Thomas White Global Investing
Emerging Leaders

Emerging Leaders

January 2012

Murilo Ferreira, CEO, Vale S.A.

“I think the government of Brazil [is] very proud of the progress we are making.”

— Murilo Ferreira

As the CEO of Vale S.A., Murilo Ferreira controls the Brazilian mining group’s staggeringly vast global empire across 38 countries on six continents. So, managing Vale today is no less than the balancing act of a trapeze artiste.

Vale’s 4 million shareholders take to heart that the company is the world’s largest producer of iron ore by volume and second largest mining group. Not to mention the stock has steadfastly rode the China-driven commodity boom over the past ten years to give them substantial returns. For Brazil, though, Vale is much more than a golden stock. Having grown from obscurity to a $125-billion company in a decade, Vale embodies the commodity-export-led progress Brazil boasts of today. What’s more, it is the country’s largest private company and one that accounts for nearly a sixth of the value of Brazil’s annual exports. Above all, Vale has cash, so much that it has been investing in hydroelectric dams, railroads, power plants, ports, and other infrastructure both within Brazil and outside.

Apparently, these two opposing perspectives have turned out to be the albatross around the company’s neck. While shareholders would obviously expect Vale to continue being profit-centric, the government of Brazil wants the company to invest more in the economic development of the country, even at the cost of earning less than its potential. Having taken the helm of this titanic called Vale seven months ago, 58-year-old Ferreira now has the unenviable task of navigating it through these two sometimes conflicting expectations. In fact, the events leading up to Ferreira’s appointment provide a fitting backdrop for the complexity of his job.

Ferreira was the head of Vale’s Canadian unit in 2008 when he quit reportedly due to differences with the incumbent CEO, Roger Agnelli. His thirty-year career in the mining business, which, incidentally, started when Ferreira served as a trainee with Vale in the late 1970s, had taken a sudden detour. Ferreira went on to set up a resource management company with some partners. However, Ferreira’s fortunes turned again early last year when he was informed that he would be considered for the Vale CEO position after the expiry of Agnelli’s contract in May 2011. It was hardly a surprise that Agnelli’s contract would not be renewed. Those days there were media reports abound that Agnelli, who had undoubtedly played a stellar role in Vale’s spectacular earnings growth and put the company on the list of the world’s top three miners, was being forced to leave for not doing more for Brazil’s economy. The Wall Street Journal (WSJ) said that Brazil’s federal government — which privatized Vale in 1997 but is still part of a core group of the company’s controlling shareholders — was upset that Agnelli had not heeded “official requests” to purchase more Brazil-made ships and to set up additional steel plants. The South Atlantic News Agency MercoPress reported that Agnelli’s brush with the government had in fact started during the financial crisis when he pared down Vale’s investments and downsized its workforce.

In contrast, Ferreira seems to have had a relatively smooth stint until now. And, there is more than one reason why he has been able to accomplish this. A Financial Times (FT) article paints Ferreira as “discreet, technically minded, methodical, and diplomatic.” Quoting one of his partners at the resource management firm he founded, the FT report said Ferreira was a typical Minas Gerais native. People from that hilly state in south-east Brazil tended to be guarded and restrained, but ambitious, the partner said. Ferreira’s familiarity with President Dilma Roussef is also widely believed to be working to his advantage. Having joined Vale’s aluminum division in 1998, he had held several management positions before becoming executive director of the company in the early 2000s. In that period, Roussef was the Minister of Mines and Energy in the Lula government and Ferreira had met her professionally on several occasions.

Nonetheless, the benefits of this acquaintance will likely be severely tested in the future, given the amount of control the Brazilian government reportedly wants to exercise over Vale. According to the WSJ, the government has been pressuring the firm to participate in several growth initiatives, even if they appear to be detrimental to its bottom line. Notably, Agnelli had to leave despite agreeing to let Vale invest in Belo Monte, a controversial, $9.2-billion hydroelectric dam on a tributary of the Amazon River. Newspaper reports indicate that the federal government, while trying to give a boost to the fledgling shipping industry in Brazil, had forced Vale, during Agnelli’s term, to purchase cargo ships from the domestic market. It is also fairly well-documented that for years the government has been urging Vale to aggressively diversify into steel manufacturing in order to create jobs and help Brazil export finished products rather than raw materials.

Still, appeasing the government is only one of Ferreira’s many priorities. No doubt, the man, who has been married for 25 years now and has a 19-year-old daughter, is under pressure to grow Vale’s earnings as well as his predecessor Agnelli. But Ferreira, who has both a degree and a post-graduate degree in business administration, may find the going tough, given the current slowdown in emerging economies, especially China, the primary market for metals. Speaking of China, Ferreira is keen to understand the Chinese market because unlike his predecessor Agnelli, who sealed several profitable supply deals there during his ten-year stint, Ferreira is not familiar with the country. According to the FT, another pressing objective for the new CEO is to speed up all the new projects that have stalled or are slowing down due to a variety of problems, including labor shortages and a delay in obtaining environmental licenses.

But Ferreira seems unfazed by the number of challenges facing him. So far he has focused on a series of management changes to improve accountability, signaling that he is comfortable resolving one problem completely before moving on to the other. That certainly appears to be a wise thing to do. After all, taking one step at a time is the only way to walk a tightrope.





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