Mind you, Rio’s annual reports account for remuneration in a detail that forced immediate past chairman Jan du Plessis to tell a British Parliamentary committee that even he found it hard to understand.
The original deferral deed forced on Walsh late in 2015 arrived with firm timelines for payment. Under the terms of that deal Walsh was supposed to receive payment by December 31, 2018, of half of his delayed short-term bonus and half of whatever was due under the long-term incentive scheme. The balance was supposed to have been paid on December 31, 2020.
Rio changes the rules
Instead, Rio’s new chairman and its slightly refreshed board have decided to change the rules. Walsh must now wait on some level of positive certainty. How demanding Rio’s new test might be is not clear. Does Walsh get the entitlements earned if he is cleared of any level of wrong-doing but those under his charge do not? Does he earn interest on the deferred issuances when or if they are paid?
The Simandou affair is one of several rolling crises that afflicted Rio through the Albanese era. Simandou is an iron ore deposit in the often uncertain West African sovereignty of Guinea. The project has proven as rich in complication as it is in quality.
At several points before May 2011, Rio appeared to lose control of its Guinean future. In 2010, the company hired a French investment banker, Francois de Combret, to act as its go-between with the government of Guinea.
Close to the then Guinean president, Alpha Conde, de Combret was selected from a panel of four intermediary options that was presented to the executive committee. In April/May of 2011 a deal was struck and Rio recovered two of the four Simandou concessions at a cost of $US700 million, which was paid directly to the Guinean treasury department.
That deal resulted in a fateful email conversation between Walsh (then Rio’s iron ore boss), Albanese and the manager charged with recovering Simandou, Alan Davies. The digital conversation, which was leaked on a French blog in August 2016, revealed that de Combret had asked to be paid $US15 million for his successful contribution. The emails revealed that Davies had negotiated de Combret down to $US10.5 million, that Walsh appeared reluctant to pay that much in one hit and that Albanese was concerned that however the Frenchman was paid it should not disrupt the recovered relationship with Guinea.
The brief publication of these emails motivated an internal review by Rio of the whole Simandou deal.
That review, which included external assessment and advice from US lawyers, saw Rio self-report to authorities in the US, Britain and Australia in November 2016. Rio immediately suspended Davies and its chief legal officer, Debra Valentine. Within two weeks they were prejudicially sacked. Both were stripped of future entitlements and suffered the ignominy of having to pay back some past benefits. And by year’s end Walsh was hit with bonus deferral
The 2016 annual report that announced the deferral deed carried advice from then chairman if the remuneration committee, John Varley, on the contingencies that might affect Walsh’s future payments.
“The payment of any of these awards is contingent on there being no information in connection with the Simandou matter which would justify the Remuneration Committee making a determination to cancel, defer or reduce these awards,” Varley wrote.
Now, Rio will doubtless know more about the standing of those investigations that we do, but there is nothing in the public domain that suggests Walsh has failed the tests Varley established.
Both Varley’s commentary and the structure of the deferral would suggest Rio was aware that the three separate and joint regulatory investigations of the Simandou affair remain live beyond the first of the deferred payments. And, publicly at least, there has been no obvious additional “information” that might justify further delay in paying Walsh what he is owed.
Of course, Varley’s fate since making that call only adds piquancy to what is a bleak situation. Varley resigned from the Rio board in June 2017 after becoming one of four Barclays bankers to be charged over dealings with the Qatar Investment Fund through the worst of the 2008 global financial crisis.
The odd circumstances that resulted in those charges do not bear repeating in any detail. What does though is that Varley was charged in June 2017, nearly five years after the Serious Fraud Office announced it was making inquiries into Qatar’s engagement in two Barclay’s capital raisings and a subsequent $US3 billion loan that the bank made to the QIF.
Why does that time lapse matter? Well, because Rio will want us to believe now that it entered into the deferral deed believing that the Simandou matter would be resolved by the end of 2018. But Varley’s own experience with the SFO would suggest that that was an unlikely idea.
In the lead-up to the November board meeting that reviewed and then revised its deal with Walsh, we assessed that Rio should pay its man or provide the former CEO with a whole lot more detail in why deferral is so necessary. We hold to that position.
In March 2017, sources close to Walsh revealed through The Australian Financial Review that he had been left befuddled and insulted by the lack of courtesy he had been shown by his former employer. On seeking detail of the board’s concerns over the Simandou affair, Walsh was told to “read it in the newspapers, Sam”.
While privately ruffled by his predicament, in public Walsh has remained dignified and understanding of the Rio’s board plight and its processes. When news of his humiliation by deferral broke, Walsh told Financial Review: “As a former CEO, I recognise that deferring determination, until investigations are concluded or sufficiently progressed, represents best practice in terms of the company’s corporate governance.
“I would add that the company acknowledges my firm belief that during my time with Rio Tinto I always acted lawfully and in accordance with my duties and this applies to the Simandou project.”
“There is something of an ‘elephant in the room’ that I feel compelled to address right up front,” Walsh said in introducing himself and reasserting his credentials. “Some of you, no doubt, may be asking: ‘How can this chap lecture us about leadership when he has been caught up in some investigation around mining rights, in Guinea, West Africa?’
“On this, I would just say that – notwithstanding some of the innuendo from our friends in the media – the company has not made any accusation against me personally, nor do I expect that there will be.
“I operated ethically and legally at all times during my 25 years at Rio. In fact, the chairman of Rio at their London AGM on April 13 commented that there had been no admission of bribery or corruption by the company
“I am positive that truth will ultimately prevail and I have no fear of the truth at all, hence why I come here today, with my conscience clear,” Walsh asserted.
Given the quality of Walsh’s self-confidence, further deferral is unlikely to shake that certainty. But it will just as certainly irritate and frustrate one of the grand old men of Rio.