Peter Munk, the late founder and chairman of Toronto’s Barrick Gold Corp., the world’s biggest gold producer, was born in Hungary and evolved into a passionate Canadian patriot. At one point during the Great Hollowing Out of Corporate Canada – in the middle part of the last decade, when Inco, Falconbridge, Dofasco, Stelco and dozens of other resources and industrial companies were picked off like candy by foreign buyers – he charged into The Globe and Mail’s offices in Toronto to tell the editorial board that the greed-driven sell-off had gone too far.
He was right. Companies that had taken decades, or even a century, to build were vanishing at alarming rates, their offices downgraded to branch-plant status or closed. After the Great Hollowing Out, Canada was left with one truly Canadian and global resources company – his very own Barrick.
Mr. Munk died in March at age 90. From the golden ore body in the heavens, he might both approve and disapprove of the company he left behind. He would certainly be happy that Barrick, after years spent in retreat, is bulking up again through its US$6-billion takeover of African miner Randgold Resources Ltd. He might disapprove of the fate of the Toronto head office of the enlarged company. It will keep shrinking, possibly drastically, as the famously lean Randgold management team takes control and flattens the management structure.
Toronto will remain as Barrick’s head office, and the company will keep its listing on the Toronto stock market. Indeed, Toronto will be the official seat of the one of the world’s greatest mining companies. But it won’t have many employees there.
Mark Bristow, Randgold’s South African chief executive who is to become CEO of the new Barrick, almost certainly will not be moving to Toronto. He and his top executives may run it from afar – Randgold is based in Jersey, in the Channel Islands, but Mr. Bristow actually lives in Mauritius, a dot in the Indian Ocean, and owns homes in Wyoming and London. Both he and Barrick’s executive chairman, John Thornton, are fans of exceedingly small head offices. A Randgold spokeswoman called it "premature” to speculate which Randgold executives, if any, would shift to Toronto.
To thrive, cities need head offices, big and small. They provide employment for grads and postgrads, the skilled and the unskilled, from the CEO and marketing teams to IT experts and the mail room clerks. The presence of mining-company head offices means that local engineering and geology grads don’t have to move overseas to find jobs. For vibrant city life they are crucial, as head offices generate spin-off employment at law firms, restaurants, design offices and dozens of other services. For any city, head offices are a mark of prestige, all the more so if they sponsor charities or the arts. Collectively, their influence is known as the "head-office effect.”
Barrick’s head-office effect will be nothing like it used to be. Six or seven years ago, before Mr. Thornton arrived, Barrick’s Toronto digs housed some 500 employees. Today, that number has shrunk to about 150, and the figure mostly does not include Mr. Thornton’s enthusiastic blow-out of Barrick’s middle management. Under Mr. Thornton, the number of middle managers has fallen by half to 700 or so, and probably will fall much farther under Mr. Bristow, spurred on by Mr. Thornton. In an interview last month, Mr. Thornton told The Globe and Mail: "We want to get down to 300. At Goldman Sachs, [cutting] 10 per cent was like breathing. We did it every year.”
Mr. Thornton’s management bible is William Thorndike’s 2012 book, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success. In The Globe interview, he noted that all eight mentioned in the book came from other industries, as he did at Barrick, operated small head offices that essentially worked as partnerships, and had virtually no employees between the head office and the sites of the company’s actual economic activity. The companies they ran were perennial outperformers (Warren Buffett and John Malone were two of the eight in the book).
The book inspired his management style at Barrick, where the head office and the middle management ranks have shrunk dramatically. Mr. Thornton said that Mr. Bristow has the same philosophy, which is why the two men are said to be in agreement on strategy and management techniques, to the point they could put their companies together in an apparently frictionless deal.
Shareholders loved the merger, even the Randgold investors who were offered no premium in the all-share merger. They love that head-office and middle-management costs are plummeting (Mr. Thornton said the cost of Barrick’s middle managers, when they were at full strength, was US$480-million a year). They are encouraged by the strong returns produced by Randgold, which seems to have been run from the field, not Jersey.
The risk is that cutting Barrick back to the bone may not help turn the company into a star performer. It may have the opposite effect. Barrick is a big company that may need lots of employees. How many geologists and engineers has Barrick let go? The company can’t say precisely. But one thing is for sure – Barrick’s head office will keep shrinking and Toronto, which still fancies itself as the mining capital of the world, will not be better off for it.
Eric Reguly