Rio Tinto defends big executive payouts after Juukan Gorge debacle

Rio says the penalties were all they could do but there is likely to be substantial backlash against its remuneration report.

Rio Tinto Chairman Simon Thompson. Picture: AAP

The chairman of Rio Tinto’s remuneration committee has defended hefty payouts to former chief executive Jean-Sebastien Jacques and other executives forced out in the wake of the Juukan Gorge debacle, saying the company was “not in a position to legally terminate the three executives for cause”.

The comments were made at Rio’s London annual shareholder meeting on Friday night -- a two-hour virtual marathon which saw only 35 shareholders watching the webcast at the end of the question and answer session, according to chairman Simon Thompson.

Rio is likely to see a substantial backlash against its remuneration report when votes are tallied across its London and Australian annual shareholder meetings and released in May.

This week, significant shareholders — including the asset management division of Norges Bank, Norway’s central bank, which holds £1.9bn ($3.43bn) worth of Rio stock — confirmed they would vote against the company’s remuneration report at Friday’s London AGM, after recommendations to vote against the report by three major proxy advisers: ISS Governance, Glass Lewis and Britain’s PIRC.

Proxy advisers have estimated that Mr Jacques, former iron ore boss Chris Salisbury and former corporate affairs chief Simone Niven will collectively leave the company with more than 765,000 Rio shares, worth about $86.9m at current prices.

At the London shareholder meeting, Rio director Sam Laidlaw, who chairs the mining giant’s remuneration committee, said some had “suggested that the failure by the three executives to respond appropriately should have resulted in the forfeiture of all outstanding remuneration. The board understands this sensitivity and deeply regrets the destruction of the rock shelters and the slow and initially insufficiently sensitive response of the company.”

But Mr Laidlaw added that the Rio internal review into the destruction of Juukan Gorge led by outgoing director Michael L’Estrange had cleared all three of any direct responsibility for the destruction of the rock shelters and the three executives had left by mutual agreement with the board.

“There was no deliberate act or omission to act by the three executives; there was no compliance failure as all authorisations had been received from the Western Australia government; there was no fraud, malfeasance or cover-up, which would have resulted in immediate dismissal and forfeiture of all unvested rewards,” he said.

“There was, however, a critical risk assessment failure going back many years. This failure can be partially attributed to the three executives, who failed to recognise and remediate systemic weaknesses in the heritage risk management process. And after the destruction of the rock shelters, the executive leadership team ­failed to apologise unconditionally, and respond with sufficient empathy towards the Puutu Kunti Kurrama and Pinikura people (PKKP) and to recognise the gravity of what had happened within the wider societal context.”

Best they could do

The board’s initial penalty against the three executives, following the release of the internal report compiled by Mr L’Estrange, included the loss of short-term bonuses, with an additional £1m stripped Mr Jacques’ 2016 long-term incentive plan entitlements.

“Given these considerations, as well as various market precedents, the board concluded that it was not in a position to legally terminate the three executives for cause and forfeit all outstanding remuneration,” Mr Laidlaw said.

“As such, while acknowledging the gravity of events at Juukan Gorge, the penalties applied to the responsible executives were, in the best view of the board, the most that could be durably applied and legally defended in light of the extent of the executives’ ultimate accountability for Juukan Gorge, especially when taking into account relevant market precedents, and the fact that the employees were forfeiting their employment.”

Both Rio chairman Simon Thompson and new chief executive Jakob Stausholm used the company’s annual shareholder meeting to acknowledge the disaster caused by the decision to blast the 46,000-year-old heritage sites at Juukan Gorge would cast a long shadow over the company for years to come.

“I am convinced that we must also work in partnership with Traditional Owners in Australia, Native Americans in the US and Indigenous people in Canada and elsewhere, to secure our shared future. It’s going to take time and effort. But getting this right is a top priority,” Mr Stausholm told shareholders.

Mr Thompson said he planned to again visit Juukan Gorge, with Australian director Megan Clark, ahead of Rio’s May 8 annual shareholder meeting in Perth, to “review the progress that we have made on the remedy process and rebuilding the trust that has been lost”.

“The destruction of the Juukan rock shelters was a breach of both our values as a company and of the trust placed in us by the Puutu Kunti Kurrama and Pinikura people and other Traditional Owners of the lands on which our business operates,” he said.

Mr Thompson’s first visit to Juukan Gorge in late November 2020, in which the full board met with PKKP representatives and board members, was initially seen as a major step forward, with both sides subsequently issuing a joint statement saying it was an important step to repairing their relationship.

But the positive tone set by the meeting suffered a major set back within months, after a reshuffle of Rio’s leadership team and the appointment of a new boss for its iron ore operations, when the PKKP accused Mr Thompson of reneging on a personal commitment to maintain “consistency and stability” in the leadership of its iron ore division, and instead shifted acting iron ore boss Ivan Vella — who had personally led efforts to repair the relationship with the PKKP — to a new role in Canada running Rio’s aluminium assets.

Mr Thompson, who may also face a shareholder backlash against his re-election to the Rio board, confirmed on Friday he would not seek to extend his stay beyond the following year’s annual meeting.

“As chairman of your company, I am ultimately accountable for the failings that led to the tragic events at Juukan Gorge. Accordingly, I will not be seeking re-election at the AGMs next year. I will use my remaining time with Rio Tinto to provide continuity and support to our new chief executive, Jakob Stausholm, and the new executive team, and to oversee the implementation of the recommendations of the board review and the parliamentary inquiry. To ensure that the destruction of a site of such exceptional cultural significance never happens again at a Rio Tinto operation,” he said.