BLAW1002 Corporate Governance Case Studies: Volume Seven

1. What areas of law are pertinent to this case study? Describe what the identified areas of law cover, and explain how they are relevant to the issues raised
in the case study.

Answer 1

The case is about Rio Tinto which has borne the heat of the accusations and charges, related to the withheld information of the shareholders. Most of the reputational damage on the Rio Tinto, Albanese and Elliott has eventually caused havoc, with the companies and executives, feeling disclosures importance to the corporate governance. On the 17th of October 2017, not only the Rio Tinto experience inaccurate disclosures and faced fraud charges, but eventually the TCM values against Rio Tinto caused the SEC allegations and led to the lack of accounting standards and compromise on the company policies. The Mozambique assets, accurate value and record, have led to the delay in disclosures and adverse valuations to Rio Tinto’s board of directors, facing the Audit Committee, leading to the compromised independent auditor's roles and investors. Most of the findings have been to safeguard their careers (Wahlquist, 2020). SEC has alleged Rio Tinto'srole in using materially misleading statements, and omissions, and there has been a growing concern when it comes to the total billing displacement of the US$5.5 billion from investors facing the debt offerings. The total amount raised has been approximately US$3 billion which has been obtained from the launch of Albanese and Elliott and facing the RTCM’s negative US$680 million valuation. SEC; 's allegations have questioned the nature and claims when it comes to holding against Albanese and Elliott, making a curious move by the SEC. It has stated the motives behind Albanese and Elliott when it comes to committing the fraud.

SEC Rule 10b-5, emphasises the person who can attempt to defraud or deceive, has a place in the misrepresentation of the material information when it comes to frauding the sale or purchase of the security. Most of Rule 10b-5, emphasises on the illegality for any person to defraud, facing the problems of the material information, and misrepresentation of the information to the public or the disclosure of the information to the non-public information. Manipulative and deceptive practices, emphasis on the direct or indirect information, means, natural securities exchange, causing defraud, There is material fact information, causing the statement problems, circumstances light and leading to the misleading information. As per Sec Rule 10b-5, it comes under the Manipulative and deceptive practices that would make it unlawful for any person, directly or indirectly. Including the instrumentality or interstate commerce, in the national securities exchanges, causing defraud to employ any device, scheming or any intention to defraud. Causing untrue statements of material facts, omitting to state material facts, and circumstances and facing any misleading. Any sort of engagement practice, act, practice or business course to operate and face fraud or deceit for any person in connection to the purchase or sale of a security. As per Sec Rule 10 B-5, the person committing securities fraud, i.e. the intentional misrepresentation of material information, can cause impacts on securities trading including insider trading. A person would however not be limited to any individual and would include businesses, corporations, and possibly any governmental studies (Lowe, 2021). SEC is more about the securities frauds which was notably seen in the Rio Tinto case, where the facts has been mis represented and there has been the private action under 10b-5 leading to issue of the representative problems.

2. What role did regulatory bodies have in investigating the conduct of Rio Tinto in the case study, and what were their findings against the mining giant?

Answer 2

As per the charges and negotiation with the Australian regulation, Rio Tinto has been asked to pay a small penalty for overstating the Mozambique coal reserves in 2012. Moreover, the Australian corporate watchdog has dropped against the allegations over the two top executives in the Australian Securities and Investment Commission (ASIC). As per the Securities and Exchange Commission has announced the charges against the global mining and metals against Rio Tinto PLC, getting charged under the Foreign Corrupt Practices Act (FCPA). The settlement has been charged under A$750,000 ($538,200) including the continuous disclosure and facing the obligations as against the Federal Court charges (Moore, 2022). The company has confirmed the settlement settlement, including a decline in the confirmation to agree over the penalty charges. 2018 case, where ASIC reported about the former chief executive Tom Albanese and the former financial officer Guy Elliott, facing the coal reserves in Mozambique that had been acquired in 2011 from Riversdale Mining for $3.9 billion. Moreover, 2013, shows that Albanese who stepped down within the company has included $3 billion in the assets. Charges which have been finalized in the case, show how the ASIC has dropped out the charges against Albanese and Elliott for the overstating information in the Australian miner case. The case includes the misrepresentation of the information by the ASIC in 2011, in terms of the coal reserves and resources in Mozambique, to face trials of misrepresenting the information and facts (Boege, 2022). 

