Rio Tinto plc and Rio Tinto Limited established a dual listed companies (DLC) structure in December 1995. As a result, the two companies are managed as a single economic unit, even though both companies continue to be separate legal entities with separate share listings and share registers. Further detail in relation to the DLC structure is set out in the following documents and in our Annual report (in the Shareholder information section):
The principal market for Rio Tinto plc shares is the London Stock Exchange (LSE). Rio Tinto Limited is listed on the Australian Securities Exchange (ASX).
Rio Tinto plc has a sponsored ADR facility and the underlying shares are registered with the US Securities and Exchange Commission (SEC) and are listed on the New York Stock Exchange (NYSE).
Rio Tinto is headquartered in London and has a corporate office in Melbourne.
Rio Tinto plc and Rio Tinto Limited have adopted a common approach to corporate governance. They apply the principles contained in the UK Corporate Governance Code, the Listing Rules and the Disclosure and Transparency Rules published by the UK Financial Conduct Authority, the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations and the NYSE Corporate Governance Standards.
Rio Tinto’s constitutional documents may be found here:
The Rio Tinto Group consists of a large number of companies. A list of principal subsidiaries is set out in note 33 of the financial statements in our 2017 annual report. Our principal joint operations, principal joint ventures and principal associates are set out in notes 34, 35 and 36.
Rio Tinto's commitment to acting responsibly plays a critical role in our success as a business, and our ability to generate shareholder value.
Rio Tinto takes a unified approach to corporate governance to comply with the regulatory obligations associated with its three principal stock exchange listings in the UK, Australia and the US.
Statement of compliance with governance codes and standards in 2017
In compiling the 2017 Annual report, the directors have referred to the 2016 edition of the UK Corporate Governance Code (the Code), the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd edition) (the ASX Principles), and the New York Stock Exchange (NYSE) Corporate Governance Standards (the NYSE Standards).
Throughout 2017, and at the date of the 2017 Annual report, the Group applied the principles of, and was compliant with the provisions of, the Code and the ASX Principles.
Rio Tinto plc, as a foreign issuer with American Depositary Shares listed on the NYSE, is obliged by the NYSE Standards to disclose any significant ways in which its practices of corporate governance differ from the NYSE Standards.
The Company has reviewed the NYSE Standards and believes that its practices are broadly consistent with them, with the following exceptions where the literal requirements of the NYSE Standards are not met due to differences in corporate governance between the US, UK and Australia.
The NYSE Standards state that companies must have a nominating/corporate governance committee composed entirely of independent directors which, in addition to identifying individuals qualified to become board members, develops and recommends to the board a set of corporate governance principles applicable to the company. Rio Tinto has a Nominations Committee, comprising the chairman and independent non-executive directors, information about which is set out on page 59 of the 2017 Annual report. This committee does not develop corporate governance principles for the board’s approval. The board itself performs this task.
Under US securities law and the NYSE Standards, the company is required to have an audit committee that is directly responsible for the appointment, compensation, retention and oversight of the work of external auditors. While the Rio Tinto Audit Committee makes recommendations to the board on these matters, and is subject to legal and regulatory requirements on oversight of audit tender, the ultimate responsibility for the compensation of the external auditors and the appointment of the external auditors of Rio Tinto plc rests with the shareholders.
Rio Tinto's commitment to integrity is set out in our global code of business conduct: The way we work. It sets out the behaviours the company expects of its people, consistent with Rio Tinto's values: safety, teamwork, respect, integrity and excellence.
It is supported by a number of Group policies and standards. These are adopted after wide consultation and, once adopted, are communicated globally to all the company's business units, together with related procedures, guidelines and resources to support implementation. Management is required to adhere to these policies and standards, and any mandated procedures, and to monitor their effectiveness. Rio Tinto policies and standards address a variety of important topics, which apply to all of our managed businesses. Where the Group does not have operating responsibility for a business, Rio Tinto’s policies and standards are communicated to our business partners. The company makes every effort to ensure that the standards it espouses are respected at all times and to encourage non-managed businesses to adopt similar policies and standards of their own.
Rio Tinto employees are required to undertake training on the requirements of The way we work and various policies and standards.
