sydney - rio tinto group · −audit −sustainability −remuneration −nominations...

Corporate governance round table Sydney

24 November 2014

Jan du Plessis Chairman, Rio Tinto

24 November 2014

©2014, Rio Tinto, All Rights Reserved

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Safety briefing


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Who we are

Jan du Plessis Chairman of the board Chairman of the Nominations Committee

Ann Godbehere Chairman of the Audit Committee

John Varley Chairman of the Remuneration Committee Senior independent director

Richard Goodmanson Chairman of the Sustainability Committee

Eleanor Evans Company secretary

Michael Fitzpatrick Non-executive director

Michael L’Estrange Non-executive director

Megan Clark Non-executive director


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Plan for the discussion

Time Programme Speaker

15:00 – 15.20 Board and Nominations Committee Jan du Plessis

15:20 – 15:40 Audit Committee Ann Godbehere

15:40 – 16:00 Remuneration Committee John Varley

16:00 – 16:20 Sustainability Committee Richard Goodmanson

16:20 – 16:30 Conclusions Jan du Plessis

16:30 – 17:00 Questions All


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2014 changes in board composition

NED appointments Experience and past/present positions

Anne Lauvergeon (March 2014)

CEO of AREVA Group Non-executive director of Total and American Express Company

Simon Thompson (April 2014)

Executive director of Anglo American Chairman of Tullow Oil, Non-executive director of Newmont Mining Corporation and Rusal

Michael L’Estrange (August 2014)

Secretary of the Australian DFAT Head of National Security College at the Australian National University

Megan Clark (November 2014)

CEO of CSIRO Vice President Health, Safety, Environment, Community and Sustainability with BHP Billiton

NED Retirements

Vivienne Cox (April 2014)


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Our board

Chairman Jan du Plessis

Executive directors Sam Walsh Chris Lynch

Non-executive directors Robert Brown Megan Clark Michael Fitzpatrick Ann Godbehere Richard Goodmanson Lord (John) Kerr Anne Lauvergeon Michael L’Estrange Paul Tellier Simon Thompson John Varley


Board commitment • Significant time commitment

• Frequency of board meetings

• Location of meetings

• Visits to mines and other operations

• Off-site strategy sessions with Executive Committee

• Meetings attended in person

• Impact on board composition

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• Safety

• Committee reports

• Regular business update by CEO and CFO

• Investment approvals

• Disposals

• Product Group and functional strategy reviews

• Risk reviews

• Annual reviews − Annual plan − Investor perceptions − Treasury policy and capital

management − Tax strategy − Retirement benefits − Diversity

• Governance oversight

• NED private session

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How we spend our time at board meetings


Our board committees

• Five committees: − Audit − Sustainability − Remuneration − Nominations − Chairman’s

• Reports by committee chairs to the board and active engagement on critical issues

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Chairman’s Committee

• Membership – Chairman, CEO and CFO

• The Committee acts on behalf of the board between scheduled board meetings

• The Committee is focused on: − The review of board business and agenda

planning for board meetings − The implementation of board decisions

• Where necessary and as mandated by the board, the Committee can act as a sub-committee of the board to take decisions on urgent matters between full board meetings.

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Nominations Committee

• Membership – all NEDs

• Executive succession planning − Chief executive − Chief financial officer − Other Executive Committee members − Senior management talent pipeline

• Non-executive succession planning − The criteria for appointment − Ongoing refreshment − Planning cycle

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Ann Godbehere Chairman of the Audit Committee

24 November 2014


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Content

Membership

Role and areas of focus

Frequency of meetings

Financial reporting

Internal audit

Risk management

External audit

Audit tender and rotation

Recent changes to corporate reporting


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Membership

Ann Godbehere Committee chair since April 2010

Robert Brown Committee member since October 2014

Michael Fitzpatrick Committee member since June 2006

Paul Tellier Committee member since October 2007

John Varley Committee member since March 2013


Role

The role of the Audit Committee is to assist the board in monitoring:

