Crikey’s Sydney AGM addict, Crullers, travelled all the way to Melbourne just to be at the Rio Tinto AGM with the olds. And didn’t the unfairly dismissed workers give it to the board?

Pa Crullers is a shareholder in Rio and Ma Crullers a keen AGM attendee, so the olds got the chance to see their Boy Blunder in action. Thankfully he didn’t get too tongue-tied or besmirch the good Crullers name (now there’s the mother of all oxymorons) by being ridiculed for inane questions.

As Clan Crullers made the trek from Spencer Street station to the Melbourne Convention Centre, a particularly unkempt lass with dreadlocks, Rasta beanie and anti-Jabiluka tee shirt stopped near them at the lights. A quick-witted and antagonistic Crullers might have piped up with a loud comment along the lines of “gee, you’ve made a packet out of your Rio Tinto shares this year, Pa”, but alas, at 9 in the morning Crullers wasn’t motoring just yet.

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The protests out front set the tone for the meeting, with much of the questioning relating to unfair dismissal claims currently being battled out against the company, and a few questions from tree-huggers concerned about the company’s plans to destroy the universe.

Disappointingly, Crullers and a gent from the ASA were the only ones to ask questions on the accounts – he and I both focused on a $USD644 million write-down of the company’s US copper assets.

The write-off turned an otherwise exceptional result in difficult trading conditions to just a good one. The company’s “Adjusted Earnings” (i.e. taking out abnormals) continued their steady growth since 1998. But Net Earnings (the whole kit and caboodle) were just over US$1 billion, well below last year’s US$1.5 billion and US$1.28 billion in 1999.

It’s hard to be overly critical of the company on this one given that it’s the result of adverse currency and commodity price movements rather than ineptitude on the part of the company necessarily, but disappointing that more shareholders weren’t up in arms about it.

The company had to write down the value of their copper assets because the assumptions upon which the valuations were previously made no longer held true. Namely, the bottom had fallen out of the copper market and the company saw no future prospect of recovery in the copper price.

More on that convoluted explanation later, but it is a worry that the company can take such a huge hit to their profit figure at the whim of commodity prices.

On the company’s ongoing defence of unfair dismissal claims brought against it, there were at least four or five former employees who had a go, along with three members of parliament who represented constituents in affected areas.

There were 6 resolutions to elect directors, and during the fourth of these, the resolution to re-elect Richard Giordano, the Honourable Kerry Hickey, NSW Member of Parliament for the seat of Cessnock made an impassioned plea on behalf of 200 unfairly dismissed Hunter Valley employees who had previously been working “in them coalmines”.

Obviously the absence of basic elocution skills is no prohibition to election to the NSW state parliament, nor is lack of timing. How this question related to the re-election of Richard Giordano was lost on this observer and indeed chairman Sir Robert Wilson, who wondered out loud that very point. The Honourable country member (yes, we remember) was back on his feet, claiming it was very relevant given that we were discussing the election of CEO Leigh Clifford.

Sorry Hickey old chap, that was the previous resolution. Let’s hope the former milk vendor is quicker on his feet on the floor of Parliament, where no doubt his lyrical prose has them swooning in the gallery.

Chairman Sir Robert Wilson defended the company’s position on the unfair dismissal claims more or less the same way every time, so it was getting repetitive as each speaker got up to ask questions that were only going to elicit the same response. While no one begrudges the shareholders’ rights to ask questions about the company’s treatment of employees, the questions on individual cases really only have a tenuous link to the company’s accounts and are best fought out in the industrial court, not an AGM.

Having said that, plenty of shareholders had travelled long distances to make their point, so they weren’t going to be silenced.

Along with the esteemed Mr Hickey, Kirsten Livermore, federal MP for the Queensland seat of Capricornia asked a far more erudite and probing question come speech to the chairman (which admittedly isn’t saying too much, but she was good) and another MP whose name escaped me also had their two cents worth.

