Corporate governance round table

Transcription

1 17 March 2015 Corporate governance round table London

2 17 March 2015 Jan du Plessis Chairman, Rio Tinto

3 Safety briefing 3

4 Who we are 4 Jan du Plessis John Varley Ann Godbehere Richard Goodmanson Eleanor Evans Chairman of the Board Chairman of the Nominations Committee Senior independent director Chairman of the Remuneration Committee Chairman of the Audit Committee Chairman of the Sustainability Committee Company secretary

5 Plan for the discussion 5 Time Programme Speaker 15: Board and Nominations Committee Jan du Plessis 15:20 15:40 Audit Committee Ann Godbehere 15:40 16:00 Sustainability Committee Richard Goodmanson 16:00 16:20 Remuneration Committee John Varley 16:20 16:30 Conclusions Jan du Plessis 16:30 17:00 Questions All

6 2014 changes in board composition 6 NED appointments Anne Lauvergeon (March 2014) Simon Thompson (April 2014) Michael L Estrange (August 2014) Megan Clark (November 2014) NED Retirements Vivienne Cox (April 2014) Experience and past/present positions CEO of AREVA Group Non-executive director of Total and American Express Company Executive director of Anglo American Chairman of Tullow Oil, Non-executive director of Newmont Mining Corporation and Rusal Secretary of the Australian DFAT Head of National Security College at the Australian National University CEO of CSIRO Vice President Health, Safety, Environment, Community and Sustainability with BHP Billiton

7 Our board 7 Chairman Executive directors Non-executive directors Jan du Plessis Sam Walsh Chris Lynch Robert Brown Megan Clark Michael Fitzpatrick (retiring May 2015) Ann Godbehere Richard Goodmanson Lord (John) Kerr (retiring May 2015) Anne Lauvergeon Michael L Estrange Paul Tellier Simon Thompson John Varley

8 Board commitment 8 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

9 How we spend our time at board meetings 9 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

10 Our board committees 10 Five committees: Audit Sustainability Remuneration Nominations Chairman s Reports by committee chairs to the board and active engagement on critical issues

11 Chairman s Committee 11 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.

12 Nominations Committee 12 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

13 17 March 2015 Ann Godbehere Chairman of the Audit Committee

14 Content 14 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

15 Membership 15 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

16 Role 16 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

17 Areas of focus 17 Financial reporting Accounting policies Internal control Integrity Compliance External auditors Audit and Assurance Risk management framework Reserves and resources reporting

18 Meeting schedule and key topics in 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

19 Financial reporting oversight 19 Board responsibility + Audit Committee review True and fair view Fair, balanced and understandable Going concern

20 20 Financial reporting Audit Committee oversight Financial reporting Review of accounting policies Internal control over financial reporting Review effectiveness of the Group s internal financial controls Review of significant reporting issues and material judgments Review estimation and reporting of Ore Reserves and Resources Monitoring the integrity and FBU 1 of the financial statements Review the Group s material controls over financial reporting Review of going concern and viability assessment Review and approve annual statement on internal control over financial reporting 1. Fair, balanced and understandable assessment

21 Internal audit 21 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 COSO 1 internal control framework and has been updated for the 2013 revision of the COSO framework 1. Committee of Sponsoring Organizations of the Treadway Commission.

22 Business ownership and strong risk governance 22 Risk management framework Board (and the Committees) Three lines of defence Business operations Group Risk CEO (and the Executive Committee) Risk Management Committee Business operations Group Audit & Assurance First line of defence: Ownership Group functions and management committees Second line of defence: Control Group Audit & Assurance Group functions Third line of defence: Assurance

23 Risk management governance oversight by the Audit Committee 23 Regular review of the effectiveness of the risk management framework Oversight of key risks within the Committee s terms of reference Benchmarking against leading practice Deep dives Risk culture Findings from risk management related internal audits Internal audits

24 External audit 24 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 2014: $14.7m (2013: $15.3m) Review and approval PwC s non-audit services 2014: $3.4m (2013: $6.4m) 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

25 Audit tendering and auditor rotation 25 Current audit partners UK: Richard Hughes Australia: Paul Bendall 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

26 Key areas of focus in Annual Report Audit Committee Impairments, impairment triggers and potential impairment reversals Key accounting policies and judgments exclusions from underlying earnings and divestments Provision for uncertain tax positions, recoverability of deferred tax assets and repeal of Australian mineral resources rent tax (MRRT) Asset carrying values, and in particular Oyu Tolgoi, Rio Tinto Aluminium and Simandou Close-down, restoration and environmental obligations Ore reserves and mineral resources review Defined benefit pension plan surpluses and deficits Control environment during finance transformation and shared services transition External Auditors opinion Impairment assessment Provision for uncertain tax positions and MRRT repeal Close down, restoration and environmental obligations Valuation of pension liabilities Review of key controls over finance transformation and shared services outsourcing Risk of management override of internal controls

