Back to the future: McKeon puts the CRA back into Rio

Simon McKeon's appointment as the flag-bearer for Rio Tinto's beefed up Australian presence is a case of life coming full circle, given the Melbourne-based director helped create the miner's dual-listed company structure when he was a young investment banker at Macquarie.

Australian mines were nowhere near as dominant when the deal was struck between London's RTZ Corporation and Australia's CRA Limited in 1995.

The federal Labor government of the day demanded at least one third of directors be Australian when it approved the merger, but imposed few other tangible conditions and did not demand the head office nor chief executive be based here.

In 1995, the then shadow treasurer Peter Costello was quoted by The Australian Financial Review as being concerned that the Labor government's conditions on the Rio merger were a sign it was "prepared to meddle in the way companies are run".

But the London-centric management of Rio in subsequent years reportedly convinced Costello in 2001, as treasurer, to place tougher rules on the merger of BHP and Billiton, including that the headquarters and chief executive must reside in Australia.

The rise of China over the past two decades, and its extraordinary thirst for Australian iron ore, has made Rio's structure and its London headquarters seem perverse today.

Aside from providing more than 90 per cent of earnings and the biggest number of its employees this year, Australia is in the same time zone as Rio's biggest customers in China and Japan, and also its most important growth project in Mongolia.

No wonder ousted chief executive Jean-Sebastien Jacques was keen to relocate his family to Sydney in 2017, a shift that somehow turned into a negative for Rio, rather than a positive step towards greater engagement in its most important jurisdiction.

The issue here is far more structural than just where the headquarters is located.
— London-based mining analyst Paul Gait

McKeon was unavailable to discuss his new role as "senior independent director" on Sunday amid speculation it sets him up to eventually replace chairman Simon Thompson, who is likely closer to the end of his tenure than the start after misreading the mood of investors with his initial punishments for the executives involved.

Senior independent directors are common among big London-listed companies, and the idea is that McKeon will be a sounding board for Australian investors who don't feel their message is getting through to the chairman and chief executive.

Rio already has a senior independent director in the British market, so McKeon's promotion balances the ledger for local investors who often need to work into the evening if they want to make contact with the London-based chairman.

Rio's acknowledgement on Friday that it needed to lift its engagement with Australian investors comes after the Jacques era triggered the exit of well-known Australian executives such as Sam Walsh, Chris Lynch, Andrew Harding, Greg Lilleyman and Alan Davies.

The Australian executives of recent years – Perth-based iron ore boss Chris Salisbury and Singapore based Simon Trott – are far lower profile and perceived to be less powerful.

Disconnected from WA

Jacques' decision to place executive responsibility for community relations with the London-based Australian Simone Niven has been perceived as one of the major factors in the destruction of Juukan Gorge, with WA Treasurer Ben Wyatt saying the miner was disconnected from the state that provided close to 90 per cent of its revenues.

But Jacques rejected the notion his era had returned power to London.

''Since becoming chief executive in 2016, numbers in the London office have declined by 64 per cent while, over the same period, numbers at the Perth and Brisbane offices have increased by 40 per cent and 24 per cent respectively, an increase of over 1200 people,'' he told a parliamentary inquiry into Juukan Gorge earlier this month.

While European investors are said to be concerned about Rio's apparent lack of connection to the grassroots community in WA, London-based mining analyst Paul Gait said calls to relocate Rio headquarters Down Under were missing the most important priority.

''I don’t think it helps to play some daft nationalism card here," Mr Gait said. "The issue here is far more structural than just where the headquarters is located. It gets to the heart of what mining companies do, and who ultimately bears the cost of that."

When McKeon resigned from the AMP board in 2016, he did so under a cloud. Despite repeated demands for an explanation for his departure at the company’s May annual general meeting that year, which took place just days after his mysterious resignation was announced, Mr McKeon refused to give shareholders any detail.

This silence continued for years after he stepped down.

But trouble on the AMP board had been brewing for some time. According to sources familiar with the situation, directors on AMP’s board were growing increasingly frustrated with McKeon’s leadership style, and the perception that he was unable to keep management in line.

The criticism of McKeon extended to his vast array of commitments, when AMP was thought to need constant attention because of its habit of continually being wrong-footed by problems in various divisions, while his base in Melbourne was seen as detached from the company’s headquarters in Sydney.

McKeon had a storied career, chairing Macquarie Group’s Melbourne office, and has been a chairman of both CSIRO and MYOB.

The untangling of AMP by royal commissioner Kenneth Hayne revealed several issues that had been bubbling away inside the business for years, such as the fees-for-no-service scandal, wrongly charged life insurance and the deep underperformance of AMP's flagship superannuation business.

While McKeon is seen as an affable and capable board director, his time at AMP revealed his inability to push back against management, according to those familiar with the situation.

This, in particular, extended to information brought to the board by former chief executive Craig Meller, who oversaw substantial write-downs and several profit warnings during his tenure.

Meller's relationship with the corporate regulator was also seen as a problem for the company, as the commercial decisions AMP took were often at odds with public pronouncements about shoring up the professional standards of the company's financial advisers.

McKeon had a storied career, chairing Macquarie Group’s Melbourne office, and has been a chairman of both CSIRO and MYOB. He was also a president of the Australian Takeovers Panel.

He was named Australian of the Year in 2011, in part because of his charitable work that included his role as the founding chairman of MS Research Australia.

McKeon’s own multiple sclerosis was in some parts thought to have played a part in his retirement from AMP, however this was immediately dismissed when he was seen going for a jog on the banks of the Yarra not long after his resignation was announced.

But while chairman of AMP, McKeon had continued to consult for Macquarie and his role as chancellor of Monash University was seen as a distraction.

A 360-degree report, probing the opinions of McKeon’s colleagues about the chairman, was also commissioned, overseen by eventual rival Catherine Brenner, who was the head of the board’s nominations and governance committee.

The 360 review gave McKeon the impression that there were enough directors who did not support his position. When it became clear that Ms Brenner was interested in his job, McKeon made the decision to resign, rather than fight a board with divergent views.

Brenner was appointed chairwoman six weeks later.

McKeon’s promotion to senior independent director at Rio Tinto will add to the demands on his time and energy. He is currently a board member at National Australia Bank and contracting group Spotless, while still retaining his role at Monash University.