Presumably each of these Honourable members travelled considerable distances to the meeting at the taxpayer’s expense and one would have to conclude that it perhaps wasn’t the most effective use of taxpayers’ money in attempting to resolve the issue in favour of a small number of their constituents.

What did this grandstanding at the AGM by the Honourable members achieve?

Absolutely nothing.

Chairman Wilson used the same lines to each and at the end of the day the matters are still where they were before the AGM – awaiting appeal in the Industrial Relations Commission.

Wilson’s defence was that the Industrial Relations Commission had recognised the company’s right to appeal the adverse decisions against them, and the company was doing its best to expedite a resolution (which no doubt would be viewed as lip service by those fighting the company).

Initially I was inclined towards Wilson’s argument and was getting put offside by the repetitive questioning which was never going to accomplish much (plenty would say the same about Crikey!), until an aggrieved mother pleaded her case and mentioned that her husband had been fighting this for four years.

This set alarm bells a-ringing and suggested that perhaps the company was not so earnest in its efforts to come to a speedy resolution, instead using its legal armoury to grind down the workers.

This angry shareholder’s plea certainly carried more compelling argument than the seven or eight speakers before her.

While no outside observer like Crikey can possibly make an informed judgment on the merits of the workers’ case against the company’s defence, the fact that this dispute has dragged on four years inclines one to believe that the company isn’t doing all it can to resolve the matter.

There’s certainly no incentive on the workers’ part to have the dispute drag on this long.

While Wilson assured the meeting that it was in the company’s best interests to have the cases resolved quickly, it also wouldn’t be such a bad outcome for the company if it dragged on so long that the workers’ resources and spirit were completely exhausted.

But back to the meeting itself.

There were 13 items of business for the meeting, so it was a good thing it started early.

The first two items were to create a new class of shares to facilitate the smooth movement of funds between the Australian and UK companies through payment of dividends and to change the Australian and UK companies’ constitutions to provide for this new class of share. These resolutions passed without comment.

The third resolution was to change the UK company’s constitution to increase the maximum amount payable to non executive directors from STG 500,000 to STG 750,000 and to change the conversion rate from STG 1 = AUD 2.10 to STG 1 = AUD 2.75. The combined effect of these changes would be to almost double in Australian dollar terms the maximum amount payable to directors from AUD 1,050,000 to AUD 2,062,500.

While this is a hefty jump, it brings the UK company’s constitution in line with the Australian company’s constitution, which has a maximum limit of $2 million. The old conversion rate was set in 1995 and is now obviously out-dated. This resolution was also passed without comment.

The next six resolutions were to re-elect directors, which was where business was fixin’ to pick up.

The gent from the ASA trotted out the old doozy of “how about we hear from each of the candidates”. Personally, I’m not a big fan of this one. For starters, the instos are going to vote every board-endorsed candidate in anyway. Secondly, how brilliant or abysmal can anyone’s 30-second spray be that it could possibly change a shareholder’s mind?

The chairman gave this suggestion short shrift – in the politest possible Oxbridge manner – and moved on, saying it is an uncommon practice. After another question, our ASA man was up again, saying that plenty of companies here did it.

Wilson countered, saying that while it may not be uncommon down under, it certainly was in the Old Dart, and we’re not having one rule for the Aussie AGM and another for the Pommy AGM, baby. (To get the true picture of this exchange, you’ll need to eschew the colourful Crullers terminology and think of a very polite and well-bred English businessman engaging in a most cultivated rebuke of an equally polite septuagenarian gent.)

Another shareholder got up and, after giving a long spray on the principles of corporate governance, suggested that the board would be running on a slender 8-7 majority of non-executive directors to executive directors. He added that many of the NEDs were not truly independent given that some of them were former EDs and / or have significant commercial dealings with the company.

The chairman’s response to this pointed question wasn’t overly convincing in my book, saying that one of the EDs was retiring, so the majority was now 8-6 – still a slender majority, and the chairman didn’t really address the other point about several NEDs not being truly independent.

