Wrongful termination suit coming for Rio Tinto
In August 2016, only eight weeks into Jean-Sebastien
Jacques’ leadership of Rio Tinto, the company “became aware of email
correspondence from 2011 relating to contractual payments totalling $US10.5
million made to a consultant providing advisory services on the Simandou
project in Guinea”.
Rio Tinto “became aware” of the internal emails after they
were leaked to an obscure French internet forum, fnPaste.
In November 2016, Rio Tinto self-reported “suspected
corruption” to the United Kingdom’s Serious Fraud Office, the US Department of
Justice and the Australian Securities and Investments Commission, and summarily
fired energy and minerals boss Alan Davies and general counsel Debra Valentine.
The board had also agreed with Jacques’ predecessor, Sam Walsh, to defer the
payment of his outstanding at-risk remuneration.
The emails – between Davies, Walsh and Walsh’s predecessor,
Tom Albanese, discussing the payment of a success fee to a lobbyist – are
widely available and completely innocuous. Indeed, in throwing out a class
action based on the negative share price reaction to their disclosure, a US
District Court judge said: “The emails appear to discuss legitimate consulting
practices.”
The Financial Times reported in July last year, at the
height of the Juukan Gorge outcry, that Rio Tinto was “seeking a deferred
prosecution agreement” with the SFO over the lobbyist payment. Jacques was
clinging to his job and, perversely, Rio Tinto pleading guilty to a crime it
didn’t commit would have handed him a vindication. Nothing came of the
speculation, and it’s entirely unclear that the SFO even cares to prosecute Rio
Tinto, whatever the company wished to confess to.
And as our colleague Peter Ker reported on Friday, ASIC has
now closed the book on its investigation and informed Davies it will take no
action “due to insufficient evidence”. ASIC received the same evidence as its
international peers.
That a dubious purge of Jacques’ nearest leadership rival
occurred in the first weeks of Jacques’ tenure is quite unsurprising. But it
remains a genuine mystery how his board – whose surviving members from that
time include its nearly gone British chairman Simon Thompson and Australian
Megan Clark – ever believed these emails constituted wrongdoing.
Rio Tinto’s consultant performance coach for its executive
management team, Maurice Duffy, resigned his long-term contract in December
2017, “because of serious misgivings about unethical behaviour”.
Before leaving, Duffy warned Rio Tinto’s then-chairman Jan
du Plessis and other directors about “multiple unprofessional [and] unethical
behaviours” of senior executives and specifically about “the leaks of emails,
and how they were orchestrated … in order to remove Alan Davies and Debra
Valentine”.
Duffy wrote to the entire board of Rio Tinto in November
2019 complaining that du Plessis and other directors “took no action” in
response to his 2017 bombshell. A second time, no action was taken. Is it any
wonder this complacent little tea club of professional directors failed so
abjectly to react appropriately during the Juukan Gorge crisis?
Also in 2017, du Plessis was livid at the coverage of “Rio’s
pre-emptive internal justice” by this newspaper’s Matthew Stevens, forewarning
our since-retired mining columnist that he would be offering du Plessis an
apology once the Simandou “corruption” question was resolved.
By way of formal update, Stevens owes him no such thing. Du
Plessis (and Thompson and Clark) owes an apology to Australian investors, for
picking a saboteur to lead Rio Tinto into a remarkable era of calamity and
underperformance.
What is that beeping noise? That is the sound of haul trucks
backing into St James’s Square in London to carry the mountains of cash Rio
Tinto is going to pay Davies for wrongful termination.
The only question is, who leaves with more cash: Davies, who
sought and received permission to pay a consultant, or Jacques, who blew up
Juukan Gorge, destroyed the company’s world-leading reputation for social
performance, left the iron ore division in costly decline, and Oyu Tolgoi in
scandal and delay?
Jacques’ trove of long-term performance shares worth $43
million (at the current share price and subject to vesting hurdles) will take
some beating, though Davies’ American lawyers will shoot for heaven.
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