BUSN603 Assignment: Governance and Risk Management Audit of Rio Tinto

This report provides a comprehensive governance and risk management audit of Rio Tinto, a leading mining company. It begins with an introduction to Rio Tinto's operations and its commitment to sustainable development. The report then examines the company's corporate governance structure, i...Read More

Governance and Risk Management Audit Exercise
Table of contents
Introduction......................................................................................................................................2
Sustainable development.................................................................................................................2
Corporate governance at Rio Tinto..................................................................................................4
Governance Framework and Structure............................................................................................5
contextual overview of the organisation/business unit/issue and information on key
personnel/groups/stakeholders.....................................................................................................5
Risk management and financial reporting.......................................................................................6
Risk management.........................................................................................................................6
CSR at Rio Tinto.............................................................................................................................7
Specific Governance Or CSR Statement.....................................................................................7
The advantages attained by the company in relation to the implementation of CSR......................9
Gap analysis.....................................................................................................................................9
Reasons behind such gaps.............................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
Rio Tinto is considered to be one of the main leaders in mining, discovering the mineral
resources of the earth. The products and services of the company tend to help in fulfilling the
needs and demands of consumer thereby enhancing the standard of living. The country has an
operation in 40 different countries and tends to be a producer of copper, coal, iron ore, gold,
industrial minerals. The company takes into consideration health and safety as the first priority in
anything that it does (Mining Oil and Gas Jobs, 2019).
Since the last 145 years, the company has been leaders in the production of the materials that are
important for the progress of the human being. It is the minerals and metals that is produced has
a major role to play in different items in innovative technologies that assist in making the life
modern. The work performed by the company tends to possess the scope to impact the people,
environment and the communities as a whole in a positive and negative manner. The company
tends to work in collaboration with the ones affected in order to reduce the negative impacts and
for the purpose of sharing the wealth and the advantages that the business organization tends to
develop within the short and long period of time. The company tends to continuously involve
itself in innovation in order to improve the quality of the work.
Sustainable development
As per the principle of sustainable development, it is argued that an organization needs to be
making proper decisions not only as per the economic factors or financials but has been based
upon long term causes. The manner in which the managers tend to implement the responsibilities
tends to be effected by means of tradition, values, culture, and values (Rupp & Ganapathi,
2017).
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Though the shareholder's value maximization tends to play a major role for the corporations all
over the globe, the increase in the social activism along with the rise in new prospect have led
other aspects of corporate performance to be assessed along with the financial results. When the
firm tends to increase in terms of size as well as impact there do not contribute to the global
economy but they reunite and they tend to balance different lines and tend to administer the
interest of numerous stakeholders. In the recent times, it has been identified that organizations
tend to be more prone to widen the foundation of performance appraisals basically from short
term financial focus and comprises of long term social, environmental along with economic
aspects (Soonawalla, 2005).
In the concept of corporate governance and corporate social responsibility, companies tend to be
stimulated in order to promote principles, transparency, accountability, and fairness in all the
dealings. The companies are supposed to generate profits thereby following the uppermost
standards of governance in all aspects. The decision of the firm needs to be united with the
interest of different players in and outside of the company. It becomes essential for the business
houses to keep their activities accustomed to the ethical, legal and communal aspirations. The
significance of corporate governance prevails in its search at refining the laws, contracts, and
regulations that tend to monitor the operation of the company (Cadbury, 2012). It also further
ensures that the rights of the shareholders are properly safeguarded and the interest of the
manager tends to be reconciled and there is a transparent environment where the parties are
capable of understanding their roles and responsibilities properly thereby leading to corporate
growth and creation of value. It is a well-known fact that corporate governance tends to be linked
with honesty as well as transparency that tends to be expected from the public in case of
corporate dealings as well as disclosure. The confidence of the investor along with market
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efficiency tends to be associated with the disclosure of adequate information regarding corporate
performance. In order to attain value in the capital market, it is important for the disclosed
information to be clear and consistent. There is a need for transparency and disclosure of
information taking place between the manager as well as employees so that employee trust, as
well as commitment, can be easily attained. Such factors tend to ensure that the companies
possess accurate and timely reporting of the activities thereby offering needed underpinnings that
would assist in the implementation of the sound governance methods. The factors that have been
stated above tend to pay attention to internal governance methods (Barnett, 2007). Corporate
governance also needs to take into consideration external governance methods that would
comprise of takeover market as well as legal systems. Corporate governance moves around
universal features and ensures that businesses are accountable to shareholders as well as
stakeholders thereby developing methods in order to monitor the behaviour of the managers and
ensuring the fact that companies operate as per the laws and are answerable for all the
stakeholders.
