Rio Chief Executive Quits After Australia Controversy

Key executives resign after destruction of an Aboriginal site in May 2020, an incident that flags up the ESG risks mining company investors face

11/09/2020 18:24:00

Rio Tinto chief executive

The chief executive of FTSE 100 mining company Rio Tinto (RIO) and a number of key executives have resigned following the controversy over the destruction of an Aboriginal site in Australia in May. Jean-Sebastien Jacques is to step down as chief executive but will remain in the role until March 2021 until a successor is found, while Chris Salisbury, chief executive of iron ore has resigned with immediate effect. Simone Niven has also resigned as group executive of corporate relations and will leave the company at the end of the year. The controversy has reignited the debate about mining companies’ environmental, social and governance practices – as well as how they can attempt to put things right after a high-profile incident occurs.

In May this year two sacred cave sites dating back 46,000 years were destroyed in Pilbara, Western Australia, after an explosion while the company mined for iron ore. Local community leaders had raised objections to the activity before the sites were destroyed. The incident has caused great controversy in Australia and has been the subject of a parliamentary inquiry. Rio Tinto itself conducted a board review and decided that top executives would forfeit bonuses worth £4 million. But some Australian pension funds said this move was not enough to hold the companies’ top executives to account – even though at the time the company’s chairman Simon Thomspn said that “no single individual or error was responsible for the destruction”.

What forced Rio to instigate tougher measures than financial penalties on top bosses? “Shaving short term bonuses for some senior executives just didn’t cut it in terms of an apology,” says Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown. “The board clearly believe a tarnished management team staying in place would be worse for the company in the longer term.”

Executive Accountability

On Friday the company said: “The Board of Rio Tinto has engaged extensively with shareholders, Traditional Owners, Indigenous leaders and other stakeholders. While there is general recognition of the transparency of the Board Review and support for the changes recommended, significant stakeholders have expressed concerns about executive accountability for the failings identified.”

Rio Tinto chairman Simon Thompson said: “What happened at Juukan was wrong and we are determined to ensure that the destruction of a heritage site of such exceptional archaeological and cultural significance never occurs again at a Rio Tinto operation.

“We are also determined to regain the trust of the Puutu Kunti Kurrama and Pinikura people and other Traditional Owners. We have listened to our stakeholders’ concerns that a lack of individual accountability undermines the Group’s ability to rebuild that trust and to move forward to implement the changes identified in the Board Review.”

Following the controversy, ratings agency Sustainalytics increased the ESG risk rating for miner Rio Tinto (RIO) following the controversy over damage to Aboriginal sites in Australia. The FTSE 100 mining giant now has a Level 4 or “High” ESG Risk Rating, having previously had a Level 3, or “Significant” ESG Risk Rating.

“The destruction of the historical sites at Juukan Gorge in May 2020 is exceptional, as it means the permanent and irreversible loss of highly significant cultural sites for Aboriginal culture. Shortfalls in engagement and consultation processes with the traditional owners, and the fact that the disturbance of the site could have been avoided, makes the adverse impact of this occurrence even more notable,” it said.

“Rio Tinto has suffered considerable damage to its reputation, trust and social licence to operate.” Sustainalytics added that the incident was not an isolated one either, as there are strains in other communities it operates in over sacred sites, for example on Native American land in the United States.

Rebooting Community Relations?

Is this the resignation of senior executives enough for Rio Tinto and investors to move on? Tal Lomnitzer, a senior natural resources manager for Janus Henderson, thinks so. "The reaction to the mounting pressure on the board and executives, demonstrates that genuine accountability does operate within Rio Tinto.  

"The company has shown that it is genuinely accountable, right from the top of the organisation and this should draw a line under the issue, providing a base from which to reboot community relations for Rio and ensure that the companies’ license to operate is maintained."  

In London the company’s shares rose over 1% after the announcement of the board changes. In Australia, where the company is also listed, the announcement occurred as the stock market closed – and an hour before the London market opened.

About Author

 

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies