11 September 2020 06:38

Aveva OSIsoft Rio Tinto

board of directors

A miner holds a lump of iron ore at a mine located in the Pilbara region of Western Australia December 2, 2013. LONDON (Reuters Breakingviews) - Simon Thompson is in a tricky position. Rio Tinto's, chairman attempted last month to draw a line under the company's disastrous decision to blow up Aboriginal heritage sites to make way for iron ore mines. It didn't work. With shareholders pushing for something tougher than axing Chief Executive Jean-Sebastien Jacques' 2020 bonus and a chunk of his long-term incentive plan, a bigger sacrifice is needed.

board of directors

Viewed purely through the lens of shareholder value, Jacques' position should be secure. Rio's share price is up by over 40% over the last six months and near an all-time high; the FTSE 100 Index is flat over the same period. The Frenchman, in situ since 2016, has also avoided the industry pitfall of making a large, overpriced acquisition. His policy of sweating iron ore assets, which accounted for three-quarters of last year's group underlying EBITDA, makes sense considering the commodity fetches $127 a tonne, a six-year high. The problem for Rio's board is that it is 2020, and many investors are paying closer attention to environmental, social and governance issues.

board of directors

Though the explosions at Juukan Gorge in Western Australia were legal, it's an ESG mess that also raises serious questions about the company's processes. After giving their initial consent to Rio's plans, the indigenous Puutu Kunti Kurrama and Pinikura people concluded the sites were of exceptional archaeological significance long before they went up in smoke. Jacques' defence – that he wasn't told until it was too late – implies either poorly designed reporting lines or a reluctance among lower-ranking Rio executives to give the boss unwelcome news. Neither is a good look, or an easy cultural fix. Thompson has three main options.

He could dock more pay from Jacques. He could force out senior lieutenants such as iron ore boss Chris Salisbury, and maybe some directors. Or the chairman could conclude that Jacques has to go. The first option looks inadequate and increases the risk that a substantial minority of Rio shareholders register their displeasure by voting against the board's remuneration report for the second year running. That would put the board in jeopardy. Too soft a response could also make it harder for Rio to secure mining licences elsewhere in the future. And there's a danger that the company becomes a pariah with ESG investors. With billions of dollars flowing into sustainable investing strategies, backing Jacques might prove costly. In a rare public statement, the traditional owner group at the centre of the Juukan Gorge saga has voiced its frustration that a planned visit by federal politicians to the site had been deferred indefinitely because of travel restrictions, and they have called for special allowances to be made. Northern Australia committee chair Warren Entsch confirmed that due to WA's hard border quarantine requirements the committee was postponing its trip to the mine, which was part of a parliamentary inquiry into how the destruction of the 46,000-year-old sacred site occurred. The site at Juukan Gorge that was reduced to rubble to extend one of Rio Tinto's iron ore mines. Credit:PKKP Aboriginal Corporation The Puutu Kunti Kurrama and Pinikura people are the traditional owners of the land where the Juukan Gorge once stood and have resisted speaking publicly about the saga since May. While Rio Tinto has already given evidence to the committee the PKKP has not yet presented any material. On Thursday PKKP Aboriginal Corporation chair John Ashburton said the 'open-ended' decision to delay the visit to WA had robbed the group of a voice in the inquiry. Context News Rio Tinto board members are meeting on Sept. 10-11 to discuss the miner's response to its decision in May to blow up two caves at Juukan Gorge, a culturally significant site in Western Australia. AustralianSuper, the country's largest pension fund, has said financial sanctions against directors are not enough. The Australian Council of Superannuation Investors said directors' accountability needed to go "further than just a financial penalty". The Church of England's pensions board, which has a small stake in Rio, said on Sept. 9 that Rio's response so far, including forfeiting Chief Executive Jean-Sebastien Jacques' annual bonus, had been inadequate. "It is clear that no single individual or error was responsible for the destruction of the Juukan rockshelters, but there were numerous missed opportunities over almost a decade and the company failed to uphold one of Rio Tinto's core values – respect for local communities and for their heritage," Rio Chairman Simon Thompson said on Aug. 24. "We are determined to learn, improve and rebuild trust across various internal and external partners."

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