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Rio investors urge ‘strong response’ to fraud charges

Shareholder advisory group Glass Lewis said that it expected a 'strong response' from the miner's board - AFP
Shareholder advisory group Glass Lewis said that it expected a 'strong response' from the miner's board - AFP

Investors are pressing for reassurance about corporate governance at Rio Tinto after the mining giant was hit with fraud charges by the US markets regulator last week.

Glass Lewis, one of the world’s biggest shareholder advisory groups, said it expected “a strong response” from the Rio Tinto board and its incoming chairman on how it would prevent future corporate scandals.

It also urged the FTSE 100 group to shake up its audit committee, which monitors its financial reporting, and counts two of Rio’s longest-serving directors – Ann Godbehere and Paul Tellier – as members.

“We believe it prudent that the board consider renewing the membership of its audit committee to provide a fresh perspective,” a spokesman said.

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Both directors were on the board when it approved the $3.7bn (£2.8bn) purchase of a coal asset in Mozambique in 2011. The company later took a writedown of $3bn when it failed to gain permission to ship coal down river, rendering the project worthless.

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Former chief executive Tom Albanese was charged with fraud in the US

Rio Tinto, its former chief executive Tom Albanese and former chief financial officer Guy Elliott were charged with fraud by the US Securities and Exchange Commission for allegedly hiding the scale of the writedown. Both men deny any wrongdoing. Rio has said the charges are “unwarranted”.

The UK Financial Conduct Authority last week fined Rio £27m over the matter but did not find evidence of fraud. Jan Du Plessis, the Rio chairman, who takes the chair at BT next month, will stand down from the miner’s board by April. A new chairman is expected to be announced by the end of the year, with Sam Laidlaw, the former Centrica CEO who joined Rio’s board earlier this year, tipped as an internal contender.

Bruce Duguid, stewardship director at Hermes, said the new chairman would need to impose the right “tone”.

“How you deal with compliance and stamp out any sense of bribery and corruption starts at the top,” he said.  “There has to be a very clear message that this is something the company doesn’t do.”

A source close to Rio insisted its culture and processes were now in “a much better place”.  Shares in Rio closed at £36 on Friday, valuing the company at £66bn.