Corporate governance at Rio Tinto
It can be mentioned that Rio Tinto plc. and Rio Tinto Limited developed a dual listed company’s
structure in the year 1995. Hence, it is because of this reason the two companies tends to be
administered as one particular unit, while two companies are a separate legal entity with different
share listings as well as share registers. The headquarters of Rio Tinto has been in London and
the main office of the company has been in Melbourne. Rio Tinto plc. along with Rio Tinto
Limited has made use of a similar method to corporate governance. They tend to make use of the
principles that have been detailed in the UK Corporate Governance Code, the ASX Corporate
Governance Council’s Corporate Governance Principles and NYSE Corporate Governance
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Standards. There are huge numbers of companies belonging to the Rio Tinto Group (Rio Tinto,
2017).
Governance Framework and Structure
contextual overview of the organisation/business unit/issue and information on key
personnel/groups/stakeholders.
Rio Tinto’s tends to act responsibly and this proves to be important for the success of the
company as the whole and for the generation of the shareholder's value. It can be revealed that
the company takes into consideration a unified method for corporate governance in order to
abide by regulatory obligations linked with three main stock exchange’s listing such as the UK,
US, and Australia. It can be noted that in 2018 and during the date of the annual report of 2018,
the Group tried to implement the principles of and also tried to abide by provisions of ASX
principles, the Code. The notice in relation to the annual general meeting and other papers were
mailed to shareholders just 17 days before meeting rather than 20 days. This was because of the
technical issues in generating 2017 Annual report in order to abide by new reporting needs. The
company has evaluated the NYSE standards and thus believes the fact that its practices tend to be
consistent with them. According to NYSE standards, it is important for the companies to
comprise of a corporate governance committee that has independent directors which thereby
determining to become the board members tries to create and suggest boarding different
corporate governance principles that is suitable for the company. Rio Tinto comprises of
Nomination Committee and independent nonexecutive directors who have their respective roles
in the company. It can be revealed that this particular committee is not liable to prepare corporate
governance principles for the approval of the board while the board is responsible to perform the
task itself (Rio Tinto, 2017).
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It can be revealed that the company’s commitment to integrity has been clearly mentioned in
global codes of business conduct. It tends to demonstrate the behaviour of the employee that is
expected inconsistent with Rio Tinto’s values, teamwork, respect, excellence, and integrity.
The company makes the best effort in order to ensure the fact that standards created by it are paid
attention all the times and for encouraging non-managed businesses in order to implement the
same policies and standards of their own.
Risk management and financial reporting
The directors are supposed to prepare the financial statements each year in order to offer true
view regarding the state of affairs of Group and also for the profit and loss and cash flow.
According to the UK Corporate Governance Code it is mandatory for the board to offer fair and
balanced evaluation of the position of the company along with prospects in case of external
reporting. The directors of the company need to possess proper accounting records as per UK
and Australian legislation.
Risk management
Rio Tinto faces different types of risks that might possess financial, operational as well as other
impacts on the performance, the reputation of the company. The Group tries to ascertain the fact
that development of shareholders return can be considered a reward for accepting risks. It is
important to have proper management of risk in order to endorse the delivery of the strategic
objective of a group. The company’s approach towards risk management has been focused on
instilling risk-aware culture while making decisions along with commitments to administer the
risk in an efficient manner. this shall comprise of early determination and assessment of the
risks, mitigation of the risks and dealing with them in an effective manner when they materialize.
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In order to endorse risk understanding and management of the risks at distinct levels, the group
risk function tires to offer the required resources in order to endorse the management and
reporting of the material risks in Group. It also tries to address significant issues within the
management team and finally to the board wherever implementable. The method of determining,
assessing and administering the material business risks has been developed in order to administer
instead of removing risks and if adequate to accept the risks so that huge returns can be earned
(Mackenzie, 2016).
CSR at Rio Tinto
Specific Governance Or CSR Statement
Rio Tinto has one line slogan in relation to corporate social responsibility which has been “ The
Way We Work”. It can be noted that the company has created different activities for the
involvement of society. CSR activities and involvement tends to be different in different forms.