27 Recent UK changes to corporate reporting 27 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 Independent auditors report The auditor s opinion includes discussion on where they focused their efforts during their audit and described their materiality threshold Strategic report Requirement to produce a Strategic report in lieu of summary financial statements and the Annual review Viability statement Risk assessment statement

28 17 March 2015 Richard Goodmanson Chairman, Sustainability Committee Hamersley Agricultural Project, Pilbara, Western Australia

29 Content 29 Governance processes Results and priorities Summary

30 Committee membership 30 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

31 Role 31 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)

32 Areas of focus 32 Safety Health Employment practices Community relations Environment Human rights Land access Political involvement

33 Meeting schedule and key topics in 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 *comparative study

34 Sustainability: a critical business priority 34 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

35 Sustainability: a critical business priority 35 Multiple trade-offs and agendas To maintain / enhance licence to operate Use of scarce natural resources Meeting societal expectations Societal expectations Water Land + Cultural and environmental respect Sustain and grow Energy Atmosphere Biodiversity Economic development Transparent governance At risk Efficiency Effectiveness Time

36 The what and the how of sustainability 36 Multiple trade-offs and agendas Use of scarce natural resources Meeting societal expectations Strategy Water Land Energy Atmosphere Biodiversity + Cultural and environmental respect Economic development Transparent governance Efficiency Effectiveness Execution Organisation

37 Awards, Accreditation 37 Dow Jones Sustainability Index FTSE4Good Index Series ACSI Comprehensive CDP Carbon Disclosure Project (Carbon and Water) Responsible Jewellery Council Conflict Minerals ISO and OHSAS ICMM Global Reporting Initiative

38 Assurance 38 Risk / Hazard Standards, Guidance, operating practices First party audits operations Three layers of assurance Business conformance audits Group Audit and Assurance Avoided event

39 Performance 39 AIFR Rio Tinto All injury frequency rate

40 Safety current priorities 40 Focus on fatality risk controls Process safety Learning lessons Contractor safety management Dampier Salt, Western Australia critical risk control validation

41 Health current priorities 41 Emergency response Vector borne diseases Occupational health Mental health Rössing Uranium, Namibia monitoring air quality

42 Communities current priorities 42 Agreements Capacity building Resettlement Heritage Heritage survey in Pilbara

43 Environment current priorities 43 Climate change Water Mineral waste management Closure QMM, Madagascar mangroves

44 Sustainability summary 44 Leadership Processes Capability Resources Assurance

45 17 March 2015 John Varley Chairman of the Remuneration Committee

46 Content 46 Membership Role and areas of focus Annual meeting schedule and key topics for 2014 The Committee s independent advisor The Remuneration Report The application of discretion 2014 performance and remuneration 2015 decisions Measures, Targets and Disclosures Share Ownership

47 Membership 47 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 Advisors Towers Watson Mark Reid (UK) Committee advisor since August 2013 John Finlay (Australia) Committee advisor since August 2013

48 Role 48 The role of Remuneration Committee to: Assist Board in oversight responsibility to shareholders Ensure remuneration policy and practices reward fairly and responsibly Ensure clear link between reward outcomes and corporate and individual performance (including delivery of strategy)

49 Areas of focus 49 Delivery of strategy Shareholder alignment Superior returns Long term focus Attracting, retaining and motivating talent Pay for performance, value for money Health and Safety Regulation

50 Meeting schedule and key topics in

51 The Committee s independent advisor 51 Selection process conducted in 2013 Five years since previous review Open tendering and interview process Included sitting advisor, 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

52 The Remuneration Report Remuneration Report follows same structure as 2013 Report Updated Remuneration Policy tabled to seek approval for changes to notice periods for CEO and CFO Risk management section of Report updated

53 The application of discretion malus and clawback 53 Malus and claw back applicable by Committee Committee authority to reduce or cancel PSP awards made from 2013 Committee authority to recover value of vested PSP awards from 2013

54 2014 performance and remuneration STIP Awards for ExCo range from target to above target levels LTIP awards vesting at the end of PSP award (73.5 % face value) 2012 SOP award (100 % face value, strike price )

55 Measures, Targets and Disclosures 55 STIP Measures disclosed in advance Safety targets disclosed in advance Financial and individual targets disclosed in arrears Achievement against targets in Implementation Report LTIP Measures and targets disclosed in advance Achievement against targets in Implementation Report

56 2015 decisions Base salaries Adjustments mostly in line with broader salary budgets Alan Davies and Jean-Sébastien Jacques 2015 LTIP awards similar quantum to STIP measures focus on safety, earnings, cash flow, cost and capital expenditure

57 Share ownership for senior executives 57 Policy Executive directors Executive Committee members Other executives in roles below the ExCo

58 17 March 2015 Corporate governance round table London