The final weeks of November will deliver Rio Tinto’s board the opportunity to right what looks, for all the world, like a reputation-scarring wrong forced on the man who did so much to recover the miner’s financial standing.
Now, you might wonder why the current chairman has any level of influence over the remuneration of an executive who left the business before Thompson joined the board and a full 19 months before the suave Oxon assumed the mantle of long-time Rio chairman, Jan du Plessis?
Well, back in late 2016 du Plessis and a Rio board pushed to the brink by a succession of regulatory challenges in the UK, US and Australia triggered by misadventures in African expansion, decided to postpone the release of shares due to Walsh under short and long-term incentive plans. The shares owed to Walsh are worth more than $US20 million ($28 million).
In a “deed of deferral” offered by du Plessis and reluctantly agreed to by Walsh, the package of shares has been subdivided and consigned two new trigger dates.
The agreement was that Walsh would be told at a point before December 31, 2018 whether or not he would receive the first half of his entitlements. The deadline for the second D-Day falls a year later, on December 31, 2019, and the triggers for its release also remain at the discretion of the board.
The logistics of the Rio board schedule, and the need to give Walsh some notice of events, would appear to make it inevitable that the company’s deferred obligation to their erstwhile CEO will be considered when the board gathers in Brisbane next month.
The trigger for the public humiliation was that Walsh was one of three Rio executives involved in an email conversation on May 10, 2011 that resulted in a $US10.5 million payment being made to a French former investment banker called Francois de Combret. He earned his cash by helping the miner recover its hold in a rich iron ore deposit in Guinea called Simandou.
Unspecified internal concerns
The email trail between Walsh, his then boss Tom Albanese and the man charged with recovering Simandou, Alan Davies, were leaked in August 2016 on a weirdly ephemeral French internet forum called fnPaste. Somehow their publication was bought to Rio’s attention and an inquiry launched immediately.
To be fair, the emails were the sort of digital chat that should remain private. They detailed an internal to and fro over how much and how de Combret should be paid and threw a lens on the challenges of maintaining relationship with the government of Guinea.
But equally, there was nothing existentially troubling in the conversation beyond the fact that Rio appears to remunerate its consultants with a rare level of generosity. More certainly, the emails demonstrated a process that saw Davis defer to Walsh who, in turn, deferred to then Rio CEO Albanese.
Step forward three months and, on the same November day in 2016 that Donald Trump was delivered to the White House, Rio confirmed it has self-reported unspecified internal concerns over the de Combret payments and moved to suspend Davies and long-time legal counsel Debra Valentine.
Within weeks they had been dismissed with prejudice with the board cancelling any and all of the pair’s future-dated shares. The pair were sacked for unspecified failures of Rio’s in-house charter, The Way We Work. But, given they left the building without the required presentation of formal and detailed allegations or the opportunity to defend themselves, it could fairly be argued that the mechanics of their departures stand breaches of the charter.
Step a forward a further three months to the February 2017 publication of Rio’s annual report. It brought with it news that Walsh too was being held to uncertain financial account for whatever offence may have been caused to the company by the de Combret emails.
In March 2017 we reported that Walsh had been left befuddled and insulted by the deferral recommended by then chair of Rio remuneration committee, former Barclays Bank CEO John Varley.
Rio doors that he once commanded were suddenly closed to him. According to Walsh allies, when the retired CEO contacted the company seeking a better understanding of the issues of boardroom concern, he was told to “read the newspapers Sam”.
The toll forced in Walsh by Rio’s board stretches beyond the financial. His post-executive dance card does not yet include the Australia directorships most imagined would arrive by divine right on his return to Perth.
Government not worried
Whatever doubts corporate Australia might have, they are not shared by the federal government or very big Japanese business.
In April Walsh was named chairman of the Australian Council for the Arts and in June last year he was appointed a non-executive director of the local branch of Mitsui. Both are positions that can only have arrived after stringent due diligence.
The most recent development in this tawdry affair was in the US courts where a class action brought against Rio and three of its former directors was dismissed before getting under way. The case collapsed for want of a prima facie case against company or executives.
Meanwhile, of course, Varley now has his own troubles with the UK SFO. He resigned from Rio board in June last year after becoming one of four Barclays bankers to be charged over the circumstances of the $US3 billion load to the private equity arm of the state-owned Qatar Investment Fund.
Through the rocky period that saw Rio sack two executives and severely embarrass another, we had occasion to wonder whether or not the judgment delivered by du Plessis was prejudicial and the sentences excessively harsh to the point of being unjustifiable. At a point in early 2017 du Plessis expressed private frustration with our bemusement, indicating that, as time rolled forward and the details of the regulator’s investigations became public, we might end up apologising for our temerity.
Like any and all or our peers, we stand ready to announce and publicly regret our errors. But that need has not yet arisen in this matter. The regulators have apparently been poring over this matter for nearly two years now and, as far as we can tell, none of the central players in this drama have yet been interviewed by any of the investigating authorities.
Of course, history says these matters can move slowly and that confronting day may yet come for the people that hired de Combret. But the fact that neither the UK Serious Fraud Office nor the US Securities and Exchange Commission might still have open files on the Simandou matter does not seem to me to be reason enough not to pay Walsh his due.
And rest assured, Walsh fully earned his payout. His is a classic tale of the accidental CEO made good. Du Plessis turned to Walsh in February 2013 after Albanese was forced to resign in the wake of writing off a $US3.7 billion investment in coal in Mozambique.
Walsh immediately invited Rio director Chris Lynch to jump from the board room to the executive, making him chief financial officer. Together they righted the balance sheet and focused the business. Among its elite peers, Rio was left most ready to surf the new cycle that arguably started in 2014 and continues to this day.
You only need to read the tale of the financial tape to understand how Rio has outperformed. Since 2013 Rio has reduced debt from $US19.3 billion to $US5.2 billion, returned $US21.3 billion to shareholders in dividends and bought back $US8 billion of shares. That recovery was funded by tough decisions, improved productivity, recovering prices and an increasingly successful asset sale program that has so far harvested $US16 billion from legacy assets.
With all due respect to Jacques and current management, this shareholder bounty is the product of the Walsh-Lynch era. Love, like or loath him, Walsh is a figure admired around the Rio world and, barring the emergence of evidence that reveals specific wrongdoing or misconduct, it would seem the time has come for natural justice to prevail. It is time to pay the piper.