Large shareholders in Rio Tinto have voiced concerns about the miner’s handling of a payments crisis in Africa, accusing it of failing to stand behind senior executives in the face of possible anti-bribery investigations.
The decision to sack Alan Davies, an executive once in charge of a controversial iron ore project in Guinea, risks creating a culture of fear inside Rio, two investors told the Financial Times, warning it could slow decision-making and cost them future deals.
“This has to have an impact,” said one top 10 shareholder who declined to be named. “The message it sends [to senior managers] is that you’re expendable.”
Rio’s chief executive Jean-Sébastien Jacques, who took charge in July, is facing increased scrutiny as the crisis continues to unfold. Rio has not said what its internal inquiry found that warranted the sacking of Mr Davies and legal head Debra Valentine.
Mr Davies, who ran Rio’s coal and uranium business before his dismissal earlier this month, was popular with investors in the City and within the company. He has attacked the decision to sack him and his allies claim he followed Rio’s own internal guidelines when managing the Simandou project in 2011.
Earlier this month, Rio alerted authorities including the US Department of Justice and the UK’s Serious Fraud Office over a $10.5m payment made in 2011. The Financial Times established this was to French consultant, François de Combret, who helped the company secure the rights to the Simandou mine in Guinea.
Rio has not said why it reported the fee but the Financial Times revealed Mr de Combret was also working as informal adviser to Guinea’s president Alpha Conde in 2011, raising questions about whether Rio broke anti-corruption laws.
After an internal investigation, the board of the FTSE 100 company dismissed Mr Davies and Mrs Valentine claiming they had failed to maintain the standards expected of then under the company’s code of conduct. Mrs Valentine could not be reached for comment.
Allies of Mr Davies say he was not present at the meeting of senior managers that decided in 2011 to hire Mr de Combret, a former classmate of President Conde. They maintain that the contract was drafted and finalised by Rio’s legal team that Mr Davies should not be held responsible.
“It’s worrying, as a shareholder, that [chief executive] Jean-Sébastien is creating a culture of fear within Rio Tinto,” said one of the shareholders. “A fear that the checks and balances mean nothing, a fear that the internal systems will never protect you.”
Other investors said it was difficult to reach definitive conclusions without knowing the contents of the Kirkland & Ellis report, which Rio has not made public.
The report was commissioned shortly after leaked emails were posted online in August that showed Mr Davies and his superiors discussing Mr de Combret’s consultancy fee.
“The trouble is we are all just speculating,” said another shareholder. “Until we see the report we just don’t know.”
Sources close to the company said its decision to fire the two executives was not based on a “few leaked emails or taken lightly”. Kirkland & Ellis is understood to have ploughed through 60 terabytes of data during its investigation.
“Rio would like to say more but can’t because the authorities are now involved,” said one adviser to the company.
Jason Kururangi, assistant investment manager at Aberdeen Asset Management, said the controversy over the Guinea payments was disappointing and demonstrated that Rio needed to strengthen its internal controls. But he said it did not undermine the reasons for owning Rio shares.
“This alone for us doesn’t change the investment case in the broader Rio business,” Mr Kururangi said. “In a controversy often it can be easy to lose sight of the quality of Rio’s core assets, which include some of the best mines in the world.”
Rio declined to comment.
This week Mr Jacques laid out his vision for the Anglo-Australian company but refused to be drawn on the Guinea affair, beyond saying it had been “very challenging” for the company.
“We cannot say any more than what is included in our public statements as it is now with the relevant authorities,” he told the Melbourne Mining Club on Friday.
“What you need to know is the following. I take integrity and our code of conduct very personally. For me it is absolutely non-negotiable: we must do the right thing wherever we operate.”
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