Special edition on Rio Tinto board tilt

April 18, 2011

Dear Readers,

Greetings for the first time since our last bumper email edition on March 7. We did send this special edition focusing on local government issues to some of you on March 28 after Mark McInnes landed the top job at Premier Investments.

This edition is primarily focused on the Rio Tinto board campaign, which opened with the London leg of the Rio Tinto AGM held in Westminster last night.

There hasn't been any Australian press commentary about the first contested board election in recent history at the 138-year-old London-based mining giant. The closest we've got was this line in The AFR's Chanticleer column yesterday:

Rod Eddington will retire from the board at the Australian AGM. His replacement is not known although there has been speculation it could be Ian Smith, the outgoing CEO of Newcrest and a former Rio executive. Smith is regarded as one of Australia's best mining executives and his appointment would be well received, particularly among those shareholders who have expressed concern that the Australian influence on Rio's board has diminished over the years. This should not be surprising as the company has become a global business. Eddington's replacement, however, should be made on merit and talent rather than ensuring an Australian quota.

Truth be known, I reckon Eddington quit because Rio decided to voluntarily spill the entire board at the AGMs and Sir Rod was fearful of a repeat of the 2009 protest when 60% of the Australian shareholders voted against him because of his involvement in the Allco collapse.

Strangely, this voluntary board spill hasn't been reported anywhere.

Editing the platform in a very English way

Whilst Rio are to be commended for not blatantly censoring the platform, they certainly did tone down the language considerably. Here is what I submitted to be distributed to Rio's 250,000 shareholders across the globe:

Stephen Mayne, age 41. Bcom (Melb). Stephen Mayne is a professional Australian shareholder advocate and an elected local government councillor in the City of Manningham in Melbourne's eastern suburbs. He publishes the corporate governance ezine www.maynereport.com and campaigns for maximum transparency and accountability in listed companies.

Mr Mayne believes the Rio Tinto board has not been held accountable for the folly of paying an enterprise value of $US44 billion for Alcan. Only three new directors have been appointed since 2007. Where is the boardroom accountability for the refusal to originally engage with BHP-Billiton, the excessive Alcan acquisition, the debt-laden balance sheet, the massively discounted rights issue, the purported bail out from Chinalco and the now-aborted iron ore joint venture with BHP-Billiton?

Mr Mayne also believes Rio Tinto needs to have more than three Australian-based directors given the Australian operations deliver a majority of group profit. There are political risks associated with treating Australia as a branch office, as evidenced by the Australian government's proposed Resources Super Profits Tax in 2010.

Mr Mayne believes Canada is over-represented on the Rio Tinto board and that in light of the Alcan debacle, former Alcan director Paul Tellier, aged 71, ought not to be seeking a further three year term at the 2011 AGMs.

Rio Tinto's edited version of platform

And this is how it was toned down, including the bizarre move of getting our domain name wrong:

Stephen Mayne (age 41, Bcom (Melb)) is a professional Australian shareholder advocate and an elected local government councillor in the City of Manningham in the eastern suburbs of Melbourne, Australia. He publishes the corporate governance ezine www.themaynereport.com and campaigns for maximum transparency and accountability in listed companies. Stephen Mayne states that he is standing on a platform on the following issues:

* he contends that the board has not been held accountable for Rio Tinto's acquisition of Alcan, debt levels and discounted rights issues, its previously proposed strategic partnership with Chinalco and iron ore production joint venture with BHP Billiton and its response to the BHP Billiton takeover offer.

* he believes that there should be more than three Australian based directors, given the relative contribution of Australian operations to the Group; and

* he believes that Canada is over-represented on the board and that non executive director Paul Tellier should not seek re-election for a further three year term.

Media and proxy advisor recommendations

Fox Business carried this Dow Jones piece which included the following quotes from a UK proxy advisory firm:

Finally, PIRC said it agreed with Rio Tinto's board of director's recommendation that shareholders vote against the election of Stephen Mayne, an Australian business journalist and professional shareholder, to the board.

"We do not consider Mr Mayne to demonstrate the relevant and significant competency and experience," to be a board member, it added.

Mayne contends that the board of directors hasn't been held accountable for a series of actions including including Rio Tinto's $38 billion acquisition of Canadian aluminum producer Alcan in 2007, according to PIRC.

He also says there should be more Australians on the company's board of directors given Australia's strong contribution to the Anglo-Australian's bottom line, the advisory group added.

The world's most powerful proxy advisory firm, ISS, has also recommended against for its UK subscribers and a similar line is expected out of the Australian division.

ASA still deliberating

The Australian Shareholders Association is still deliberating which hopefully isn't just because I've nominated for their board at the AGM in Adelaide on May 18. The ASA has never recommended a vote in my favour.