Speak-OUT is the Group's confidential and independently operated whistleblowing programme. It offers an avenue through which employees, contractors, suppliers and customers of Rio Tinto managed sites can report concerns anonymously if they so choose, subject to local law. This can include any significant concerns about the business, or behaviour of individuals, including suspicion of violations of financial reporting, safety or environmental procedures or business integrity issues generally. The programme features telephone and web submissions, a case management tool to manage cases, and a reporting tool to allow for improved analysis of case statistics and reporting. Rio Tinto continuously considers ways to promote positive awareness of Speak-OUT. The Audit Committee receives a report on Speak-OUT activity, with the Sustainability Committee receiving an annual report on Speak-OUT relating to sustainable development issues.
Dealings in Rio Tinto securities
Rio Tinto's rules for dealing in Rio Tinto securities require directors and employees with access to ‘inside information’ to seek clearance before any proposed dealing and restrict the times when dealings may take place. The rules also include a total prohibition against persons discharging managerial responsibility or key management personnel (ie the board and the Executive Committee) engaging in hedging or other arrangements which limit the economic risk in connection with Rio Tinto securities issued or otherwise allocated as remuneration that are either unvested, or that have vested but remain subject to a holding period. There are also restrictions applying to a broader group of employees requiring them to seek clearance before engaging in similar arrangements over any Rio Tinto securities The rules are supported by training.
Rio Tinto plc and Rio Tinto Limited have a common board of directors. The directors are collectively responsible for the stewardship and long-term success of the Group. Through the independent oversight of management, they are accountable to shareholders for the performance of the business. In performing this duty, the board recognises its wider responsibility to the interests of employees, customers, suppliers and other stakeholders. The board must also consider the impacts of the Group's operations on communities and the environment, as well as the desirability of maintaining a reputation for high standards of business conduct. The principal role of the board is to provide leadership within a framework of prudent and effective controls that enables risk to be assessed and managed.
Role and responsibilities
A formal schedule of matters reserved by the board has been established by the directors and is available here.
This covers areas such as: setting the Group's purpose and strategic vision; monitoring the performance of delivery of the approved strategy; approving major investments, acquisitions and divestments; the oversight of risk and the setting of the Group’s risk appetite; and reviewing the Group's governance framework.
Responsibility for day-to-day management of the business is delegated to the chief executive and through him to other members of the Executive Committee under a Group delegation of authority framework. A number of management committees support the chief executive in the performance of his duties.
Roles and responsibilities of the chairman
Roles and responsibilities of the chief executive
Roles and responsibilities of the senior independent director
The names, skills and experience of each director together with their terms in office are shown in our Board of directors section.
Selection, appointment and election of directors
Rio Tinto has a diverse board. It comprises directors drawn from a wide range of professional backgrounds and geographic areas. On behalf of the board, the chairman leads the development of the Group's diversity and inclusion strategy. The board supports the principle of diversity and inclusion and the implementation of this strategy. The board seeks to continually evolve its membership by seeking non-executive directors with diverse and complementary skills and perspectives, as well as experience which reflects the geographical spread of the Group's operations. The board regularly reviews its corporate governance practices, including how the director selection and appointment process takes into account the board's desired mix of skills and diversity.
The Nominations Committee, chaired by the chairman of Rio Tinto, reviews succession plans aimed at maintaining a mix of skills, knowledge, experience and diversity on the board and the Executive Committee.
This review takes into account the challenges and opportunities facing the Group, and includes evaluating the balance of skills, knowledge, experience and diversity currently on the board and Executive Committee. This evaluation helps to identify the necessary and desired profile of potential candidates for appointment to board and Executive Committee roles.
The Nominations Committee develops, and agrees in advance, the desired profiles of potential candidates for board membership. It oversees the recruitment process, ensuring it is formal and rigorous, including constructing shortlists, comprising candidates from diverse backgrounds, and conducting appropriate background and reference checks. Following a final review of short-listed candidates, the Committee makes recommendations to the board on the appointment of new board members. The Committee engages Egon Zehnder International as an external recruitment consultant to conduct searches and executive evaluations.
Rio Tinto has a Group-wide policy, which the board fully endorses, on how diversity in all its forms can be protected and promoted when recruiting employees. Diversity in board composition is an important driver of a board’s effectiveness, as it helps promote a breadth of perspective among directors. The same recruitment principles are therefore applied in relation to board-level positions, whether executive or non-executive.
