Rio Tinto: the spare chair

Rio Tinto shareholders observing the to and fro of board directors may be feeling alarmed. In the past year, three new directors have joined and a search for a fourth is under way. A fifth, Michael L’Estrange, the director who led last year’s controversial inquiry into the Juukan Gorge destruction, will also go due to ill-health. Now chairman Simon Thompson has added to the churn by announcing his departure. Yet Rio’s share price shoots ever higher, up 14 per cent in the past month alone.

Not many chairpersons preside over the sort of financial success the miner has reported then feel compelled to resign. Rio’s operating margins, at nearly 38 per cent last year, have not been higher this century. It has no net debt. But Thompson must take responsibility for the board’s poor decision on the redevelopment of the Juukan Gorge. That ended the career of former chief executive Jean-Sébastien Jacques. Thompson was about to become the story, rather than Rio’s financial performance, at the annual general meeting in a months’ time.

Who should replace him? A board increasingly filled with newbies — some have yet to meet each other in person — needs more mining experience. Other than Thompson, once at Anglo American, that experience sits with geologist Megan Clark.

The search for a new chair falls to two senior independent directors: Sam Laidlaw (representing Rio Plc) and Simon McKeon (Rio Ltd). Their checklist may have the following criteria: an external candidate with mining experience, Australian, and perhaps female. New chief executive Jakob Stausholm was a surprise internal appointment. Some continuity is helpful, but investors would welcome fresh eyes. An Australian with mining experience would do nicely; perhaps Mark Cutifani, chief executive at Anglo American. He is nearly eight years into his role and knows something about dealing with a dual-nationality miner.

With iron ore prices strong, shareholders may not insist on Rio rushing to make more changes. Much depends on Beijing’s whims over stimulus spending and Chinese steel output. But shareholders ignore the instability at the top of the miner at their peril.

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