Rio Tinto’s decision to appoint an insider based in London as its new leader epitomises a board with a tin ear.
After everything it has gone through, been accused of and apologised for, the appointment of its chief financial officer Jakob Stausholm as the new chief executive raises the question – what has fundamentally changed?
Rio’s statement to the ASX announcing the appointment speaks volumes about the company’s disconnect with reality. Instead of addressing the elephant in the room, its destruction of the priceless heritage sites at Juukan Gorge due to a culture focused on profit, it played up the new appointee as a numbers man.
It said since joining Rio in 2018 Stausholm had played a leading role in the group’s strong performance, “maintaining capital allocation discipline and delivering significant shareholder returns, while strengthening the balance sheet”.
The need to rebuild Rio’s battered reputation was far too subtle.
Stausholm, to his credit, told investors he was “acutely aware” of the need to restore trust with traditional owners and other stakeholders. He didn’t elaborate on what that actually meant.
Given the CEO’s job was up for grabs solely due to the Juukan Gorge disaster, it is disappointing that Rio chairman Simon Thompson didn’t make more of it.
Perhaps he was hoping that the soaring iron ore price, the decision by three executives including CEO Jean-Sebastien Jacques to fall on their swords and previous apologies was enough and now it was time for the company to move on.
But times are changing and a report released by a parliamentary inquiry earlier this month was a reminder that Rio still has a long way to go to atone.
The parliamentary report said: “Rio knew the value of what they were destroying but blew it up anyway”.
It said the destruction of the sites wasn’t a series of “unfortunate mistakes” but a decision to put profit above all else. “This corporate culture belied Rio Tinto’s public rhetoric of working in partnership with First Nations people, as reflected in the company’s (now dis-endorsed) Reconciliation Action Plan.”
It said Rio should pay compensation to the Indigenous owners of the land, the Puutu Kunti Kurrama and Pinikura people.
In light of the report it is surprising that Rio didn’t listen to its shareholders who had made it clear they wanted an external appointment as the new chief executive.
Macquarie in a note on Friday said, “the move to appoint the new chief executive officer from internal ranks was a surprise as we had expected Rio’s board to appoint an external candidate from the process”.
Morgan Stanley said, “given some level of concern in the market related to Rio’s past operational issues, we think the market may have been expecting an external appointment”.
“Some may perceive Mr Stausholm’s appointment as potentially indicating little change in overall strategy.”
Indeed, Treasurer Josh Frydenberg must be flabbergasted at the move given his discussion with The Australian Financial Review’s Jennifer Hewett in September where he revealed he had called Rio chairman Simon Thompson to tell him the company’s next chief executive should be Australian along with the majority of its directors.
“With the vast majority of its revenue coming from Australia, it is fitting to once again see an Australian as CEO along with the majority of the board. It was a constructive conversation,” Frydenberg told the AFR.
The ASX statement didn’t mention where Stausholm will be based but the company’s expectation is it will continue to be at Rio’s London headquarters, positioned at 6 James Square, St James.
St James is one of the more wealthy suburbs in London, minutes from Buckingham Palace and The Ritz. One British website describes St James as “an aristocratic neighbourhood in central London”.
It is far from the dirty blue-collar business of mining and the 46,000-year-old Aboriginal heritage site that it blew up with no regard. The company’s growing disconnect from Australia is seen as a key reason why it landed itself in such a deep mess.
This is despite the fact that Australia generates as much as 80 per cent of the group’s profits, largely from its iron ore mines in the Pilbara.
Rio’s initial reaction to the backlash over its destruction of irreplaceable Aboriginal heritage was arrogant and insensitive. It initiated a flimsy investigation, allowed those directly responsible to step down at their convenience instead of immediately with their pockets full.
It is why investors reacted so badly.
HESTA chief executive Debby Blakey didn’t directly comment on the latest appointment but said in a statement that as an investor, the industry fund was closely watching how the Rio Tinto board and its senior leadership take action to improve governance and oversight and respond to the very substantial recommendations of the parliamentary inquiry.
She said investors had an expectation of significant and lasting change. “A vital first step is opening up all agreements with traditional owners to an independent review,” she said.
“Like other global investors, HESTA will continue to evaluate the action Rio has taken to address serious concerns about the systemic risk these agreements and how they are negotiated pose to both Rio and other companies in the sector. We will continue to engage on these issues, which will inform our share voting at Rio’s AGM in May.”
Australian Super declined to comment, as did the Australian Council of Superannuation Investors, but that doesn’t mean they aren’t watching.
The boards of Australia have managed to get away with flawed governance for too long. Rio’s number is up. Any more screw-ups and more heads will roll.
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Source: Thanks smh.com