from 1.6 per cent the year before to 2.7 per cent.
"We haven't had some distractions like some other organisations have," says Mr Weir. "We're very focused on our business; we're not trying to diversify our business. And through that process, generally, with the current price environment, we're able to sort of help clients find solutions with the commodities we either buy or sell."
Has this reinforced Trafigura's decision to stay private, BT asks.
Yes, he answers at once, matter-of-factly. "Our primary business is on the trading side. And trading fits into the private arena. To me, it's not well understood by the marketplace.
"People often don't understand the gearing of a trading company. People in the industry understand it but it doesn't often fit into the normal financial metrics of equity analysts for industrial companies. And they don't understand the risk profile around it."
Being privately owned - the group's shares are held by its senior managers past and present - also affords more elbow room for quick decision making, essential in the sector.
Mr Weir's conviction on staying private follows that of Mr Dauphin, who was the driving force behind Trafigura's growth into a global trading house, after starting it with five partners in 1993.
By all accounts, Mr Dauphin was a hard-driving boss who kept to an excessive work schedule. He once joked, in a rare interview to a French newspaper, that the first vacation of his life was when he spent time in the Ivory Coast prison. Even then, he was reportedly running the company through a mobile phone.
Mr Weir, a father of a pair of 23-year-old twins and a nine-year-old girl, has big shoes to fill. But he says - yet again - that "it's been an evolutionary process", and that there is no major change in the company.
The decisions are collectively made by the senior management in Trafigura, says the former banker who was trained in geology. "We act very much as a partnership. We are really very close."
What would he hope to add to the company as the CEO then? "For me, the main thing is that if I wanted to define my success, the fact is people will look at the success of the company, not the success of the man," he says.
And if the firm continues to engage its customers responsibly and professionally, and continues to grow without losing its identity, that, he adds, is success - even if people might not remember who the CEO is. "It's not a profile thing for me."
The new role has not changed his work schedule - which has always been "full on" - much, he says. Half his time is spent travelling around the firm's 75 offices in nearly 40 countries.
Otherwise, weekends are spent skiing with his family in the mountains.
Barbecues, however, remain a fixture on his calendar, and as frequent as three times a week, prepared by his homemaker wife.
Some things never change, but others do evolve.
1964: Born in Melbourne, Australia
Education: BSc in geology, University of Melbourne
1986-1988: Marketing executive, North Limited, Melbourne
1989-1992: Risk manager, Pasminco Metals Pty Ltd, Melbourne
1992-2000: Rose from a commodity derivatives trader to global head of commodity derivatives and director at N M Rothschild, UK
2001: Joined Trafigura as head of metals derivatives, structured products and risk management
Since March 2014: CEO of Trafigura