Governance
Board
Rio Tinto plc and Rio Tinto Limited have a common board of directors which are collectively responsible for the success of the Group and are accountable to shareholders for the performance of the business.
Membership
The board currently consists of 15 directors: the chairman, three executive directors and eleven non executive directors, of whom ten are deemed independent (see Non executive directors). The chairman has advised the board of his intention to retire and will remain in his role until mid 2009 by which time it is anticipated a successor will be appointed. Andrew Gould was appointed the senior independent non executive director on 24 April 2008 following the retirement of Sir Richard Sykes, and he is proposed for reelection by shareholders at the 2009 annual general meetings. The Nominations committee continually assesses the balance of executive and non executive directors and the composition of the board in terms of the skills and diversity required to ensure it remains relevant in the current environment. The names, skills, experience and expertise of each director together with their terms in office are shown in the biographical details of the Chairman and executive directors and Non executive directors sections.
Role and responsibilities
The role of the board is to oversee the Group with good governance and strategic direction. The board also reviews the Group's control and accountability framework. The directors have agreed a formal schedule of matters specifically reserved for decision or consideration by the board, including strategy, major investments and acquisitions. This schedule is available in the corporate governance section of the website.
The board is ultimately accountable to shareholders for the performance of the business. Responsibility for day-to-day management of the business rests with the executive team, with the board agreeing annual performance targets for management against the Group's financial and nonfinancial plan. The process for the evaluation of the performance of the executive directors and other senior executives is discussed in the Remuneration report. The performance of the senior executives was assessed in accordance with that process during 2008.
The board meets regularly and, in 2008, had eight scheduled meetings and ten meetings at short notice. This reflects the considerable focus required by the board on the pre-conditional offer made by BHP Billiton for Rio Tinto which was eventually withdrawn in November 2008 and the effects of the global economic downturn towards the end of 2008. Details of directors' attendance at all of these board and committee meetings is set out on the Board committees page.
The board has regular scheduled discussions on aspects of the Group's strategy, as well as two separate strategy review meetings, one half day and one two day meeting, which are dedicated to indepth discussions on Group strategy.
Directors receive timely, regular and appropriate management and other information to enable them to fulfill their duties and have access to the advice and services of both company secretaries. The board has agreed a procedure for directors to obtain independent professional advice at the Group's expense.
In addition to these formal processes, directors are in regular communication with senior executives from the product and global support groups, at both formal and informal meetings, to ensure the regular exchange of knowledge and experience between management and non executive directors. To continue building on the formal induction programmes, which all new non executive directors undertake, they are encouraged to take every opportunity to make site visits to the Group's operations and to meet local employees. In 2008 directors visited the Group's operations in Australia, the US and Canada. The board also takes the opportunity to combine attendance at the annual general meeting in Australia and at the two day strategy review meeting with site visits.
The chairman holds regular meetings with non executive directors without the executive directors being present.
Board performance
The board completes a formal annual process to evaluate its effectiveness and that of the board committees and individual directors. Each non executive director's performance is appraised personally by the chairman and, in a meeting chaired by the senior independent non executive director, the non executive directors assess the chairman's performance, taking into consideration the views of executive colleagues.
The evaluation process completed in 2008 was overseen by the chairman and chairmen of the board committees with the support of the company secretary. For the board it took the form of a detailed questionnaire circulated to all directors for a response and inviting comments on a number of areas, including board dynamics, board capability, board process, board structure, corporate governance, strategic clarity and alignment, and the performance of individual committees and directors. For the board committees, a similar, detailed questionnaire was produced and circulated to each committee member and regular attendees for a response. This questionnaire invited comments on a number of areas, including the role and responsibilities of the committee, its organisation and effectiveness and the qualifications of its members. The results of the questionnaires were collated and presented for discussion and debate at a board meeting, at meetings of the Audit and Remuneration committees and the Committee on Social & Environmental Accountability. Actions were agreed from this process, for example, the provision of further training for non executive directors in the areas of risk management and resources and reserves booking procedures, are in the course of being implemented.
During 2008, taking into account the views of other board members, the senior independent director led the review of the performance of the chairman. The review concluded that the chairman was continuing to demonstrate strong leadership of the board and was making a significant contribution to Rio Tinto, in particular during the BHP Billiton pre-conditional offer for the Group.
The directors believe that, through this evaluation process, they comply with the requirements of Clause A.6 of the Code, Principle 2 of the ASX Principles, and the NYSE Standards.
Independence
The tests of director independence in the jurisdictions where Rio Tinto has listings are not wholly consistent. The board has, therefore, adopted a formal policy for the determination of the independence of directors. This policy, which contains the materiality thresholds approved by the board, is in the corporate governance section of the website. Among the key criteria are independence from management and the absence of any business relationship which could materially interfere with the director's independence of judgement and ability to provide a strong, valuable contribution to the board's deliberations, or which could interfere with the director's ability to act in the best interest of the Group. Where contracts in the ordinary course of business exist between Rio Tinto and a company in which a director has declared an interest, these are reviewed for materiality to both the Group, and the other party to the contract. "Material" is defined in the policy as being where the relationship accounts for more than two per cent of either Rio Tinto's or the other parties' consolidated gross revenue per annum, although the test also takes other circumstances into account. Applying these criteria, the board is satisfied that the majority of directors, including the following non executive directors, are independent: Sir David Clementi, Vivienne Cox, Jan du Plessis, Sir Rod Eddington, Michael Fitzpatrick, Yves Fortier, Richard Goodmanson, Andrew Gould, Lord Kerr and Paul Tellier.
One non executive director, David Mayhew, who is chairman of one of Rio Tinto plc's stockbrokers, is not considered independent in accordance with the Code.
Paul Skinner, upon his appointment as chairman in 2003, was an independent non executive director under the Code. He continues to satisfy the tests for independence under the ASX Principles and the NYSE Standards.
The directors' biographies are set out in the Chairman and executive directors and Non executive directors sections.
Directors' conflicts of interest
During 2008 a new statutory regime was introduced in the UK whereby the board may authorise a "situation" in which there is, or may be, a conflict between the interests of Rio Tinto and the direct or indirect interests of a director or between the director's duties to Rio Tinto and to another person. At the 2008 annual general meeting of Rio Tinto plc, shareholders approved changes to the Company's articles of association to give directors the authority under this regime. The board has in place procedures for ensuring that its powers to authorise conflicts operate effectively. For this purpose, a register of conflicts and any authorisation is maintained by the company secretary and reviewed by the board before the interim and final results' announcements.
Executive directors' other directorships
Executive directors may be invited to become non executive directors of other companies. The board has adopted a procedure under which approval may be given to accept such invitations recognising the benefit to be derived to the individual and to Rio Tinto from such exposure. For full details see 'Executives' external and other appointments' in Other disclosures of the Remuneration report.
Election and re-election
Directors are elected by shareholders at the first annual general meetings after their appointment and, after that, offer themselves for re-election at least once every three years. Non executive directors are normally expected to serve at least two terms of three years and, except in special circumstances, would not normally serve more than three such terms. David Mayhew has served three terms of three years. To assist the board during a period of corporation transition, at the request of the board, he as agreed to stand for re-election. Under provision A.7.2 of the UK Combined Code on Corporate Governance, directors who serve for longer than nine years must stand for re-election every year. It is anticipated that he will retire at the conclusion of the 2010 annual general meetings.
Chairman and chief executive
The roles of the chairman and chief executive are separate and the division of their respective responsibilities has been formally approved by the board.