The board sets pre-defined and objective criteria for candidate selection at the outset of all recruitment exercises. The board values diversity in its broadest sense when considering appointments to the board. It seeks to identify and secure the best candidate available in the market against those criteria. It has not, as yet, set any measurable objectives for the outcomes of its board diversity policy, but is cognisant that the ideal blend of diverse backgrounds will remain a priority in 2018 and beyond. Further information on our Diversity & Inclusion Policy, together with data on the proportion of women employees and board members as at 31 December 2017 is set out in our 2017 Annual report.
Any director appointed by the board holds office only until the next annual general meeting and shall be eligible for election by shareholders. All directors are expected to submit themselves for re-election at the annual general meetings each year.
Non-executive directors are generally expected to serve on the board for at least six years and would not serve more than nine years, but may seek re-appointment with shareholder approval after nine years provided the Nominations Committee concludes they remain independent in accordance with the requirements set out below.
It is important that each non-executive director brings an independent perspective to the board's deliberations. On behalf of the board, the Nominations Committee assesses the independence of each non-executive director against an independence framework combining the requirements of the Code, the ASX Principles and NYSE Standards.
The board is satisfied that all of its non-executive directors are independent in character and judgment and are free from any relationships (material or otherwise) or circumstances that could create a conflict of interest.
Further information is set out on page 62 of the 2017 Annual report.
Board performance evaluation
A formal and rigorous annual review of the performance of the board, its committees, the chairman and individual directors is carried out, with the results used to drive continuous development of individual directors and improvement in the effectiveness of the board.
In 2017, the board engaged Lintstock to undertake an externally facilitated evaluation, which covered the following topics: board composition, expertise and dynamics; management of meetings and board support; strategic oversight; risk management; personal development; and priorities for change. Lintstock is a specialist corporate advisory firm with no other connection to Rio Tinto.
The results of the board and committee evaluations were discussed by the board and each respective committee and a series of action points were agreed. The chairman is responsible for the assessment of each individual non-executive director’s performance and contribution. In addition to the review by Lintstock, the chairman met with each non-executive director to review their performance and training needs.
The non-executive directors, led by the senior independent director, are responsible for the performance evaluation of the chairman. Lintstock provided a report to the senior independent director who, in turn, met with the chairman to provide feedback based on the report and input from individual directors.
The performance of Executive Committee members, including executive directors, is continually evaluated as part of the Group's performance evaluation cycle.
Further information on the annual performance evaluation can be found on page 62 of the 2017 Annual report.
Remuneration for non-executive directors
It is Rio Tinto's policy that the chairman should be remunerated on a competitive basis and at a level which reflects his contribution to the Group, as assessed by the board. The Remuneration Committee determines the terms of service, including remuneration, of the chairman. The chairman has no part in the setting of his fees and is not present at any discussion with the Committee regarding remuneration.
The chairman receives a fixed annual fee and does not receive any additional fee or allowance for either committee membership or chairmanship, or for travel. Further details about the chairman’s remuneration may be found in the 2017 Annual report section entitled Remuneration Report: Remuneration Policy.
Fees paid to non-executive directors reflect their respective duties and responsibilities and the time required to be spent by them so as to make a meaningful and effective contribution to the affairs of Rio Tinto.
Non-executive directors' fees and other terms are set by the board upon the recommendation of the Chairman’s Committee. Non-executive directors receive a fixed annual fee. This comprises a base fee, committee membership or committee chairmanship fees, as applicable, and allowances for attending meetings which involve medium or long-distance air travel.
The fees payable to non-executive directors are subject to review by the board on the recommendation of the Chairman's Committee.
Further details about the non-executive directors' remuneration may be found in the 2017 Annual report in the section entitled Remuneration Report: Remuneration Policy.
Shareholding policy for directors
Shareholding policy for executives
The Group recognises the importance of aligning executives' interests with those of shareholders and they are therefore expected to build up and maintain a meaningful shareholding in Rio Tinto shares. The chief executive is expected to reach a share ownership equivalent in value to four times his base salary over five years. The chief financial officer and all other members of the Executive Committee are expected to reach a share ownership equivalent in value to three times their base salary over five years.
Further details about our share ownership policy for executives is available in the 2017 Annual report section entitled Remuneration Report: Implementation Report.
Shareholding policy for non-executives
The board recommends that non-executive directors be encouraged to build up a shareholding within three years of their appointment equal in value to one year's base fee.
Further details about the non-executive directors' share ownership levels may be found in the 2017 Annual report in the section entitled Remuneration Report: Implementation Report.
