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Shareholder Resolutions and Supporting Statements
Resolution No. 1 - on corporate governance
Supporting statement to Resolution No. 1
Resolution No. 2 - on compliance with international human rights standards in the workplace
Supporting statement to Resolution No. 2
For our response to the Board's opposition to our resolutions please click here.
Resolution No. 1 - on corporate governance
That, recognising the need for a strong and independent non-executive element on the Board, with a recognised senior independent member other than the chairman to whom concerns can be conveyed, the Board of Directors adopts and implements a policy that any person appointed as Deputy Chairman shall be independent of management and free from any business or other relationship that could materially interfere with the exercise of his or her judgement;
And: That for these purposes, the Board should identify in the annual report the Board's view of the independent status of each individual non-executive Director, and more particularly define an independent non-executive Director as one who has not been employed by Rio Tinto or an affiliate in any executive capacity within the last three years, among other criteria.
And: That every annual report shall fully disclose any information necessary for shareholders to determine whether each non-executive Director qualifies as independent, and that to assist shareholders in making these determinations, the Company shall disclose all relevant contractual, financial, professional, personal or any other connection held by the Director with the Company.
Supporting statement to Resolution No. 1
This proposal calls for a standard of independence that will guarantee a balance between the executive and fully independent non-executive Directors (NED) of Rio Tinto. The proposed standard will also strengthen the Board's accountability to its shareholders.
Institutional investors are increasingly concerned that companies are run in the long-term interests of shareholders and have therefore developed codes and policies on good corporate governance such as the Combined Code on Corporate Governance of the London Stock Exchange and the Australian Investment & Financial Services Association (IFSA) guidelines. Companies that fail to meet modern corporate governance standards risk losing their attractiveness in capital markets.
1. Independent Deputy Chairman
Institutional investors demand a balanced Board and support a powerful independent voice on the board. The Combined Code on Corporate Governance argues for a strong and independent non-executive element on the Board to whom shareholders' concerns can be conveyed. Such a voice could be a fully independent non-executive chairman. However, Rio Tinto currently has an executive chairman, and a majority of the current Board members are Executive Directors.
One way to counterbalance the powerful executive team of chairman and CEO is the appointment of one fully independent Deputy Chairman who is also a Senior Non-Executive Director. The Hampel Report applied in the London Stock Exchange Listing Rules supports this view (Section 3.18): “Cadbury also recommended that where the roles of chairman and chief executive officer were combined, there should be a strong and independent element on the board, with a recognised senior member (...). But even where the roles of chairman and chief executive officer are separated, we see a need for vigorously independent non-executive directors. There can, in particular, be occasions when there is a need to convey concerns to the board other than through the chairman or chief executive officer. To cover this eventuality, we recommend that a senior independent non-executive director – e.g. a deputy chairman or the chairman of the remuneration committee – should have been identified in the annual report.” Rio Tinto named Richard Giordano senior NED and has recently appointed him Deputy Chairman.
However, Rio Tinto is proposing to reverse some of the progress made in more transparent corporate governance. Recently, the company announced that its CEO, Leon A. Davis, would retire in April, but remain on the Board as non-executive Director and become Deputy Chairman at the next annual meeting. It is unclear if he will replace Richard Giordano as Deputy Chairman or become a second Deputy Chairman. Leon Davis has worked for Rio Tinto Ltd. and Plc as an Executive Director since 1995 and has been CEO of the Rio Tinto group since 1997. Therefore, he cannot be considered as independent under the criteria proposed here. If Leon Davis assumes the Deputy Chairman position, current or former executives will control the three most powerful positions on the Board: chairman, deputy chairman, and CEO.
It would be in the Company's and all shareholders' interests if Rio Tinto had a truly independent Deputy Chairman of the Board. Such a policy would guarantee that the Board could bring its full independent judgement to strategic decision making.
2. Disclosure
The Combined Code on Corporate Governance also demands that fully independent non-executive Directors should be identified in the annual report. This resolution defines relationships that pose a threat to a director's unqualified independence and that warrant advance identification. Conflicts of interests are often difficult to detect by shareholders. Only with the full disclosure of the Board's judgement on Director independence, are shareholders able to evaluate the board composition and its contribution to long-term growth of shareholder value.
We regard a balanced Board of Directors as especially important in light of the competitive global environment, in which Rio Tinto operates.