• The integrity of financial reporting

• The design and effectiveness of internal controls, including internal controls over financial reporting

• Sound risk management governance

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Areas of focus

Financial reporting

Accounting policies

Internal control

Integrity Compliance

External auditors

Audit and Assurance

Risk management framework

Reserves and

resources reporting


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Meeting schedule and key topics in 2014

Topic February March June August October November

Annual and interim reports; press releases and 20-F ✔ ✔ ✔

Going concern and fair, balanced & understandable assessments ✔ ✔

Accounting issues (including key judgements; review of carrying values) ✔ ✔ ✔ ✔ ✔ ✔

Ore Reserves and Resources and closure provisions ✔ ✔ ✔

Legal and Tax reports ✔ ✔ ✔

External auditor reports ✔ ✔ ✔ ✔ ✔ ✔

Group Audit and Assurance reports ✔ ✔ ✔ ✔ ✔ ✔

Integrity compliance reports ✔ ✔

Risk management effectiveness ✔

Terms of reference, committee evaluation and training ✔ ✔ ✔


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Financial reporting oversight

Board responsibility + Audit Committee review

True and fair view

Fair, balanced and understandable

Going concern


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Financial reporting – Audit Committee oversight

Financial reporting

Review of going concern and viability assessment

Review of accounting policies

Review of significant reporting issues and material judgments

Monitoring the integrity and FBU1 of the financial statements

Internal control over financial reporting

Review and approve annual statement on internal control over

financial reporting

Review estimation and reporting of Ore Reserves and Resources

Review effectiveness of the Group’s internal financial controls

Review the Group’s material controls over financial reporting

1. Fair, balanced and understandable assessment


Internal audit

• Charter for Group Audit & Assurance (GA&A) approved by Audit Committee − the Committee approves the appointment of the Head of GA&A − head of GA&A reports to the Audit Committee and attends every meeting − the Committee meets with Head of GA&A without management present

• Audit Committee approves the internal audit plan and resourcing − plan is risk based, refreshed quarterly with robust coverage of operations,

reporting and compliance objectives − internal audit services delivered through combination of skilled internal team

and co-source partner, KPMG

• GA&A responsible for co-ordinating the Sarbanes Oxley (SOx) programme − Rio Tinto SOx progamme is based on the COSO1 internal control framework

and has been updated for the 2013 revision of the COSO framework

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1. Committee of Sponsoring Organizations of the Treadway Commission.


Business ownership and strong risk governance

Risk management framework Three lines of defence

Board (and the Committees)

Risk Management Committee

CEO (and the Executive Committee)

Gro

up R

isk

Group A

udit & A

ssurance

Group functions

Business operations

Group functions and management committees

Second line of defence: Control

Group Audit & Assurance

Third line of defence: Assurance

Business operations

First line of defence: Ownership

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Risk management governance oversight by the Audit Committee

Regular review of the effectiveness of the risk management framework

Risk culture

Findings from risk management related internal audits

Benchmarking against leading practice

Oversight of key risks within the Committee’s terms of reference

Internal audits

“Deep dives”


External audit

• Responsibility for making recommendations to the board for (re)appointment or removal of auditor

• Primary responsibility for audit scope (areas of focus and materiality) − Review with the external auditor the scope of their audit and subsequently

their audit findings, including any internal control recommendations

• Auditor remuneration (including independence and objectivity considerations) − PwC’s audit fees 2013: $15.3m (2012: $17.2m) − Review and approval PwC’s non-audit services 2013: $6.4m (2012: $7.4m)

• Annual review of auditor effectiveness and degree of challenge − Collation and benchmarking of feedback from across Rio Tinto

• Meetings with auditor without management present − Discussion of quality of the Group’s accounting policies, material

judgements and any other matters deemed appropriate − Meetings take place at least twice annually

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Audit tendering and auditor rotation

• Current audit partners − UK: Richard Hughes 2011 – 2015 − Australia: Paul Bendall 2012 – 2016