I'd be happy to have a discussion with ASA's Rio Tinto monitor about the issues at hand as this is what they are currently saying on their website about voting intentions for the Rio Tinto AGMs, although it is subject to change if the chairman finally makes himself available for a meeting:

Resolution 1: Receipt of reports and financial statements
To be advised: Subject to analysis of report.

Resolution 2: Approval of remuneration report
To be advised: Subject to analysis of the report.

Resolution 3: To re-elect CEO Tom Albanese as director
Provisionally FOR: Has steered the company from a near death experience (for which many held him responsible) to a strong position in the minerals business.

Resolution 4: To re-elect Robert Brown as director
Provisionally FOR: Mr Brown (Canadian Citizen) has experience in several major corporations in Canada. He is chairman of Groupe Aeroplan (manages loyalty programs) and a director of BCE ( a telecom). He is not overloaded but prima facie has no experience in the mining sector. We continue to be concerned by the lack of independent mining expertise on the Rio Board. We voted for his election last year and will probably vote for him this time.

Resolution 5: To re-elect Vivienne Cox as director
AGAINST: We have in the past opposed Ms Cox's election to the board on the grounds that she is a full time executive of BP (a company we note in passing is fairing poorly relative to its peers and faces serious investigations into its operations in the USA). This position has not changed.

Resolution 6: To re-elect Jan du Plesis as director
FOR: As chairman we look forward to him acting as a change agent; which does not seem to be happening. He is fully loaded with two additional directorships

Resolution 7: To re-elect Guy Elliott as director
AGAINST: Guy Elliott is the CFO of RIO. Since his last election (last year) he has taken a postion as a director of Shell and serves on the audit committee. The ASA views this as potentially generating a serious conflict of interest and not in the interest of Australian shareholders.

Resolution 8: To re- elect Michael Fitzpatrick as a director
FOR: Famously chairman of the AFL. One of the few Australian citizens on the board.

Resolution 9: To re-elect Anne Godbehere as a director
FOR: Has replaced chairman of the audit committee.

Resolution 10: To re-elect Richard Goodmanson as a director
Provisionally FOR: In the past we have opposed Mr Goodmanson's election previously on the grounds he was a fully employed executive of the Du Pont company. He now has relinquished this role and is not obviously overloaded.

Resolution 11: To re-elect Andrew Gould as a director
AGAINST: Andrew Gould is a full time employee of Schlumberger (chairman and CEO) and is clearly overloaded and conflicted should issues arise in both RIO and Schlumberger.

Resolution 12: To re- elect Lord Kerr as a director
FOR: Former Permanent Under Secretary of the UK Foreign Office and diplomat.

Resolution 13: To re-elect Paul Teller as a director
FOR: Mr Teller came to the board as a result of the Alcan takeover. He appears not to be overcommitted and would make a useful contribution to the board.

Resolution 14: To re-elect Sam Walsh as director
AGAINST: Executive; runs the Rio iron ore business. Unfortunately he is also a director of West Australian Newspapers. ASA has a policy of opposing full time (and paid as such) employees being employed and having commitments to other companies.

Resolution 15: To elect Stephen Mayne as director
To be advised

Resolution 16: Re-appointment of auditors of Rio Tinto PLC and auditor remuneration
FOR: This is required under UK law.

Resolution 17: Amendments to the rules of performance share plan
To be advised: subject to analysis of the proposal

Resolution 18: Renewal of off-market and on-market share buy back authorities
Provisionally FOR: Capital management scheme. Subject to further discussion with the company

What happened at the London AGM

Rio Tinto's Australian AGM normally attracts a wide range of critics such as unions, indigenous groups and anti-uranium protestors. You can read about it in some of our past coverage:

Rio Tinto April 27, 2001
Dominated by unions and green groups - see Crikey.

Rio Tinto May 4, 2006
The day a mining giant was humbled by its shareholders - see Crikey and edited AGM transcript

Rio Tinto Sept 28, 2007
Approving the Alcan takeover and waving the Aussie flag - see package of highlights.

Rio Tinto April 24, 2008
Plummy chairman Paul Skinner limited debate - see package of highlights

Rio Tinto April 20, 2009
- listen to audio, see Mayne Report, see Business Day article

Rio Tinto May 26, 2010
- listen to audio, see Crikey, see Mayne Report

However, last night's gathering in London hard arguably the most wide-ranging group of agitators ever assembled.

It started out with two institutional investors, including Guy Jubb from Standard Life who is responsible for 30 million Rio shares, speaking out strongly against the remuneration report which is clearly going to face a serious protest.

Mr Jubb demanded a full scale review of remuneration practices be presented for approval at next year's AGM but chairman Jan du Plessis would only pledge to doing this over the next 18 months. After all the chaos of recent years, he claimed a pay review would have been too distracting.

A couple of small shareholders, including the representative from the UK Shareholders Associations, celebrated this rare event of institutions actually turning up and speaking at an AGM.