It begins with the site association creation with the local group to trust for the national and level
corporate social responsibility. It also comprises of partnering with different NGOs for corporate
social responsibility. Such trust tends to be created internally by the company and also
administered by Rio Tinto internally. Although, it can be noted that the company tends to
implement numerous activities and involvement for the corporate social responsibility. It is noted
that the main foundation of the corporate social responsibility activities for Rio Tinto has been
the NGO approach where it is noted that NGOs tries to comprehend the importance of Rio
Tinto’s main business issues. The partnership approach that belongs to corporate social
responsibility is dependent upon the situation of considering the global concerns
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whether it shall have an impact over the global reach or the local community. One of the main
examples associated with the partnership of Rio Tinto for CSR has been the method of Bio
Diversity conservation. The management of the Rio Tinto along with the partnership with
stakeholders tries to talk regarding biodiversity-related issues and has partnered with the Earth
watch Institute. In the year 1993, the company created a fellowship program where the company
tried to involve about 24 employees in the program. The company has also got responsible for
the rainforest of Cameroon and conservation rain forest of Indonesia. The company as a
corporate social responsibility activity involved in volunteering activities for helping in
supplying the value funds and skilled labours basically for the projects. It can be revealed that
the company has also partnered with different NGOs such as BirdLife International, Royal
Botanic Garden in Kew WWF Australia an among others. The company as part of CSR activities
also partnered with birdlife international because of the fact that birds are considered to be the
main indicator of environmental health and biodiversity (Rio Tinto, 2019).
It has been identified that the company has also implemented the legitimacy theory for CSR
activities. Rio Tinto implements CSR activities during their operation such as Corporate
Governance, land Access, Political involvement, sustainable development, and safety. As part of
the CSR activities, it has been identified that the company tends to invest money in different
community development programs. Some examples of it have been donations, infrastructure
support basically for different purpose of the community, educational funds, partnering with
numerous bodies. It has been identified that Rio Tinto has been recognised as being the most
socially responsible company in the year 2006 by BRW (Rio Tinto, 2017).
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The advantages attained by the company in relation to the implementation of CSR
It can be revealed that involvement and partnering with different bodies help the company to
comprehend the issues and concerns of stakeholders. CSR tends to assist Rio Tinto to alert
regarding the risks quite before that helps in administering the risks of biodiversity. It is the CSR
activities that assist the organization to achieve specialist knowledge regarding the business
issues.. It is by means of the corporate social responsibility activities the company shall attain
knowledge regarding enduring community enhancements as the main responsibility of the
company. The best part of the Rio Tinto has been that it always tries to generate trust and
reputation in the community by means of CSR activities. It can further be revealed that CSR can
be utilized by Rio Tinto as a means of developing a brand of the company. It is CSR that assist
Rio Tinto in developing strong brands and long term association with the customers. CSR assist
Rio Tinto in advising the company of risks quite before related to biodiversity. It assists the
company to take steps in an organized and systematic manner. Rio Tinto takes into consideration
the health and safety of employees as the main priority because it is well aware of the fact that
these two factors are important for the well being of employees. It leads to sustainable
development and also works in collaboration with the host country in relation to laws and
customs (Rio Tinto, 2019).
Gap analysis
It can that Rio Tinto’s code of conduct has been quite good and is identified as a good corporate
citizenry and also as the main expression related to the values of the company. It can further be
stated that the company has been considered by different ethical business rankings to be a
pioneer in the mining sector. It has attained high accolades through ethical indices such as FTSEs
good ethical share index. Prior to being acknowledged as a provider of metals for 2012 Olympics
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medals, the company had to pass through an audit. The company was certified as being an
accountable mining company by one of the well known group namely Responsible Jewellery
Council (RCJ). The certification attesting with the highest ethical and environmental standards
leads to several questions regarding the impact of Rio Tinto over RJC. It was noted that the
organizers of the Olympics in London were condemned for electing Rio Tinto without making
use of the service provider protocols basically for the purposed of auditing and certification. It
had been a rushed through a method that made Rio Tinto the first mining company in order to
attain the recognition. It can be revealed that the award had been fated by human rights NGOs
and IndustriALL Global Union. It is noted that IndustriALL along with several activists in the
globe voted Rio Tinto to be a nastiest company associated with the London Olympics in an
award ceremony namely Greenwash awards (Industriall, 2019).