We urge you to vote FOR this resolution.
Resolution No. 2 - on compliance with international human rights standards in the workplace
That the Board of Directors adopt, implement, enforce, and monitor through systems open to independent verification, a credible workplace code of labour practice. Such a code should be based on the internationally agreed core human rights conventions of the United Nations' International Labour Organisation (ILO) which proclaim fundamental human rights at work, the principles of which are also reflected in the 1998 ILO Declaration on Fundamental Principles and Rights at Work, including the following principles:
1. All workers shall have the right to form and join independent trade unions and to bargain collectively (ILO Conventions 87 and 98);
2. Workers' representatives shall not be the subject of discrimination and shall have access to all workplaces to enable them to carry out their representative functions (ILO Convention 135);
3. There shall be no discrimination or intimidation in employment. Rio Tinto shall provide equality of opportunity and treatment regardless of race, colour, gender, religion, political opinion, trade union membership, nationality or national origin, social origin or other distinguishing characteristics (ILO Conventions 100 and 111);
4. Employment shall be freely chosen. There shall be no use of forced, bonded or prison labour; and
5. There shall be no use of child labour (ILO Conventions 138 and 182).
And: that the workplace code of labour practice provides for the Board of Directors to issue an annual report on the status of the Company's adoption, implementation, enforcement, monitoring and independent verification of the above-stated code.
Supporting statement to Resolution No. 2
As a world leader in finding, mining and processing the earth's mineral resources, Rio Tinto faces a wide range of regulatory regimes and public pressures, all of which are constantly evolving and posing challenges to the company's success. Managing operations effectively and increasing shareholder value is in part contingent on public and governmental perceptions of, and support for, the company. The company's reputation - its record of good corporate citizenship - is one of its most valuable assets in enabling continued operation and growth.
Furthermore, adherence to this code of labour practice would improve workplace relations in the company's production facilities, thus supporting the Company's ability to reliably supply products to its customers. Thus, shareholder value would be enhanced.
This proposal is designed, therefore, to manage the risk of the company being a party to serious human rights violations in the workplace. Rio Tinto has major operations in a number of countries where, according to sources such as the U.S. State Department, Amnesty International, and Human Rights Watch, human rights are not adequately protected in law and/or practice. Furthermore, Rio Tinto acknowledges by implication in its Statement of Business Practice [1] that there are operations around the world managed by the Company that are not covered by national or industry wide regulations that specify minimum ages of employment.
Rio Tinto's current statement of business practice “The way we work” lacks reference to the clear international standards of the ILO. The core ILO Conventions have been identified by the ILO's Governing Body “as being fundamental to the rights of human beings at work, irrespective of levels of development of individual ILO member states. These rights are a precondition for all the others in that they provide for the necessary implements to strive freely for the improvement of individual and collective conditions of work”. [2] Rio Tinto's statement of business practice has no specific reference to central principles such as no use of forced, bonded or prison labour (ILO Conventions 29 and 105) and no use of child labour (ILO Conventions 138 and 182). This leads to situations where the company's policies are unclear. Instances include:
The making of formal commitments by the company to the listed internationally agreed and internationally applicable standards will bridge the gap between the Statement of Business Practice and actual practice. The provision for annual reporting on the standards' application in the company's operations will ensure that the commitments are effectively disseminated and applied throughout the company's diverse operations worldwide.
Supporting this resolution represents a defined commitment to best practice in employment and industrial relations, and shall differentiate the company from those competitors that are unwilling to adhere to international labour standards.
In addition, institutional investors are increasingly concerned with the impact of company workplace practices on shareholder value. At least two of the world's largest pension funds have adopted responsible contractor and workplace practice guidelines. Other large pension funds have established investment policies accounting for the consequences of their investment practice for society, the environment, employees and human rights. The adoption of such a code of labour practice would increase Rio Tinto's attractiveness to the institutional investor community.
We urge you to vote FOR this resolution.
[1] Rio Tinto Statement of Business Practice at “The overwhelming majority of Rio Tinto's managed operations around the world are covered by national or industry wide regulations, which specify minimum ages of employment.” By saying “the overwhelming majority”, Rio Tinto acknowledges that not all its operations are covered.
[2] www.ilo.org/public/english/standards/norm/whatare/fundam/index.htm
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