In terms of genuine small shareholders, there weren't too many grievances aired except a major spray at Computershare's "filthy service" and a complaint that the AGM clashed with BP's, something Rio might have tried avoiding given that one of its directors, Vivienne Cox, was a senior executive at the oil giant until mid 2009. BP's management committee now comprises these 12 blokes and Vivienne could well have been the bright spark who suggested a clash with BP given it was always going to get heat over the biggest oil spill in history.

Look no further than this Emma Alberici story on ABC radio's AM program today.

The debate at the Rio Tinto AGM was quite extraordinary, yet in the first 24 hours it only generated this story in The Independent about pollution from the mines in Utah which will produce the metal for the 2012 London Olympics.

It wasn't until The Weekend Australian came out that Matt Chambers covered the interesting debate about the possible future development of the Jabiluka uranuim mine in Kakadu.

And it took until Monday for The Australian to re-run this story from The Sunday Times about the Standard Life protest vote against Rio's excessive pay practices.

Way back on Thursday night, the chairman became quite frustrated by the flood of environmental, social and human rights issues coming at him from right across the globe, declaring at the end of the AGM that Rio was "a great company which takes its responsibilities incredibly seriously".

He declared himself to be "incredibly proud to be the chairman" but refused to answer the earlier question from a shareholder called Richard when it came to my election about exactly what social, environmental and human rights skills he brought to the table.

Richard declared that du Plessis hailed from "South Africa's apartheid era tobacco industry" and wondered whether these were the sorts of skills and perspective needed at the helm of Rio. The chairman looked a bit stunned and moved on to the next question.

In terms of the different NGOs and agitators present at the AGM, my favourite was the representative from East Kalimantan in Indonesia decrying the human rights abuse that Rio Tinto admitted to before closing the Kelian Mine in 2003.

Then you had a Canadian who slammed Rio for owning 42% of Ivanhoe Mines which has placed its Burmese mining assets into a trust, as part of the original commitment when it first joined the register.

CEO Tom Albanese simply claimed the assets remained in a Canadian trust but wouldn't be drawn on who was profiting from this joint venture with the brutal Burmese military regime.

Another shareholder claimed to represent "Mongolian Civil Society" and expressed concerns Rio Tinto had only proved up water resources for 6 years of operation at its giant Oyu Tolgoi copper-gold project in Mongolia, but was steaming ahead with development and talking about a 60-year mine life.

Tom Albanese admitted more permits were outstanding and the Mongolian desert was tough going, but he also claimed much of the area's infrastructure was chaotic and poorly regulated and the aquifer Rio was accessing was completely separate from the water table.

Other issues to get a run included the 4 month lock-out of workers at Rio's Borax operation in the Californian desert. Agitators who had travelled over from California claimed both the strike-breakers and the labour force were still being treated poorly.

The perennial issue of tailings at the giant Grasberg mine in West Papua got another run, with one shareholder labelling it "the worst mine in the world".

The only person who wasn't complaining at the Queen Elizabeth II Conference Centre in Westminster last night was AWU national secretary Paul Howes who launched a ridiculous attack on the "monkeys" who run Rio recently and presumably is keeping his powder dry for the May 5 Australian AGM in Perth.

How much has Rio dropped on Alcan

This Rio Tinto board tilt is primarily about increased Australian board representation and some accountability for the Alcan folly, which seems to get worse as time goes on.

There was an interesting discussion last night about unfunded defined benefit pension liabilities. As if paying $US44 billion for Alcan wasn't bad enough, that business came with tens of thousands of workers, many of whom were on generous pension arrangments. Rio's pompous finance director Guy Elliott admitted it still has some open defined benefit schemes running in Canada.

Indeed, one shareholder pointed out that Rio's unfunded super liability had blown out from $US410 million before the Alcan acquisition to $US4.34 billion in the latest assessment.

Does anyone else struggle to understand how a business can declare a $US10 billion profit whilst simultaneously not fully funding its supernnuation commitments?

The Alcan acquisition was a top of the market gamble on clean energy and carbon trading. Whilst Rio is today capitalised at $160 billion, it's share price would be well north of $100 without the Alcan folly.

Yet somehow the directors seem to have got away with it just because commodity prices have rebounded and Rio's largest shareholder, the Chinese Government owned Chinalco with about 10%, is not insisting on a board purge.

We didn't see any proxy votes last night because they are held back until after the May 5 AGM in Perth.

It will be very interesting to see which directors attract major protest votes and whether I can scrape into double figures. Don't hold you breath.


Finally, here is the text of a flyer handed out at the 2007 EGM in Melbourne when Rio Tinto shareholders approved the crazy $US44 billion Alcan acquisition. I was the only speaker against the takeover and also voted against it at the time. Interestingly, Rio shareholders only got to vote on that deal because of the UK company laws. Australian shareholders have no protection if their board wants to go over the top and pay a ridiculous price for a rival company. Anyway, here's that flyer:

Friday, September 28, 2007

Today's Rio Tinto shareholder meeting will almost certainly approve the $US44 billion takeover of Canadian company Alcan – the largest cash bid in Australian corporate history.

