The bombshell scandal that’s knocked another billionaire off his perch

It feels almost antithetical to include the words “corporate governance” in the same sentence as the company Mineral Resources (MinRes).

We now know that the miner and some of those who steward it have been operating in a “Wild West” governance-lite/-free zone for years. The actions of MinRes managing director Chris Ellison and the board’s inaction make a joke of the notion of corporate governance, which has been somewhat of a recurring theme in corporate Australia.

MinRes and WiseTech Global are two recent examples of governance issues overtaking a board, especially one that has to deal with an influential founder in a position of power – Ellison at MinRes and Richard White at WiseTech.

Billionaire mining mogul and Mineral Resources founder Chris Ellison.Credit:

While White’s downfall was linked to scandals of a personal nature, at MinRes there is a laundry list of problematic behaviours by Ellison that centre on his use of company resources for his personal benefit and that of his friends and family.

Having been outed by the media in recent weeks, additional aftershock details have emerged in an escalating scandal involving Ellison – one of the pillars of Western Australia’s corporate elite.

If a week is a long time in politics, for Ellison and the MinRes board, two weeks must seem like a lifetime.

When this scandal erupted late last month, the board issued a statement saying it had “full confidence” in Ellison and his leadership. That ill-judged digital statement to the ASX will now haunt the board for some time.

Since issuing that release supporting Ellison, the board has been harangued by shareholders in a series of rapid-fire meetings and made subject to interrogation by the ASX and the corporate regulator. By last weekend it must have become apparent to it that escaping any consequence of what had transpired was no longer an option.

On Monday, MinRes’ board announced the loose timing for the departure of Ellison and MinRes chairman James McClements, as well as financial sanctions for Ellison of up to $9 million.

While McClements will be out the door by next year’s annual meeting, Ellison could hang around for as long as 18 months. This prompts an immediate question: why allow Ellison such a lengthy exit?

Allowing him to remain – even if that accords with the wishes of some shareholders – further trashes what’s left of this board’s governance credentials. Shareholders may understandably be concerned about the management and strategic void a swift exit of Ellison would cause, but letting him stick around for as long as 18 months sends a dangerous message to corporate Australia.

The financial sanctions on Ellison won’t move the dial for the billionaire entrepreneur. The lion’s share of those sanctions involves the forfeiture of Ellison’s long- and short-term incentives – in other words, his bonuses. The remaining $3.79 million will involve him paying back to MinRes the money it paid to Ellison’s private company in 2006 and 2008 without adequate related party disclosure.

And then there is the $5 million Ellison will donate to charity and his personal mea culpa, which the miner says represents Ellison’s profound sense of embarrassment and his diminished reputation.

The first part of the issue involving Ellison is historical. It centred on a scheme involving a company associated with Ellison selling machinery to MinRes at inflated prices through a British Virgin Islands-incorporated vehicle. The profits from the said scheme were shared by Ellison, former chairman Peter Wade and four other founding executives at the mining company.

This inadvertently sucked MinRes into a tax evasion scandal that was not of its making. The board has admitted to becoming aware of this matter two years ago but argued there was no obligation to disclose it to the market.

That call on disclosure is staggering enough, but there’s more.

MinRes’ board admitted on Monday that financial benefits had been given to Ellison’s related parties, including rent relief to entities in which his daughter has an interest. Ellison also used company resources for his personal benefit – getting employees to work on his boat and properties and his personal finances, and using the company to procure goods and services for his private use.

The fact the board thought it worth noting this was not financially detrimental to MinRes is bizarre.

The use of MinRes as Ellison’s own ATM clearly suggests he viewed the listed company as his own private fiefdom, with the checks and balances any board would have in place sorely missing. And there’s every chance the latest announcements will not put this saga to bed.

The Australian Securities and Investments Commission must surely subject Ellison and MinRes to more stringent scrutiny. And class action legal firms will no doubt be limbering up.

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