By Stephen Mayne


The extraordinary rolling of Rio Tinto
last week by Australian institutions – on the question of banning US
shareholder class actions – sparked some interesting commentary, none
more so than News Ltd’s Terry McCrann
who couldn’t comprehend the rationale when he asked, “Why would you want
to sue in the US, not your home town? And why would you want to reserve
the right to litigation that would probably hurt you as a shareholder?”

Forum shopping is not something which should be encouraged in
the first place. If Rio Tinto can adopt a constitution which says it
can only be sued in Victoria, England or Wales, what’s to stop the next
HIH from incorporating in North Korea and declaring it can only be
sued there?

Besides, this is not about shareholders suing
shareholders. The Enron and WorldCom class actions and settlements
demonstrate that the big payouts usually come from third party
advisers, such as Citigroup and JP Morgan. And in the US, you don’t
have to be a party to a class action to share in any payout. Therefore,
why would Rio Tinto’s Australian shareholders want to shut the door on
this if the unthinkable happened and the Rio board perpetrated a fraud
on its shareholders and some aggressive plaintiff lawyer bankrolled a
class action and had a big victory.

In exploring why the new constitution was withdrawn, McCrann blundered in writing:

Was it driven by global into lobby group ISS – which
changed its mind between the Rio PLC meeting in London three weeks ago
and the local Rio Ltd meeting in Melbourne yesterday? ISS recommended
the exact same resolution in London, ISS recommended against it in
Melbourne.

Wrong. The AFR correctly pointed out that ISS was entirely
consistent across both meetings, it was just that its UK clients,
primarily the National Association of Pension Funds, didn’t follow its
voting advice. ISS publicly signalled its concern when the following
appeared in The AFR on 11 April, before Rio’s London AGM:

Dean Paatsch, of international corporate governance
advisers ISS Proxy Australia, said yesterday Rio Tinto’s proposed
amendment was not something it would generally support. “We
generally don’t view limiting jurisdictions as being shareholder
friendly,” Mr Paatsch said.

Having said that, why would they tell Rio’s UK shareholders to endorse such a move?

ISS is emerging as quite a kingmaker in corporate Australia and has
been influential in the various struggles against News Corp and Rupert
Murdoch’s deceptive poison pill acrobatics. This makes it somewhat
ironic that the Herald Sun’s film critic is a chap called Leigh Paatsch, brother of ISS chief Dean Paatsch.

Finally, Rio Tinto chairman Paul Skinner should have a good look at
himself. He treated small shareholders with contempt last week and, if
you can believe McCrann, refused to engage with his institutional
shareholders, who turned around and rolled him.

Surely it’s time to finally have an Australian chairman of Rio and
shift the global headquarters from London back to Melbourne. The
company is now worth almost $100 billion (including debt) and half its
assets are in Australia. Given the UK shares trade at a discount, what
is the point of staying in a market that doesn’t rate the shares very
highly?

Peter Fray

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