It has also been found that Rio Tinto also doesn’t prefer to involve trade unions in case of
negotiations. They think it’s best to limit the discussion within workers themselves rather than
having the third party involved. This practice is referred to as direct involvement. Trade unions
do not have any place in Rio Tinto world and are considered an obstruction and risk to
suppleness (Industriall, 2019).
Reasons behind such gaps
Governance and risk management auditing can be considered as the method of evaluating the
internal as well as external consistency associated with values of organisation. . The main aspect
has been that it is value associated and comprises of stakeholders approach. There are two main
objectives of these approaches such as accountability as well as transparency towards the
stakeholders and it is also intended basically for internal control with the objective to meet the
governance objectives linked with the organisation (Jamali, 2018).
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It can be revealed that the main reasons behind such a gap have been the inadequate corporate
governance structures and risk auditing (Mirshak, 2015). It is governance structures and
auditing that helps an organization to attain the trust of shareholders and fair dealings with
different parties involved as well. The main objective of governance and risk management audit
has been to offer the organization with scope to track the progress each year and also to locate if
there is some work that needs to be done in relation to governance and risk management
objectives. Accountability demands that the stakeholders are offered with all the information that
they need because they possess the right to. In the context of Rio Tinto, it has been identified that
it doesn’t want to involve Trade Union in the process of negotiations and considers it an external
party. They believe in direct involvement.
Conclusion
CSR activities can be utilized by the company as one of the strategies in order to minimize the
risk and for escalating the amount of profit. This can be done by creating a strong association
with the customers and society. CSR can also be utilised as a tool in order to develop a brand of
a company and for the creation of the reputation of Rio Tinto. CSR can assist the company to
fight fierce competition and thus remain leaders in whatever activity it does. It is important for
the company to work over environmental stability. Accountability, transparency basically for
social as well as environmental investment is a major aspect of corporate governance. Rio Tinto
has faced several CSR issues in the near past. The level of commitment and the actions done has
been unbalanced. Hence, it needs to have proper corporate governance and risk auditing plan in
action in order to reduce this type of issues in the coming times. the company already has
corporate governance and risk auditing plan but in light of the issues faced, it is important that
the company tries to modify and re-examine its corporate governance structures.
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References
Barnett, M., 2019. Stakeholder influence capacity and the variability of financial returns to
corporate social responsibility, Academy of Management Review, Vol. 32, pp: 794–816.
Cadbury, A., 2012 The corporate governance agenda, Journal of Corporate Governance,
Practice-Based Papers, Vol. 8, pp: 7–15.
Industriall, 2019. SPECIAL REPORT: Rio Tinto unsustainable business practice. Home.
[Online] Available at: http://www.industriall-union.org/rio-tinto-unsustainable-business-practice
[Accessed May 22, 2019].
Jamali, D., 2018. A stakeholder approach to corporate social responsibility: Fresh insights into
theory vs practice, Journal of Business Ethics (in press).
Mirshak, R., 2015. Corporate social responsibility: Theory and practice in a developing country
context, Journal of Business Ethics, Vol. 72, pp: 243–62.
Mackenzie, C., 2016. Boards, incentives and corporate social responsibility: The case for a
change of emphasis, Corporate Governance: An International Review, Vol.15, pp: 935–43.
Mining Oil and Gas Jobs, 2019. About Rio Tinto. Home. [Online] Available at:
https://www.miningoilandgasjobs.com/minisites/riotinto/about-rio-tinto/ [Accessed May 22,
2019].
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Rio Tinto, 2019. Corporate Governance. Home. [Online] Available at:
https://www.riotinto.com/aboutus/corporate-governance-22039.aspx#faq-4 [Accessed May 22,
2019].
Rupp, D. & Ganapathi, J., 2017. Putting the S back in corporate social responsibility: A
multilevel theory of social change in organizations, Academy of Management Review, Vol. 32,
pp: 836– 63.
Rio Tinto, 2019. The Way We Work. Home. [Online] Available at:
https://www.riotinto.com/documents/RT_The_way_we_work_EN.pdf [Accessed May 22, 2019].
Rio Tinto, 2017. Partnering for progress: 2017 Sustainable Development Report. Home.
[Online] Available at: http://www.riotinto.com/documents/RT_SD2017.pdf [Accessed May 22,
2019].
Soonawalla, K., 2018. From conformance to performance: The corporate responsibilities
continuum, Journal of Accounting and Public Policy, Vol. 24, pp: 165–74
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