However, what few people realise is that the terms of the agreement will see the world's second biggest mining company become even less Australian. Rio Tinto is a dual listed company with an Australian and UK listing - but its head office is in London.

The company's Australian assets are worth at least $70 billion but the business is still run from the other side of the world in a country were Rio Tinto has no mining operations.

When the dual listed company structure was established in December 1995, the boards of CRA and RTZ reached an agreement with the Keating Government to retain part of its head office in Melbourne, from where the Eastern Hemisphere of the global operation would be run.

This agreement was broken 15 months later under the Howard Government, when 100 jobs were axed in Melbourne and Australia was downgraded to running just three of six global divisions – aluminium out of Brisbane, iron ore out of Perth and energy out of Melbourne. Now we have a further downgrading of Australia's role with this Alcan deal because the aluminium business will be run out of Montreal rather than Brisbane.

It gets even worse when you look at the Rio Tinto board, which currently has only three Australian based directors - Sir Rod Eddington, Ashton Calvert and Mike Fitzpatrick. Three Alcan representatives will join the Rio Tinto board, which means the Australian-based representation will be down to less than 20% given the board will be expanded to 16.

The Keating government originally requested that RTZ-CRA's board remain one third Australian-based in perpetuity but backed down after the companies threatened to scuttle the 1995 merger.

Up until the appointment of American Tom Albanese as managing director last year, Rio Tinto also had an Australian CEO in either Leon Davis or Leigh Clifford since the 1995 merger. In 1997, when the CRA name was buried, Rio Tinto gloated that six of its eight top executives were Australians. These days, only two of the top nine hail from Down Under.

Given that the Australian-listed shares trade at a premium to their London equivalents, it makes sense for Rio Tinto to "do a Brambles" and collapse the dual-listed company structure and instead shift the global headquarters to Australia.

With wall to wall Labor Governments on the horizon, this would surely make it easier for Rio Tinto to operate in the country which will still deliver close to half of group profits, even after the Alcan deal.

In an era or growing resource nationalism across the world, Rio Tinto needs to treat Australia with a lot more respect.

For further information: Stephen Mayne (Stephen@maynereport.com)

Tales from the talk circuit

We'll be sending the bumper April edition in the coming days and some of the topics are dealt with in the recent Tweets listed below.

We've got an interesting range of upcoming speeches and enjoyed heading out to a major metropolitan council earlier this week to speak to about 60 staff on governance issues. The feedback was as follows:

Hi Stephen,

Thanks so much for your visit and talk to our council. It was great meeting you and hearing your thoughts on Good Governance and Transparency in Local Government. The feedback to me has been terrific which is always nice and you certainly provided the opportunity to have some more informal chats amongst the staff on what makes good governance.

Thanks again.

Kind Regards, Jane

Meanwhile, click here to read other feedback after some speeches and click on the image below if you fancy an engagement as the talk circuit is emerging as a modest offset to help sustain the losses of The Mayne Report and fund our shareholder activism:

Sign up for campaign and governance Tweets

Click on the image above to join almost 4000 followers on Twitter. We are regularly dropping out observations about journalism, politics, breaking stories, local government and shareholder activism and here are some of the more recent Tweets:

April 15
Attended directions hearing at VCAT for appeal by our former deputy mayor Fred Chuah against 3 misconduct findings. Delayed until June 3.

April 14
3 hr Rio AGM just finished. Board flogged on wide range of social and enviro issues prompting chair to close with "great company" spiel.

First Rio question from lady representing UK rail pension funds who slammed 13.5% rise in CEO salary and said would be voting against.

"over the next 30yrs it is projected that the world will consume as much copper as it has over the last 10,000 years", Rio Tinto CEO at AGM.

Crikey yarn on media ownership:

Former CEO Peter Viner has quit Ten board. He's had enough of Lachlan Murdoch and the "buy 10% and get a board seat" billionaire club.

Adelaide Brighton chairman Chris Harris just called spruiking the appointment of first ever female director, Arlene Tansey. Well done Chris!

April 13
Good to see Exxon and BHP (combined value $700bn) are being slugged $1bn in back tax for attempting to dodge Bass Strait RRT for a decade.

April 12
Great to see the Federal Government reacting proactively to deceitful pokies campaign by pubs and clubs:

April 11
Only 63% of proxy votes supporting WA News' Seven purchase is a lousy mandate. But, majority rules, so Stokes pulls off another dodgy deal.

Today's Crikey yarn on Rupert's non-apology:

That's all for now.

Do ya best, Stephen Mayne

* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.