As per the regulation, ASIC has indicated to the Federal Court, about the declaration in Rio Tinto Ltd. which has breached the Corporations Act "and the inability to face consequences to the continuous disclosure obligations and even facing the civil penalty clauses. But for the SEC, the company is still facing the bribery scheme, which has made them equal to the $15 million civil penalty when it comes to settling SEC charges. As per the SEC ruling, Rio Tinto has faced the refrain in mining rights in the Simandou Mountain and there is an agreement on the services or deliverables. Rio Tinto has been facing $10.5 million for inflating and misrepresenting the information. Rio Tinto payments, books, and records have cost them $822,000 in order to retain their rights. But the internal accounting frauds and misconduct have resulted in the company's failure to face the lack of sanctity of data.

Rio Tinto has faced trials from the US Securities and Exchange Commission (SEC) and even from Rio Tinto's disclosures under the impairment of Rio Tinto Coal Mozambique (RTCM). The SEC has issued a civil complaint, disclosing the RTCM value and not correctly publishing the information of accounts in 2011-2012. The interim results show the SEC case, where the SEC; 's claims have been rejected. Rio Tinto faces trials in the settlement of the United Kingdom’s Financial Conduct Authority (FCA) and facing impairment results. The breach in the FCA's Disclosure and Transparency Rules has been equal to the penalty of £27,385,400 ($36.4 million), which is equal to the size of capitalization (Moore, 2022). FCA has made no correct findings of fraud, leading the widespread failure. As per the Australian Securities and Investments Commission, the case has been updated in the market with the trial of the RTCM. 

3. Discuss how the corporate culture at Rio Tinto contributed to the problems identified by the case study. To what extent do you think weaknesses in risk management, compliance and good governance were contributing factors to the problems at Rio Tinto?

Answer 3

The corporate culture in Rio Tinto is not very strong, even though the policies and the regulations are regulated and strict to comply with the fair and transparent financial statements in each financial period. The true and fair view, in the Group emphasises that the preparation of the financial statements is only for the investors and stakeholders to judge. There is no compliance with the regulation, which can make the group profit and loss cash flows comply with UK corporate Governance codes. In addition, the Australian Corporate Governance Code follows the understandable assessment, to comply with the company's position and follow the external reporting duties (Shrivastava, 2020). However the corporate culture is toxic, where the directors do not maintain transparent accounting records; it is not according to the UK and Australian laws and standards. General responsibility is UK and Australia to be complied with, important to follow the safeguarding group assets and follow the right directives in detecting frauds.

The risk management in the company is weak in the implementation and controlling the tasks. Most of the risks faced are failures when it comes to the financial, operational and compliance impacts on the reputation, license to operate and control. Having the creating shareholder following the reward taking in the accepting risk. Effective management, in the critical risk in the supporting and following the Group’s strategic objectives.

Following the risk policy, standard including, in the risk-aware culture and including the decision-making, commitment to effectively managing the risk. Including the identification along evaluation of risks, the mitigation in materialize, including accountability for risk management in the Group, the Group and is a key performance area of line managers. Corporate culture in Rio Tinto is not very healthy, where the major decisions are taken by the seniors and there is a cause for concern. 

In Rio Tinto, the problem has been in the culture which includes bullying and some of the reports indicate sexual harassment. The growing problem where the multi-diverse environment is pinpointed, having the less experienced racism. The growing toxic culture, having less unusual transparency and facing the firm’s employees. The problem in Rio Tinto is growing concerns when it comes to the racism and bullying problems, with the sexual harassment cases.