Item 10 was to vote in an Executive Incentive and Share Plan. A bloke from the CFMEU stood up and read out a long spray against the plan, citing Corporate Governance International as his source for opposing the resolution. Among other things, he stated that CGI considered the wording of the resolution to be grossly negligent and inadequate, there was insufficient detail in the resolution to allow shareholders to cast an informed vote, there was no meaningful performance hurdle, and the exercise price of the shares should be above the current market price of the shares – certainly not 20% below as was the case here.

Chairman Wilson smashed these allegations right out of the park, first saying that he’d never heard of CGI, then asserting that the exercise price of the options was “at full market price” and that CGI had a “fundamental mis-understanding – they seemed to be talking about the employee, not the executive, share plan”.

The union bloke piped up again and said “doesn’t this just prove the point that the resolution is unclear?”

The chairman said he was “sorry that if they had these concerns that they didn’t come and talk to me about them”.

Now in our experience the chaps at CGI are generally among the sharper knives in the drawer, so we find it a little difficult to believe that they would get something so manifestly wrong – either Wilson was whistling Dixie or something was lost in the translation by our CFMEU man.

Here’s what the resolution said:

“The Company has also introduced a Share Savings Plan for all employees including executive directors. The basis of this plan is as follows:

(a) options may be granted with an exercise price at a discount of up to 20 per cent of the market price at the time of the offer”

Seems to us the chaps at CGI were on the money.

Later in the resolution the explanatory notes say:

“Since the last approval of awards under these plans was given at the 2001 annual general meeting, 959 options have been issued to Mr RL Clifford under the Share Savings Plan; these were granted at an exercise price of $27.86.”

With Rio Tinto’s share price currently hovering around $37, CEO Leigh Clifford is currently sitting on a juicy risk-free profit of around $8,750.

Nice money if you can get it.

The fact that this generous scheme got through perhaps supports the earlier point about the absence of a majority of truly independent NEDs.

Next, a feisty old dame who Ma and Pa Crullers know from the local gardening club or some such grabbed the microphone and delivered a rambling diatribe somewhat reminiscent of the great Jack Tilburn, absent the hell, fire and brimstone. Among the many points raised were the fact that there were no women on the 15-man board, chairman Wilson “has a very nice voice”, perhaps we should have a minute’s silence for the 6 workers who died during the year, and it would be better if we could generate a bit of debate with the chairman and hear from each candidate as suggested by the ASA rep because otherwise “it doesn’t make for a very interesting meeting”.

“I’m a clear thinker,” she insisted several times.

When it came to the re-appointment of auditors, Crullers grabbed the mike and pulled out his least preferred question – how about farming out some work to others? PwC charged Rio Tinto $4 million for their audit last year, but earned more than this in non-audit services, including $2.2 million in those mysterious “other” services which keep cropping up in annual reports.

The chairman said that PwC get only about 30% of the available non-audit work, which is not out of line with their market share in the bean-counting industry. That includes some statutory work which must go to the company’s auditors.

The last but not least item on the agenda was debate on the company’s industrial relations record, err, sorry – debate on the accounts.

Without wanting to appear unsympathetic to workers with legitimate claims, raising them at an AGM really doesn’t achieve much as we said before. The protests out front are good in that they raise public awareness and will get the story on the evening news and hopefully generate some social and / or political pressure on the company.

But nobody gives a flying fig about what goes on inside the meeting, so all that an endless stream of the same questions and answers will do is alienate the old timers who want to get their sangers after the meeting.

Of course, it wouldn’t be a multinational mining company’s AGM without the obligatory greenie protestor. This one was far more civilised than the rabble the Clan Crullers encountered outside the meeting, but boy, did he go on. And on. And on

The nub of his question was this – “can the chairman assure us that the company will not mine Jabiluka if the traditional land owners do not approve?”

The nub of the chairman’s response was “yes”.

