Rio facing hostile AGM

The Australian Shareholders’ Association has joined several other advisory groups in recommending a vote against Rio Tinto’s remuneration report at tomorrow’s annual general meeting in Perth.

The ASA is also opposed to the re-election of non-executive director Hinda Gharbi but has supported Australian director Megan Clark, whose position has been questioned by other advisory groups.

The annual meeting is set to be dominated by the controversy surrounding Rio’s destruction of ancient Aboriginal rock shelters at Juukan Gorge in the Pilbara.

ASA company monitor Duncan Seddon said that, under normal circumstances this would be a splendid reporting year with great returns to shareholders, but it was not a normal year.

“Rio has delivered a full set of exemplary reports covering all aspects of corporate governance but none show how the current mess is to be put right for the long-term interests of the shareholders,” he said.

Mr Seddon reached that conclusion despite Rio outlining a broad suite of changes to try and improve its management of Aboriginal heritage and relations with Aboriginal groups.

Mr Seddon said he specifically addressed Rio's remuneration policy in a meeting with chairman Simon Thompson.

“In our pre-AGM discussion with the chairman, we discussed the unsettling fact that the former CEO has departed with a very large remuneration package whilst being held accountable for the Juukan Gorge disaster.

“The point we made is this seemed to be a policy failure.”

The chair of Rio’s remuneration committee Sam Laidlaw sought to defend this policy last month.

“The penalties applied to the responsible executives were, in the best view of the board, the most that could durably be applied and legally defended in light of the extent of the executives' ultimate accountability for Juukan Gorge,” he told a shareholder meeting in London.

Nonetheless, Mr Seddon said Rio’s remuneration policy was always playing catch up to events that had already occurred.

“For this reason, we recommend a vote against the remuneration policy," he said.

In a report ahead of tomorrow’s meeting, the ASA said Rio’s board appeared to be in a complete mess.

“The initial cause of the problem was the destruction of the Juukan Gorge caves in May 2020 but the main problem was and remains the board’s mismanagement of this disaster,” it stated.

The ASA noted that many of Rio’s institutional shareholders in the UK have used the AGM to vote against the remuneration report as a protest about the board performance.

That was after the large proxy advisory firms ISS Governance, Glass Lewis and PIRC, along with the Australian Council of Superannuation Investors, all recommended against the remuneration report.

Rio has already held an AGM in London, and under its dual-listed structure, holds a second in Australia.

Voting results are released only after the second meeting in Perth.

The ASA concluded that Rio’s board has been challenged and found wanting.

“It does not appear to be fit for purpose and should be restructured from the ground up as soon as possible" it said.

“Although it is tempting to vote against all of the board members, this would leave Rio rudderless as well as drifting.”

Rio has already foreshadowed major changes.

Chairman Simon Thompson has announced he will retire next year while director Michael L'Estrange, who led a contentious review of the Juukan Gorge issue, will not stand for re-election this year.

It has also parted ways with three top executives including former CEO J-S Jacques.

The ASA said that, as a matter of urgency, Rio must recruit directors with Australian mining expertise to help put matters right.

“Maybe it is time to request the reversal of the dual listing and re-establishment of (Australian company) CRA, charged with operating and developing all of the company’s Australian assets,” it said.

The ASA said Megan Clark passed the test of having suitable mining experience.

It noted that she has attracted criticism from some institutional shareholders, because of her role as chair of the sustainability committee when the Juukan Gorge caves were destroyed.

“However, she has appropriate mining experience and until we understand the full nature of the restructure of the board it would be imprudent to lay her off,” the ASA said.

The ASA is opposed to the re-election of Hinda Gharbi, who is also executive vice-president of reservoir and infrastructure at Schlumberger.

“Since she is a full-time employee of another corporation, we regard the proposal to elect her as placing her in an unacceptable conflict of interest in terms of allocation of time and will oppose her election unless she retires from her current position at Schlumberger,” the ASA said.