The charges show that Rio Tinto has a bad ethical set-up, as the case has damaged the financial repercussions and led to uncurtaining. Customer satisfaction ratings have dramatically declined which has led to more negative impacts. In risk management, and compliance, a growing problem has been the lack of the employee’s psychological safety, causing critical organization problems, learning, adaptation and changes. The organization's safety requires learning, adaptation, changes, and overcoming negative or harmful behaviours. The cultural challenges are described in the employee's experience in reporting, but the problem lies in the lack of appropriate support causing culturally sensitive problems (Shrivastava, 2020). 

4. What is the business structure utilised by Rio Tinto and what are its main features? How does the principle of separate legal existence apply to prevent the directors, employees and shareholders of Rio Tinto from being personally liable to the organisation’s stakeholders for the type of conduct engaged in?

Answer 4

Corporate governance in Rio Tinto follows laws and regulation compliance. Rio Tinto operates with the dual listed companies (DLC) structure. The structure in Rio Tinto follows the position, of the single entity that owns the assets from both the companies following Rio Tinto plc. Rio Tinto Limited, The structure follows the substantially same positions, in the single entity and owns assets in both companies. Rio Tinto's business structure has a dual listing structure where each company has its economic interest in maintaining the DLC structure. 

Even though the company has a separate legal and risk hierarchical wing, most of the decisions have been taken by the corporate governance and management. The legal authorities appointed in the Rio Tinto have little and low decision-making power. Most of the decisions have been taken by the company owners and management authority. Rio Tinto company should follow the principle of separate legal existence applies which is the fundamental principle of law that can incorporate or register, in most of the legal existence separate or different from its owners. directors and officers (Lowe, 2021). The company cannot influence the legal and regulatory person of any sort of rights and obligations. The company should follow and obtain privileges and authorities, which can conduct business, follow and acquire its assets, include transaction entries, sue and be sued in the names. The principle of the separate legal entity should be followed in the dual legal entity as well (Wahlquist, 2020). 

If the company has been following the separate legal entity then the company could have followed the liability and the own debts problems. The shareholders are not liable for the debts and liabilities, which cannot be sued by the company's creditors. Shareholders can be followed by the debtor or creditor who can be sued in the company. The liabilities part of the company can stay in the company, which would not extend to members and fully pay for the shares. Company property includes the direct right and to the full of any share, that is being entitled in the price for getting its shares. Shareholders hold no legal ownership interests within the company's interest, or property and cannot deal with the personal capacity. The corporate culture in Rio Tinto is not very strong, even though the policies and the regulations are regulated and strict to comply with the fair and transparent financial statements in each financial period. The principle of the separate legity can make group more trustable with the emphasises that the preparation of the financial statements is only for the investors and stakeholders to judge (Shrivastava, 2020).. Separate legal entity can make compliance with the regulation, which can make the group profit and loss cash flows comply with UK corporate Governance codes. In addition, Australian Corporate Governance Code follows the understandable assessment, to comply with the company's position and follow the external reporting duties However the corporate culture is toxic, where the directors do not maintain transparent accounting records; it is not

References

Boege, V. (2022). Rio Tinto And Bougainville–A Fatal Connection. A Mine, A War, And An Uncertain Future. Australian Journal of Politics & History, 68(1), 18-35.

Lowen, K. (2021). Cut And Run: The Legacy Of Rio Tinto And The Mine At Panguna.

Lowe, J. (2021). Mining companies have operated with a free rein and few consequences for too long. Chain Reaction, (139), 7-8.

Moore, A. F., & Matthee, M. (2022). When foreign direct investment is threatened: Rio Tinto and Richards Bay Minerals. The CASE Journal, 18(5), 757-785.

 Shrivastava, P., & Vidhi, R. (2020). Pathway to sustainability in the mining industry: A case study of Alcoa and Rio Tinto. Resources, 9(6), 70.

Wahlquist, C. (2020). Juukan Gorge: Rio Tinto blasting of Aboriginal site prompts calls to change antiquated laws. The Guardian.

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