The next five tasks for Rio's discredited board

Unfortunately for Rio Tinto, the fall of chief executive JS Jacques is not the beginning of the end of the Juukan Gorge crisis, but the end of the beginning.

There is almost certainly more bloodletting to come for the board and in Rio’s senior management ranks, as fed-up investors push for more change.

There is obviously much more that needs to be done to repair the miner’s relationship with traditional owners.

And given the leaks, the infighting and the tensions of the past few months, there is clearly a daunting job ahead in rebuilding Rio’s internal culture and its reputation as the world’s best iron ore miner.

To borrow a Trumpism, the task of Making Rio Great Again – wouldn’t the hats look perfect in Rio red and white – will be long and painful.

With the chief executive now effectively gone – while Jacques will remain until March 31 or until a successor is appointed, he is the lamest of lame ducks – it is the Rio board that must step up.

There’s no doubt the board's inexplicable mishandling of its review of the Juukan Gorge destruction means the position of every member, and particularly chairman Simon Thompson, is under pressure. Trust between the board and Rio investors has been shattered.

But the grim reality is that there is no one else to provide leadership. The board has five key tasks that it must get on with, and quickly.

While it might seem obvious that the board’s most urgent task is finding a new CEO, its first job is to figure out which directors will oversee this process. This is an incredibly complex problem that goes to the heart of how Rio handles board renewal in the wake of the Juukan Gorge disaster.

The key question is whether Thompson should run the selection and appointment process if he will also be pushed out the door.

In normal circumstances, the best course of action following the departure of the CEO would be for the chairman to stay and provide some level of stability.

But it was Thompson who signed off on the board’s now-discredited report into the destruction of the Gorge, which absolved Jacques, iron ore boss Chris Salisbury and corporate affairs boss Simon Niven of any blame, and recommended only that their bonuses be reduced.

Dead chairman walking

Having now been forced to move on Jacques, Salisbury and Niven, Thompson’s credibility is shot and he will need to go. But the question is when.

If Thompson is to go immediately, is there a director on the board who can step up as chairman? Or is the board’s standing with investors so badly damaged that an external chair is also required, in the way that John McFarlane was parachuted in at Westpac. The new chair could then lead the appointment of the CEO he will work with on the Rio rebuild.

The other approach would be for Thompson to stay on to provide some degree of stability until a new CEO is in place, and then depart. But in that circumstance, should he really be involved in the appointment of a CEO? Or would a subcommittee led by a board member who will actually be part of the fix-up job – perhaps newly promoted lead independent director Simon McKeon – be better to handle the CEO selection process?

The fact that 90 per cent of the company’s profits are earned Down Under means Jacques and the board should have been far more attuned to local issues than they have proven to be.

Once that fiendishly difficult problem is sorted out, the board can move on to the equally complex job of finding a new CEO.

There are a few approaches possible here, too. Could the Rio board get someone who can steady the ship for up to 12 months, to buy it time to deal with issues around board renewal and to conduct a thorough CEO selection process? Former chief financial officer Chris Lynch springs to mind as someone enormously respected by the market and with deep knowledge of Rio’s business and the best aspects of its culture.

Or does the board just use the nine or so months of Jacques' remaining tenure to get a new CEO?

The lack of obvious internal candidates – a disgrace that must be pinned on Jacques and Thompson – means an external appointment is likely. There are many boxes to be ticked.

The new CEO must be Australian-based as an intimate knowledge of the local mining sectors and deep expertise in Indigenous engagement is a must. Punting on someone from outside mining would be nuts at a time like this.

There is no shortage of great candidates around – already Anglo American boss Mark Cutifani and outgoing BHP chief financial officer Peter Beaven have been mentioned in dispatches – but veteran mining analyst Peter O’Connor suggests someone with knowledge of Rio at its best would help speed up the turnaround.

Aurizon chief executive Andrew Harding, Newcrest CEO Sandeep Biswaz and OZ Minerals chief Andrew Cole all fit this description and have CEO experience, although Harding’s former role as the head of Rio’s iron ore operations between 2013 and 2016 would raise questions about what he knew of an archaeologist’s report presented to Rio in 2014, which made the significance of the Juukan Gorge clear.

Return to Oz

Cole is a fascinating candidate. Widely respected in the Australian mining industry and generally viewed as having overseen strong engagement with traditional owners, he has also gone out of his way to highlight the level of connection between the board and management.

For example, Cole has made sure the board has been present and engaged at three separate OZ Minerals’ investors' days, something not usually done. Not only were observers impressed at the way this eliminated any impressions that the directors were faceless men and women, but it also suggested strong trust between the board and management – something Rio could clearly do with.

The task of repairing Rio’s culture and rebuilding its management ranks is one that will mainly fall to the new CEO, but the board must become far more actively involved in this than it has been in the past, given the evident lack of internal successors four years into Jacques' reign. A CEO with Rio experience on the resume could help with this.

A fourth task is how to ensure that Australian investors, again, feel like their views are being heard.

While they account for just 15 per cent of the Rio register, the fact that 90 per cent of the company’s profits are earned Down Under means Jacques and the board should have been far more attuned to local issues than they have proven to be.

The appointment of McKeon as an independent director is a good step, but there is a huge amount of pressure on him. Not only must he speak with the full authority of the board down in Australia, but investors will also want to know that he can effectively represent their views back at Rio’s London headquarters.

The board may need to take further steps in this area, too. An Australian chairman may not be necessary, but surely a chairman who is active – or even interested – in Australian public life, and is particularly sensitive to the importance of Indigenous affairs, is mandatory.

A final, long-term task for the Rio board is to restore a normal pattern of succession at the company. The best practice is for the CEO and chairman to go at appropriate intervals to ensure stability.

But Rio’s own goals have meant it has struggled to get its timing right. Previous chairman Jan du Plessis, who took that job in March 2009, appointed Sam Walsh in January 2013 after Tom Albanese’s shock exit, following his disastrous coal foray in Mozambique.

Walsh was painted as the safe pair of hands who would take the reins for a few years. So while it was a surprise that du Plessis picked Jacques in March 2016, the timing of the appointment made sense.

But then in late 2017, du Plessis announced Thompson as the new chairman. There was arguably too much change in too short a time – as well as the appointment of two men not well enough known in Australia and, as events have transpired, not up to the task.