The board has established sub-committees which are responsible for audit, remuneration, sustainability and nominations issues. In addition, a Chairman's Committee operates under delegated authority between scheduled board meetings. These committees support the board in ensuring that high standards of corporate governance are maintained across the Group.
The committees are governed by terms of reference, set and approved by the board, which are reviewed annually. The membership of each committee can be found in the Board of directors section.
Further details on the activities of each committee are set out in the Governance report of the 2017 Annual report.
The objective of the Audit Committee is to assist the board to monitor decisions and processes designed to ensure the integrity of financial reporting, sound systems of internal control and risk management.
The committee is responsible for financial reporting; internal controls, including internal controls over financial reporting; Internal audit and assurance; external auditors (appointment and relationship); the effectiveness of the risk management framework; and the integrity and compliance programme including the Group’s Speak-OUT whistleblowing programme.
In carrying out its responsibilities the Committee has full authority to investigate all matters that fall within its terms of reference. Accordingly, the Committee may:
- obtain independent professional advice in satisfying its duties at the Group's expense; and
- have the direct access to the resources of the Group as it may reasonably require, including the external and internal auditors.
Download the Audit Committee terms of reference
The Nominations Committee assists the board in ensuring its composition is regularly reviewed and refreshed in order that it is effective and able to operate in the best interests of shareholders.
The Committee develops and agrees the desired profiles of potential candidates for board membership. It oversees the recruitment process and engages external search consultants to manage searches on its behalf, including constructing shortlists comprising candidates from diverse backgrounds. Following a final review of shortlisted candidates, the Committee makes recommendations for new board members to the board for approval.
On behalf of the board, the Committee also reviews proposals for appointments to the Executive Committee and monitors executive succession planning.
Download the Nominations Committee terms of reference
The Sustainability Committee assists the board with overseeing strategies designed to manage social and environmental risks, overseeing management processes and standards and achieving compliance with social and environmental responsibilities and commitments. The Committee reviews the effectiveness of management policies and procedures relating to safety, health, employment practices, relationships with neighbouring communities, environment, human rights, land access, political involvement and sustainable development.
Download the Sustainability Committee terms of reference
The Remuneration Committee assists the board with fulfilling its oversight responsibility to shareholders to ensure that remuneration policy and practices reward fairly and responsibly with a clear link to corporate and individual performance, and having regard to legal requirements and sound corporate governance.
Download the Remuneration Committee terms of reference
The Chairman's Committee acts on behalf of the board between scheduled board meetings, either in accordance with authority delegated by the board or as specifically set out within its terms of reference. It supports the functioning of the board and ensures that the business of the board and its committees is properly planned and aligned with management.
When mandated by the board, the Chairman's Committee will consider urgent matters between board meetings, and deal with the implementation of board decisions on transactions and other corporate matters. Other than for the chairman of the board, the Committee performs the annual review of non-executive directors' fees and makes a recommendation to the board, as appropriate.
The directors are required to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Group at the end of the financial period and of the profit or loss and cash flows for that period. In addition, the UK Corporate Governance Code requires that the board provides a fair, balanced and understandable assessment of the Company's position and prospects in its external reporting.
The directors are responsible for maintaining proper accounting records, in accordance with the UK and Australian legislation. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
External auditors: selection and appointment and rotation of engagement partners
Rio Tinto has adopted policies designed to uphold the independence of the Group's external auditors by prohibiting their engagement to provide other accounting and other professional services that might compromise their independence. Further details about the external auditors' independence can be found on page 66 of the 2017 Annual report.
PricewaterhouseCoopers LLP and PricewaterhouseCoopers (together, PwC) are the auditors of Rio Tinto plc and Rio Tinto Limited respectively. PwC have been the external auditors since the formation of the dual listed companies structure in 1995.
Since 2002, PwC have followed the requirements of the Sarbanes-Oxley Act 2002 and APB Ethical Standards and rotated both the lead UK and Australian audit partners at least every five years.
The Audit Committee has reviewed the timetable for tendering and has taken into account all relevant regulation and guidance. In light of this, an audit tender will be formally undertaken between April and June 2018. A recommendation to the board of a new firm of external auditors is expected in mid-2018, with the expectation that they would take office following PwC's completion of the 31 December 2019 audit.
Disclosure controls and procedures
The Group maintains disclosure controls and procedures as the term is defined in the US Exchange Act Rule 13a-15(e).
