Time for Rio to right its wrongs and set up HQ in Australia again

by | Sep 12, 2020 | Energy & Environment

The destruction of the sacred Juukan Gorge caves highlighted the folly of Rio Tinto’s decision-making in moving its headquarters to the UK, a world away from local knowledge and in breach of the original merger conditions. It’s time Rio ended the remote-control management and returned its team to the country that provides the bulk of its profits, writes Shane West.

The ramifications of the disastrous decision by Rio Tinto to blow up the 46,000-year-old sacred caves at Juukan Gorge continue to reverberate, with the resignation yesterday of chief executive Jean-Sebastien Jacques, iron ore boss Chris Salisbury and corporate relations manager Simone Niven.

This disaster of Rio’s own making has highlighted the folly of the company’s decision to move its headquarters to the UK, a world away from local knowledge and in breach of the merger condition set down by then treasurer Paul Keating.

It is clearly well past time to end the remote-control management of this company. While Jacques repeatedly referred to the blowing up of the Juukan Caves as a “misunderstanding”, he set Rio Tinto on this dangerous pathway many years ago. The company has shown not only its complete disregard for our Indigenous population but also to the wider Australian population, whose resources it mines for massive profits.

Jacques delivered his economic theory, which came straight out of the text books of an MBA class, numerous times over the past three years of his tenure – the drive for efficiency dividends by reducing costs and to maximise cash flow to “ensure we continue to deliver value for our shareholders”.

That Rio is 80% foreign owned, with the Chinese Government the largest shareholder (at 14%), is in itself a point of concern.

Shareholders are certainly getting plenty of value from Australia’s natural resources but the Australian stakeholders (the owners of the natural resources) are getting diddled. Especially thanks to the scrapping by Tony Abbott of the Minerals Resource Rent Tax in 2013, a year after it was established.

Rio Tinto: ditch the colonial baggage and get with a 21st-century program

Rio Tinto was created by the merger of Rio Tinto of Britain and Con Zinc Rio Tinto of Australia (CRA). While the Australian government gave the nod to the merger on the basis that the company remained in Australia, Keating didn’t make it conditional and ended up being outplayed by a deceptive Rio board.

It is clearly in the nation’s interest that Rio Tinto maintain a solid foundation in Australia because the vast majority of its profits derive from mining Australia’s natural resources.

Unfortunately, the complete opposite happened. And Rio ended up paying a heavy price for that fateful decision as has all of Australia.

The then CEO Tom Albanese, who had implemented the strategy to move the whole operation to the UK and earned $32 million in his final four years at the company, was eventually sacked due to his massive business failings, which resulted in a $14 billion write down. Albanese was subsequently charged with fraud by the US Securities and Exchange Commission.

The Rio board then appointed Australian Sam Walsh as chief executive. A mining executive with more than 20 years’ experience in Rio including as head of Rio iron ore, Walsh turned the company around.

A love of country

While he brought plenty of business acumen to his role, just as importantly he brought empathy for the Indigenous population, a love of country and plenty of local knowledge. Walsh kept his finger on the pulse, lived in Western Australia and had a very good working relationship with local communities and his team forged sustainable relationships.

This has been borne out following the blasting of the two rock shelters at Juukan Gorge that left the traditional landowners devastated. Former Rio Tinto vice-president Paul Wand said the miner’s actions had caused immense distress to those within the organisation who had worked to establish Rio’s industry-leading reputation.

Such an approach has clearly been missing with Jacques. It is obvious that the pendulum needs to swing back to the tenet of Keating’s original merger agreement.

With today’s resignation of the three Rio executives, the time is right for the Federal Government to put pressure on Rio regarding its corporate structure and reinstate these merger requirements  – as per the original conditions. A revised resources tax should also be applied to both Rio Tinto and BHP based on the loss of the original conditions of their mergers that were well and truly manipulated.

BHP, the one-time Big Australian, had a similar experience to Rio. BHP’s chief executive from 2007 to 2013, Marius Kloppers, never really had any affiliation with the Australian identity. He operated as a global hawk and his failed business strategy, notably with Canadian Potash Corp and his ill-fated aluminium pursuit, caused immense losses to shareholders.

Kloppers was eventually asked to step down as CEO and resigned after a 58% fall in half yearly profits while at the same time receiving a $75 million handshake.

A hoodwinking for BHP Billiton

Both cases serve as historic examples of how Australia, along with many other Western economies and their governments, developed the global hawk theory. Many populations are now questioning that globalisation, with its associated lack of identity and self-sufficiency, and are demanding change from their governments and corporate management to develop a new ethos.

Immediate attention now needs to be focused on both Rio and BHP to ensure they assist Australia’s position internationally and in transitioning to a green steel and aluminium low carbon economy. There is a strong economic imperative to act because the cost of inaction is growing by the day.

The recent High Court ruling in favour of the Tax Office’s action against BHP using Singapore as a tax haven, with BHP having to pay an extra $87 million in Australian tax, highlights just how far the once proudly Australian company has transgressed from its humble Broken Hill genesis.

BHP moving its financial operation to London was similarly a breach of its merger conditions with Billiton under Section 25(1A) of the Foreign Acquisitions and Takeovers Act 1975, as directed by then treasurer Peter Costello.

Those conditions were that the CEO and the chief financial officer of the dual listed entities (i.e. BHP Limited and Billiton Plc) were to be based in Australia, along with their principal offices and key supporting functions.

In addition, the centre of administrative and practical management of BHP Limited should continue to remain in Australia along with its corporate head office activities.

It is the time to bring these institutions home. And Australians need to start receiving a fair and just exchange of our natural resources.

Minerals Council demands “reform” while its members pay little or no tax

ABOUT THE AUTHOR

Shane West

Shane West

Shane has been a director of Environmental Sciences Australia Pty Ltd for more than 30 years. Shane was head of the Unitec Applied Technology Institute, New Zealand and the ACT Government Professorial Chair of Building and Construction Management and Manager of the Sustainability Office at the Australian National University. He now focuses on environment, energy and sustainability issues for Australia’s energy transition and long-term sustainability.

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