HONG KONG (Reuters Breakingviews) - Rio Tinto’s recklessness has set a welcome new bar for environmental, social and corporate governance. Boss Jean-Sebastien Jacques and two deputies, including the head of its iron ore unit which accounted for 96% of half-year earnings, will step down after outcry over the $105 billion miner’s destruction of a 46,000-year-old Aboriginal heritage site in Western Australia. Local activists and shareholders, including the country’s powerful superannuation funds, have led a charge that will inspire other socially-conscious investors.
Pressure had been building since the company released an internal review into how the Juukan Gorge’s sacred rockshelters were blown up in May to expand an iron ore mine. The demolition had legal clearance but it went ahead despite a 2018 report commissioned by the company itself, warning that parts of the area were of “the highest archaeological significance”.
Jacques is a larger-than-expected scalp but his defence that he didn’t know about the importance of the site until it was too late exposed deeper problems in the company’s corporate culture. In the context of other recent high-profile scandals of misbehaving bosses Down Under, including at storied wealth manager AMP, and with shareholder pressure, Rio’s board evidently concluded that a management clear-out was the only way to move forward.
The exits are nonetheless a loss for the company. During Jacques’ four year tenure, dual-listed Rio delivered total returns of 183% and 229% to its London and Sydney shareholders. That trounces the local benchmark indexes and outperforms rival BHP. And while Rio’s generous dividends and soaring share prices were driven by voracious Chinese demand for iron ore, Jacques steered clear of acquisition sprees - a common pitfall in the sector - and made the prescient decision to exit coal, putting it on a greener path.
The episode is another turning point in the push for greater accountability in ESG. Rio may have thought it was just blowing up some caves but ended up blowing up its management through multiple governance failures. Bosses and boards hiding behind strong returns have been given notice.
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