Management, with the participation of the chief executive and chief financial officer, evaluate the effectiveness of the design and operation of the Group's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of each financial reporting period.
Further details on internal controls are set out in the Governance report of the 2017 Annual report.
Rio Tinto is exposed to a variety of risks that can have financial, operational and compliance impacts on our business performance, reputation and licence to operate.
The board recognises that creating shareholder returns is the reward for taking and accepting risk. The effective management of risk is therefore critical to supporting the delivery of the Group's strategic objectives.
The Group's approach to risk management, underpinned by the Risk policy and standard, is aimed at embedding a risk-aware culture in all decision-making, and a commitment to managing risk in a proactive and effective manner. This includes the early identification and evaluation of risks, the management and mitigation of risks before they materialise, and dealing with them effectively in the event they do materialise. Accountability for risk management is clear throughout the Group and is a key performance area of line managers.
To support risk understanding and management at all levels, the Group Risk function provides the necessary infrastructure to support the management and reporting of material risks within the Group, and escalates key issues through the management team and ultimately to the board where appropriate. Group Risk also supports the Risk Management Committee (an executive management committee chaired by the chief executive) in its review of risk.
The process for identifying, evaluating and managing the material business risks is designed to manage, rather than eliminate, risk and where appropriate accept risk to generate returns. Certain risks, for example natural disasters, cannot be managed using internal controls. Such major risks are transferred to third parties in the international insurance markets, to the extent considered appropriate or possible.
Rio Tinto recognises the importance of effective, timely communication with shareholders and the wider investment community.
Operating under a dual listed companies structure, the Rio Tinto Group consists of Rio Tinto plc listed on the London Stock Exchange and Rio Tinto Limited listed on the Australian Securities Exchange. Rio Tinto plc has a sponsored American Depositary Receipt (ADR) facility and the underlying shares are listed on the New York Stock Exchange.
To ensure that trading in its securities takes place in an informed marketplace, Rio Tinto has adopted procedures to ensure compliance with its continuous disclosure obligations.
The Disclosure Committee is responsible for determining whether information relating to Rio Tinto may require disclosure to the markets under the continuous disclosure requirements in the jurisdictions in which Rio Tinto is listed. The specific focus of the Disclosure Committee is to consider and determine on a timely basis whether information would, to the extent that the information is not public and relates directly or indirectly to Rio Tinto, be likely to have a material impact on the price of Rio Tinto Securities if that information were generally available.
The members of the Committee are the chief executive, chief financial officer, Group company secretary, Group executive, Group General Counsel, Corporate Relations Group executive and the head of Investor Relations.
Rio Tinto makes immediate disclosure (unless an exemption applies allowing a delay) to the relevant listing authorities in accordance with their rules of any information that a reasonable person would expect to have a material effect on its share price. All information released to the markets is posted on the Media section of the website.
Annual general meetings
The annual general meetings present an opportunity to provide a summary business presentation, to inform shareholders of recent developments and to give them the opportunity to ask questions.
Generally, the chairs of all board committees will be available to answer questions raised by shareholders and all directors are expected to attend where possible. Rio Tinto's external auditors, PricewaterhouseCoopers, attend the annual general meetings and are available to answer questions about the conduct of the external audit and the preparation and content of the independent auditors' report.
Any questions received and answers provided ahead of the annual general meetings are made available to shareholders, who also have the opportunity to meet informally with directors after the meetings.
The main channels of communication with the investment community are through the chairman, chief executive and chief financial officer, who have regular meetings with the Companies' major shareholders.
The senior independent director, other board committee chairs, and non-executive directors are also available on request. The senior independent director has a specific responsibility to be available to shareholders who have concerns, and where contact with the chairman, chief executive or chief financial officer has failed to resolve their concerns, or for whom such contact is inappropriate. In his capacity as Remuneration Committee chairman, the senior independent director meets shareholders to discuss remuneration issues.
During 2017, these meetings with the investment community focused on the operational and financial performance of the Group and the issues of strategy, board succession, corporate governance and executive remuneration.
Regular investor seminars provide a two-way communication opportunity with investors and analysts.
To ensure that members of the board have an understanding of the views of major shareholders, a number of processes and initiatives are in place. The chief financial officer reports to the board at each meeting and provides regular investor updates as part of this reporting. In addition, the head of Investor Relations reports regularly to the board, and an annual survey of major shareholders’ opinions is presented to the board by the Group's investor relations advisers.