Rio Tinto's governance a fiasco as director charged with fraud

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This was published 6 years ago

Rio Tinto's governance a fiasco as director charged with fraud

By Elizabeth Knight

In the wake of yet another Rio Tinto director resignation under a scandal-heavy cloud it's only fair to ponder whether this company is accident-prone, unlucky or if there is a bigger underlying governance malfunction behind its series of poor director and senior management choices.

The sensational news from London on Wednesday that Rio director and former Barclays Bank executive John Varley has been charged by the UK Serious Fraud squad over a deal the bank did during the global financial crisis is another credibility blow for Rio.

The fact that, until the news broke, Varley had been the director in charge of finding a new Rio Tinto chairman makes the revelations all the more humiliating - a corporate governance and public relations nightmare.

It is not known whether Rio had been aware of the long-running investigation that culminated in Varley being charged with conspiracy to commit fraud by false representation in relation to a fundraising in June 2008 in Qatar. If convicted, these offences carry a maximum prison sentence of 10 years.

John Varley had to resign from the board after he was charged with conspiracy to commit fraud by the UK Serious Fraud Office.

John Varley had to resign from the board after he was charged with conspiracy to commit fraud by the UK Serious Fraud Office.Credit: Daniel Munoz

Far from being contrite, Rio chairman Jan de Plessis said on Wednesday that board "holds him in the highest regard and will miss his valuable insight. Personally I am not only losing a senior independent director, but a close colleague whose wisdom and support I am going to miss tremendously."

De Plessis was slightly less effusive when he acknowledged the resignation of another Rio director earlier this year, Anne Lauvergeon, who sent her apologies to shareholders for not turning up to this year's annual meeting. Investors had no idea that at the time the French businesswoman was being questioned by European authorities over whether she allegedly filed misleading accounts during her tenure as chief executive of nuclear power company Areva.

Ms Lauvergeon also led Areva to the disastrous acquisition of Canadian uranium stock Uramin in 2007, which was written down soon after. Despite this baggage she was appointed to the Rio board in 2014.

On top of all this, Ms Lauvergeon's partner, Oliver Fric, was investigated in 2016 over allegations he may have engaged in insider trading over the Uramin acquisition.

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Is Rio accident-prone, unlucky or is there a bigger governance problem behind its series of poor director and senior management choices?

Is Rio accident-prone, unlucky or is there a bigger governance problem behind its series of poor director and senior management choices?

It seems strange that a company the size and stature of Rio - one of the largest mining companies in the world - would not have a large pool of cleanskin directors from which to choose.

The Varley disaster is sure to place intense pressure on the board to make a careful choice when replacing de Plessis, who in March announced he would soon retire.

Former Rio Tinto chief Sam Walsh has been enmeshed in Rio's bribery scandal in West Africa.

Former Rio Tinto chief Sam Walsh has been enmeshed in Rio's bribery scandal in West Africa. Credit: Robert Shakespeare

But Rio's governance issues don't stop there.

Three of its most senior executives - including former chief executives Sam Walsh and Tom Albanese - have been sucked into a bribery scandal, in which Rio allegedly paid $10.5 million to secure a vast mining concession in Guinea.

A damning 2011 email trail that came to light last year between Walsh, who was then head of Rio's iron ore operations, and Albanese as CEO, discussed a clearance request from Rio's executive in charge of the West African project at the time, Alan Davies, to pay French investment banker Francois de Combret $US10.5 million in consultancy fees for his role in securing Rio's ownership of the deposit in the former French ­colony.

Davies - who had at one time been in contention to become the miner's chief executive - was summarily sacked when the scandal exploded late last year.

Legal & Regulatory Affairs group executive Debra Valentine was also caught up in the situation and left the company, having previously announced her intention to go in 2017.

As investigations of the events continue on three continents, Walsh has had a part of his retirement benefits withheld, while Davies has mounted a legal case against Rio for his dismissal.

All this from a company that prides itself on governance and good behaviour in its annual report: "Rio Tinto's commitment to integrity is set out in our global code of business conduct: The way we work," the report says.

"This contains principles and standards of conduct which reaffirm the group's commitment to integrity. It is inspired by our four core values: respect, integrity, teamwork and accountability."

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Any company the size of Rio can fall victim to the behaviour of rogue employees.

But to have allegations made against two former chief executives and particularly against board members suggests a serious breakdown in governance and due diligence.

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