There are five Australians on the Rio board, but only three of them are based in Australia. Rio is 85 per cent foreign owned, but 90 per cent of the profits are generated in Australia, mostly from iron ore operations in Western Australia’s Pilbara region.
In the aftermath of the Rio Tinto’s board’s weak initial response to the Juukan Gorge destruction, Treasurer Josh Frydenberg has told Rio chairman Simon Thompson that the next chief executive should be an Australian, as should a majority of Rio directors. This would move to re-Australianise Rio, similar to the way the demerged BHP was brought back under Australian control.
There is an element of economic nationalism here – a touch of Rex Connor’s “buying back the farm” mentality to restore the local grip on the iron ore bonanza. But there is also an argument for a beefed-up Australian presence producing better governance and management concerning the Anglo-Australian miner’s approach to issues such as the Juukan caves.
This might have avoided the lack of awareness of the Puutu Kunti Kurrama and Pinikura traditional owners’ change of mind, and then the significance of the Indigenous protests against the cave blast outside Rio’s Perth office, which occurred amid the rise of the global Black Lives Matter movement, and were reported on the front page of the Financial Review in June.
However, Rio Tinto’s most egregious failure was to mismanage the relationship with what for all big miners in Australia and globally is the key stakeholder group: the traditional owners of the land on which mining projects are developed. Rio’s failure to properly manage such a core business issue is doubly inexplicable in an era when, across the business community, the sole pursuit of profit has made way for social responsibility in protecting the interests of stakeholders affected by company activities.
Ironically, under former CEO Leon Davis, Rio Tinto built up an international reputation for respecting traditional owners’ rights and cultural heritage.
It is 50 years since The New York Times published Milton Friedman’s famous essay declaring that the social responsibility of business is solely to maximise profits. But as the AMP, QBE, and Rio Tinto controversies of the past two months show, modern business operates in a much more complex commercial environment than the Friedman doctrine envisaged.
Cultural, reputational and stakeholder factors extend beyond an exclusive focus on creating immediate shareholder value. BHP is investing billions of dollars of its shareholders’ money in reducing the scope 3 emissions of its steel-making customers to, as it argues, help extend the commercial life of its iron ore business.
As the history of Rio Tinto shows, the best run companies seek to create shareholder value by protecting the interests of stakeholders at the same time.
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