OPINION

Rio's latest mistake: Putting a price on the priceless

Elizabeth Knight Business columnist
August 28, 2020

The biggest problem with this week’s response from Rio Tinto to its management-made destruction of an archaeological treasure is that it put a $7 million price on destroying something that was priceless.

Three senior executives, including the chief executive Jean-Sebastien Jacques, had a portion of their bonuses docked and were absolved of any blame because, as Rio says, the mistakes had been made collectively over a number of years under different management regimes.

Rather than quelling concerns and placating stakeholders, including traditional owners, shareholders and the broader international archaeological community, the findings of Rio’s internal investigations into the destruction at Juukan Gorge would be incendiary.

While Rio’s board and management are sticking with the line that there is nothing more to see here, even they must understand that this issue is a slow burner, and is far from over yet.


Anger over Rio's destruction of the Juukan Gorge and its subsequent handling of the matter keeps building.CREDIT:MICHELE MOSSOP

That $7 million price tag won’t even hit the sides when it comes to accountability.

When it comes to corporate governance and accountability it was Graeme Samuel, the co-author of the report into the Commonwealth Bank’s Prudential Inquiry, who distilled a board’s decision making into answering two questions: Could we? And should we?
The Rio management knew it could legally blow up the Juukan caves. Yet the second question some anonymous Rio person or group asked instead of 'should we?' unfortunately was ' when can we’?

It is now up to the shareholders to impose their own governance standards on Rio’s board and management.

AustralianSuper boss Ian Silk has this week set the standard, saying that $7 million of punishment is not enough to compensate for the Juukan destruction. In doing so publicly he was signalling to other major shareholders that he would like a bit of company on the ethical high stool.

Others, like Hesta, are becoming a bit more courageous. "[Rio's report] doesn't address strongly who is ultimately responsible for ensuring adherence to its standards and for ongoing oversight, and that is something we continue to engage on’, its chief executive Debby Blakely said.

"We do remain concerned about the gap in their public commitments and their actions, and we want to continue to engage on that."

Does the company feel that £4 million is the right price for the destruction of cultural heritage?Louise Davidson, Australian Council of Superannuation Investors

Meanwhile, the Australian Council of Superannuation Investors’ Louise Davidson’s eyebrows were also raised at the findings from Rio’s internal investigation.

"Remuneration appears to be the only sanction applied to executives. This raises the question – does the company feel that £4 million ($7 million) is the right price for the destruction of cultural heritage?

"The report from the Rio Tinto board review does not deliver any meaningful accountability for the destruction of some of the most significant cultural sites in Australia. The company should explain why greater accountability was not applied in light of this disaster," she said.

AustralianSuper seeks tougher penalties for Rio Tinto cave blast

A string of other investors including Aberdeen and Legal & General have also voiced their concerns, albeit not as strongly.

Over the past couple of days, having read the Rio report the UK’s Local Authority Pension Fund Forum described the company’s actions as an appropriate first step, but said it was looking to see what further action is taken when the findings from the current Senate inquiry are released.

Meanwhile, the really big owners of Rio’s British and Australian shares are the international investment giants BlackRock, Vanguard and State Street. These are passive investors that tend to talk big on their environmental, social and governance credentials but have a spotty history when it comes to pushing these issues or voting against boards.

One thing Rio does have in its favour is the Chinese-owned Chinalco as a 14.6 per cent shareholder. Last year it voted, unsuccessfully, against the board’s share buyback proposal, but this was because it was prohibited from taking its stake over 15 per cent. It's considered less concerned though about Rio's social licence to mine culturally sensitive areas.

If there is sufficient groundswell from investors in Rio to vote against directors at next year’s annual meeting it could be enough to embarrass one or two into not seeking re-election.

But history has shown boards tend to throw their chief executives under the bus before it comes to that.