• Audit tendering and rotation rules − UK Corporate Governance Code: FTSE 350 companies should put the external

audit contract out for tender every ten years (comply or explain) − UK Competition & Markets Authority: transitional arrangement to align with EU

timetable (not mandatory for Rio Tinto until 2021) − EU audit rotation rules: mandatory audit firm rotation, effective in June 2016 with

transitional arrangements such that rotation becomes mandatory for us by 2021

• Current expected timetable for Rio Tinto audit firm rotation − 2017 for financial year 2019 or 2018 for financial year 2020 − Consecutive rather than concurrent tendering of other prohibited non-audit

services

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Audit Committee • Impairments, impairment triggers and

potential impairment reversals • Impact of new and revised accounting

standards • Key accounting policies and judgments

including Bingham Canyon Slide, exclusions from underlying earnings, significant divestments

• Provision for uncertain tax positions and recoverability of deferred tax assets

• Asset carrying values, and in particular Rio Tinto Alcan, Oyu Tolgoi and Rio Tinto Coal Mozambique

• Close-down, restoration and environmental obligations

External Auditors’ opinion

• Impairment assessment

• Impact of cost savings initiatives on the overall control environment

• Revenue recognition

• Provision for uncertain tax positions

• Risk of management override of internal controls

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Key areas of focus in Annual Report 2013


Recent changes to corporate reporting (UK) • Fair balanced and understandable (FBU) reporting by directors: − “... they consider the annual report and accounts, taken as a whole, is fair,

balanced and understandable and provides the information necessary for shareholders to assess a company’s performance, business model and strategy”

− Significant issues reporting by the Audit Committee

• New independent auditors’ report

− The auditor’s opinion included more discussion on where they focused their efforts during their audit and described their materiality threshold

• Strategic report − New requirement to produce a Strategic report in lieu of summary

financial statements and the Annual review

• Viability statement

• Risk assessment statement

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John Varley Chairman of the Remuneration Committee

24 November 2014


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Content

Membership

Role and areas of focus

Annual meeting schedule and key topics for 2014

The Committee’s independent adviser

The Remuneration report

The application of discretion

Share ownership


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Membership

John Varley Committee chair since October 2011

Jan du Plessis Committee member since February 2012

Mike Fitzpatrick Committee member since June 2006

Richard Goodmanson Committee member since December 2004

Paul Tellier Committee member since October 2007

Advisers – Towers Watson

Jon Finlay (Australia) Committee adviser since August 2013

Mark Reid (UK) Committee adviser since August 2013


Role

The role of the Remuneration Committee is to:

• Assist the board to fulfil its oversight responsibility to shareholders

• Ensure that remuneration policy and practices reward fairly and responsibly

• Ensure there is a clear link between reward outcomes, corporate and individual performance

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Areas of focus

Delivery of strategy

Attracting, retaining and

motivating talent

Shareholder alignment

Superior returns

Long term focus

Regulation Pay for

performance, value for money

Health and

Safety


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Topic Jan Feb March May Oct Nov

Executive remuneration trends ✔ ✔

Remuneration review ✔

Short-Term Incentive Plan ✔ ✔ ✔ ✔ ✔

Long-Term Incentive Plan ✔ ✔ ✔ ✔

Remuneration reporting ✔ ✔ ✔ ✔ ✔ ✔

Benefits ✔

Governance ✔ ✔


The Committee’s independent adviser

• Selection process conducted in 2013 − Five years since previous review

• Open tendering and interview process − Included sitting adviser, Deloitte

• All candidates with specific expertise in advising UK and Australian listed companies

• Towers Watson appointed with effect from 1 August 2013

• Provides independent advice to the Committee on management’s proposals

• Prepares statement of ‘no undue influence’ from management at each meeting

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The Remuneration Report

• 2013 Remuneration Report was updated for new UK legislation

• The 2014 Remuneration Report will broadly follow the same structure

• Shareholder approval of amended executive contracts

• 2013 Remuneration Report shortlisted for Best FTSE 100 Remuneration Report at ICSA Excellence in Governance Awards

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The application of discretion

