Problems from London Head Office to Outback Australia Resolving Corporate - Accounting Assignment Help

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Introduction

There has been much speculation in the Australian business press on the merits of Rio Tinto Group (Rio Tinto) being led from head office in London. Rio Tinto has a dual stock exchange listed structure comprising Rio Tinto Limited on the Australian Stock Exchange (ASX) and Rio Tinto plc on the London Stock Exchange that reflects the ethos, history and major sources of capital for the business. The London head office is a great distance from the biggest division by sales revenue and profitability - the Pilbara iron ore operations in Western Australia. Head office location and performance presents a strategic management problem. One ongoing concern for some years at Rio Tinto Group has been risk management after difficulties emerged in relation to merger, acquisition and divestment activity during the tenure of Tom Albanese as Chief Executive Officer (CEO) from May 2007 to January 2013 (Walters, 2013). This era at Rio Tinto Group underperformed for shareholders with significant impairments on assets impacting annual results. Problem issues in this period included weakness in decision-making at executive level, questionable Investment Committee practices (Walsh, 2016), and shortcomings in board of director oversight (Walters, 2013).

The Board of Directors and Risk Management 2 RMIT Classification: Trusted Currently Rio Tinto conducts risk management across the whole business portfolio with emphasis on all organisation layers being able to identify, assess and manage risk in areas like M & A, divestment, occupational health and safety, and cultural sensitivity (Rio Tinto, 2019). Rio Tinto has been heavily criticised in Australia in 2020 for the company’s decision to blast the 46,000-year-old Juukan Rock Shelter heritage site to expand the Brockman 4 iron ore mine, with the board and executive scrambling to rebuild the relationship with the Puutu Kunti Kurrama and Pinikura people (Hastie, 2020). The Morrison Australian Government is furious with the Juukan Rock Shelter blast and the irreparable damage – a strategic error symptomatic of a business being run from London for London. Board composition and oversight of the executive influences firm performance (Fitzroy, Hulbert and O’Shannassy, 2016), and may be an issue here. There are six United Kingdom based company directors, four Australian based directors and one each from Canada and France – refer to Table 1 below for further details.

Chairperson and CEO co-tenure is low and a concern at the moment with chair Simon Thompson appointed to the role in March 2018 and CEO Jean-Sebastien Jacques appointed in July 2016 (Rio Tinto, 2019). The Business Environment The impact of Covid-19 has been traumatic economically for many countries across the world (Lowe, 2020). Global gross domestic product (GDP) is expected to fall between 6% and 7.6% in 2020 before recovering to 2.8% growth in 2021; many in the community have lost their jobs or are on reduced work hours and consequently reduced income, with younger age groups bearing much of the burden in Organisation for Economic Co-operation and Development (OECD) developed countries (OECD, 2020). In Australia there is a strong and growing awareness of aboriginal disadvantage, respect for Aboriginal artefacts and culture, and need for national reconciliation (Hastie, 2020). Technology is continuing to evolve and is having a number of impacts in iron ore and broader mining sector (Rio Tinto Limited, 2019). All players in this industry are seeking to improve the use 3 RMIT Classification: Trusted of transport, automation and robotics. Technology disruption is a material risk in this industry (BHP Group Limited, 2019). The Morrison Government has been reluctant to embrace long range emissions targets and using a price on carbon as a market-based solution to emissions (Gluyas, 2020).

Climate change Table 1: Rio Tinto Board Composition and Demographics (Rio Tinto, 2019) Name Position Location Gender Age Date Appointed Simon Thompson Chairperson United Kingdom (UK) Male 60 03/2018 Jean-Sebastian Jacques CEO London Head Office Male 48 07/2016 Jakob Stausholm Chief Financial Officer London Head Office Male 51 09/2018 Megan Clark INED Australia Female 61 11/2014 David Constable INED Canada Male 58 02/2017 Simon Henry INED UK Male 58 04/2017 Sam Laidlaw Senior INED UK Male 64 02/2017 Michael L’Estrange INED Australia Male 67 09/2014 Hinda Gharbi INED France Female 49 03/2020 Simon McKeon INED Australia Male 64 01/2019 Jennifer Nason INED Australia Female 59 03/2020 Ngaire Woods INED UK Female 57 09/2020 4 RMIT Classification: Trusted and a greener future is an increasing concern of the international business community including the Australian business community (Coles, 2019).

The mining industry is a capital intensive business with great rivals such as BHP Group Limited, Fortescue Metals Group Limited, Hancock Prospecting Pty Ltd and Vale S.A. investing significant financial resources. There are high financial stakes in play here (Rio Tinto, 2019). The materials sector is a strong component of the ASX with many small and medium size firms plus these big rivals. The big challenge for any materials sector public company is to get access to quality resource assets, then achieve economies of scale in operations to ensure asset efficiency (BHP Group Limited, 2019)

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