All up, it took us a good 5 minutes to get to that point.

Wilson was nothing if not patient throughout the meeting.

After a good hour on industrial relations and environmental issues, finally our man from the ASA managed to snaffle the microphone and ask a question about whether PwC stood by their previous audits – the US$644 million asset write down seems to suggest that prior accounts were inaccurate.

The chairman defended PwC, saying that the asset valuation process was the directors’ responsibility. PwC’s role as auditor was to verify that the process was adhered to and that it was reasonable.

The chairman explained that the reason for the write-down of the company’s Utah copper assets was that in preparing the current year’s accounts, they had to change the assumptions on which their copper assets were valued because they saw no prospect of improvement in the price of copper.

After another greenie question, finally the chairman looked over in Crullers’ direction and saw a potential RSI claim coming along with Crullers’ arm going up and down like a honeymoon never-you-mind. (Better not say cos Ma Crullers will no doubt run the peepers over this one to make sure I haven’t poked fun at her.)

My first question was whether there were any other nasty surprises lurking given the significant Utah copper write-down – I said it was a bit of a worry that such a big hit to the company’s profit could come merely through commodity price movement.

The chairman insisted that all assumptions used in valuing assets were valid, but again, this doesn’t really deny the possibility that the same thing might happen again. Of course, there is no way anyone can guarantee that commodity prices won’t move against the company in the future.

My next question concerned an investment in $735 million of additional coal reserves made by the subsidiary that had suffered the copper asset write-down. I noted that one analyst had said “Rio Tinto had paid more than it originally anticipated” and the company’s share price fell almost 2 per cent on the day of the announcement, hardly inspiring confidence that this is a good deal for the company.

The chairman said that he was happy with the purchase, although it was true that they had paid more than they and others had expected, but the market heated up when it came time to seal the deal.

Finally, I asked about a $141 million provision buried in Contingent Liabilities which related to a contaminated water clean up that the company was currently negotiating with the US Environmental Protection Agency. (Who says Crullers doesn’t care about the environment?)

This foul up was made by the same beleaguered US subsidiary that had suffered the copper asset write-downs.

I asked whether the chairman can assure shareholders that the US$141m provision for clean-up costs is adequate, especially in light of the fact that the notes indicate that “the ultimate cost is uncertain” as the final clean-up requirements have not been agreed with the relevant authorities.

The chairman pointed out that the contamination occurred before this company became a subsidiary of Rio Tinto, so it is hard to be critical of the company for this one. I wasn’t really paying attention to his answer at this point, with the mind wandering to how I was going to make a quick exit at duck downstairs for the AXA AGM. I think the chairman just trotted out the usual platitudes about how well they’re doing in handling their environmental responsibilities.

No doubt the greenies would be of a different mind.

One would suggest the truth lies somewhere in between.

Sadly, the AXA AGM was already over by the time I got there, so I had to content myself with a few sangers upstairs.

In typically pragmatic Crullers style, Pa Crullers said, “eat up, because you’re not getting any dinner at home tonight”.

Feedback to:

And here’s what the Crikey Army has had to say about Rio Tinto’s questionable IR practices:

“Dear Crullers,

Having some knowledge of Rio’s IR practices in the coal industry, your sneaking suspicion that they are using every opportunity to drag out the legal proceedings concerning reinstatement of sacked miners is correct. And I have no problem whatsoever with workers, their families, MPs (whatever the sophistication of their diction) or any body else taking a crack at the suits out the front.

It’s not that you get much of a chance to front the execs on their excesses.



I thought you were a tad harsh on Kerry Hickey.

You’ve got to cut Kerry some slack. As the member for Cessnock he is entitled to be a little distracted at the moment given the parachuting in of Michael Costa into his electorate.

Kerry defected from the Right to the Left; a development that has not enamoured him to the heavy hitters in Head Office (ALP).

In this context the odd gaffe here & there by Kezza is perfectly understandable.



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Peter Fray
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