• Use of discretion to align the return experience of shareholders and reward − STIP / Bonus Deferral Plan − PSP – malus − PSP – clawback

• Principles for future application

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Share ownership for senior executives

• Policy

• Executive directors

• Executive Committee members

• Other executives in roles below the ExCo

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Richard Goodmanson Chairman, Sustainability Committee

Hamersley Agricultural Project, Pilbara, Western Australia

24 November 2014


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Content

Governance processes

Results and priorities

Summary


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Committee membership

Richard Goodmanson Chair since June 2005

Lord Kerr Committee member since June 2004

Anne Lauvergeon Committee member since March 2014

Simon Thompson Committee member since April 2014

Michael L’Estrange Committee member since October 2014

Megan Clark Committee member since November 2014


Role

The objective of the Committee is to:

• Oversee on behalf of the board, management processes, standards and strategies designed to manage social and environmental risks

• Achieve compliance with social and environmental responsibilities and commitments (sustainable development)

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Areas of focus

Safety Community relations

Environment Human rights

Land access

Political involvement

Health Employment practices


Topic February March June August October

Safety & health performance ✔ ✔ ✔ ✔✔* ✔

Process safety ✔

SD section of Annual report ✔ ✔ ✔ ✔

SD Assurance ✔ ✔ ✔

HSEC annual plan ✔

Health risks and plan ✔

Environmental risk and plans ✔

Legacy management and closure ✔

Communities & social performance (including Human rights) ✔

Deep Dive (risk or operation) ✔

Human resources ✔

Political involvement ✔

HSE harmonised laws ✔

Terms of reference, committee evaluation and other matters ✔ ✔

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*comparative study


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Sustainability: a critical business priority

Multiple trade-offs and agendas

Use of scarce natural resources

+

Meeting societal expectations

• Water

• Land

• Energy

• Atmosphere

• Biodiversity

• Cultural and environmental respect

• Economic development

• Transparent governance

Efficiency Effectiveness


Sustainability: a critical business priority 45

Multiple trade-offs and agendas To maintain / enhance licence to operate

Societal expectations

Time

At risk

Sustain and grow

Use of scarce natural

resources

+

Meeting societal

expectations

• Water

• Land

• Energy

• Atmosphere

• Biodiversity






The “what” and the “how” of sustainability 46

Use of scarce natural

resources

+

Meeting societal

expectations

• Water

• Land

• Energy

• Atmosphere

• Biodiversity





Strategy

Execution Organisation

Multiple trade-offs and agendas


Awards, Accreditation

• Dow Jones Sustainability Index

• FTSE4Good Index Series

• ACSI – Comprehensive

• CDP – Carbon Disclosure Project (Carbon and Water)

• Responsible Jewellery Council

• Conflict Minerals

• ISO – 14001 and OHSAS 18001

• ICMM Global Reporting Initiative

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Assurance

Three layers of assurance

Avoided event

Standards, Guidance, operating practices

First party audits – operations

Business conformance audits

Group Audit and Assurance

Risk / Hazard


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Performance

AIFR Rio Tinto 2000–2013 All injury frequency rate

3.86

3.46

2.12

1.77 1.52

1.35 1.09 0.97 0.95 0.82

0.68 0.67 0.67 0.65

0

1

2

3

4

5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


• Focus on fatality risk controls

• Process safety

• Learning lessons

• Contractor safety management

Dampier Salt, Western Australia – critical risk control validation

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Safety – current priorities


• Emergency response

• Vector borne diseases

• Occupational health

• Mental health

Rössing Uranium, Namibia – monitoring air quality

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Health – current priorities


• Agreements

• Capacity building

• Resettlement

• Heritage

Heritage survey in Pilbara

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Communities – current priorities


• Climate change

• Water

• Mineral waste management

• Closure

QMM, Madagascar – mangroves

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Environment – current priorities


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Sustainability summary

Leadership

Processes

Capability

Resources

Assurance

Corporate governance round table Sydney

24 November 2014

sydney - rio tinto group · −audit −sustainability −remuneration −nominations...

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