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Rio Tinto Its a world leader in finding, mining and processing the Earths mineral resources. Was found in 1873 and its operates as a global organization, sharing best practices across the Group. Values such as accountability, respect, teamwork and integrity are expressed through their business principles, policies and standards which it sets these out in a worldwide code business conduct - the way we work.
In 1995, it becomes Rio Tinto Group after joined in dual list company structures as a single entity which combined the Rio tinto plc listed in London headquarter and also Rio tinto limited listed in Australia stock exchange. The company interests a diverse both in geography and product as well and Most of their assets are in Australia and North America, as a global company it also operates in Europe, South America, Asia and Africa. Its businesses include open pit and underground mines, mills, refineries and smelters as well as a number of research and service facilities.
The company is one of the world's largest mining operations and their main competitors are BHP Billiton, Vale S.A, and Anglo America and the company comprises of five different product include Aluminum, Copper, Diamonds & Minerals, Energy and Iron Ore, plus two support groups Technology & Innovation and Exploration. (Www. Rio tinto.com)
1.2 Relating Rio Tinto's competences to the environment.
Rio Tinto aim to be the leading global and mining metal company, its strategy keeps focused on only the very best assets in the industry, and takes closer to achieving company vision.
Core competences its provide competitive advantages to the company, help creating and delivering value to its customers, also guide a company respond to demand from the environment.
Measures to achieve this include a range of Human Resource (HR) incentives such as recruitment and career advancement based on broad competencies rather than narrow technical proficiency, humanities training for mining professionals and performance rewards that recognise social competence.
Company focus on sustainable development which provide the framework in which its operates, its involve commitment to engage in healthy, safety and prosperity of the people a s the key point of the company operations. Company determines to maintain the environment integrity of what they do and also it works closely with host countries which its business operates and different communities in which they respect their laws, customs and ensure that fair share of benefits and opportunities to both parties.
In order to achieve this competence which help the company to deliver its strategy and vision, Rio tinto driven by five strategic drivers which are financial and operational excellence, license to operates, growth, globalizing the business, technology and innovation.
1.3 OBJECTIVES OF THE STUDY.
To find out how does Rio Tinto deal with corporate governance and ethical challenges facing the company to ensure success towards reaching the goals of organization in order to remain competitive in mining industry.
Appraise the ethical and corporate governance factors which are currently affecting the organization.
How effectively the organization is managing these factors to achieve its corporate goals.
1.4 RESEARCH QUESTIONS.
The research study will aim at answering the following research question as far as mentioned topic is concerned.
1.4.1 Specific Questions
Are there any ethical and corporate governance issues which affect the company and measures used to solve those problems?
How does the company manage the tension between its shareholders and engaged itself in corporate social responsibility?
How does the company apply corporate governance codes?
Reliability of information in various website ad insufficient materials from books and other sources.
Also the use of company website help me reduce the limitation
2.0 LITERATURE REVIEW
This chapter introduction, the conceptual definitions, purpose, objective, important, Sarbanes- Oxley (SOX), combined code, theoretical studies.
2.1. CORPORATE GOVERNANCE
Corporate governance nowadays has become an important issue in many organizations this is due to the fact that it helps the company to monitor, control the resources availability which will contribute to the improved performance of an organization. Due to number of corporate scandals increased, managers need to ensure proper use of resource, monitor and control in order to avoid legal implication and scandals that might involve and also protect the interest of the shareholders as well.
It shows how resources can be deployed aimed to improve performance and avoid conflict among the top level and the society and how managers interact and influence with each other aim to increase accountability and performance of an organization, also encourage good decision making by managers to avoid scandals and protect the interest of shareholders.
According to Johnson et al (2008), corporate governance it has become an increasingly important issue for organization because of The separation of ownership and management control of organization, number of corporate scandals has increased the public debate or tension about how different parties in the governance chain should interact and influence with each other and Increased accountability to wider stakeholder interests.
2.1.2 PURPOSE and objective of corporate governance
Corporate governance has both purpose and objectives
The basic purpose of corporate governance is to monitor those parties within a company which control the resources owned by investors.
The primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long-term shareholder value. (Professional Accountant- P1 , 2010 )
2.2 BUSINESS ETHICS
Business ethics comprises the principles, values and standards that guide behavior in the world of business, investors, employees, customers, interest groups, the legal system and community, also its determines whether the specific actions is right or ethical or unethical ( O. C. Ferrell, et al, 2009)
2.3 IMPORTANCE of Corporate governance and Business ethics
Good governance help balance the power among managers, shareholders and the boards, whereby it ensure the transparency between them in line with the international requirements and how shareholders are treated. Governance is essential for business because it protect the rights of shareholders and the company objectives, encouraging good decision making by managers,
Also help managers monitor, control the availability of resources aimed to improve performance and protect the interest of shareholders as well.
Due to the increasing numbers of ethical and governance scandals nowadays, managers needs ensure good governance is essential to organization business aim to avoid scandals and poor performance which will result cost to company. Also it s help the company avoid loss and save money because its guide managers to follow roles and duties also help people avoid legal implication which will cause problems to the company and society as well.
Ethical and governance issues its very important for managers because its guide them with role and duties to be followed within the company and help monitor and control resources available which contribute to improved performance of an organization at large and protect the interest of shareholders. So due to that, managers must be aware of the ethical issues and governance when they make decision in order to avoid risk which will serve the company interest and shareholders as well.
3.0 SARBANES - Oxley (SOX)
On 30 July 2002 the Sarbanes-Oxley Act (Public Company Accounting Reform
And Investor Protection Act of 2002 abbreviated as SOX) was approved by the US Congress by a vote and signed it into law with former President George W. Bush stated that it included "the most far-reaching reforms of American Business practices since the time of Franklin D. Roosevelt" (Bumiller 2002). The act contains different sections such as Disclosure of mandatory "control of controls systems" related to financial Reporting, which must be attested by independent auditors, also Financial reports to be signed by chief executive officers and chief financial Officers (section 302) and Protection of whistleblowers who leak information to the public. (Alexander Brink, 2011)
Due to the increased numbers of corporate scandals such as Enron, WorldCom in 2002, there are numbers of rules and tough regulation were introduced in U.S based on approach to governance in order to prevent companies from making mistakes and cause damaged to the society and community due to their operation. Recent corporate scandals involve BP in 2010, whereby oil spill in Gulf of Mexico and the company were plead guilty and fined by U.S government billions of dollars and lead to the resignation of former CEO Tony Hayward.
4.0 COMBINED code
The combined code for corporate governance adopted by financial services Authority (FSA) and the development of codes is closely associated with the United Kingdom. This report concluded that the board requires constant monitoring and Assessment and Recommendation made include a need to split the chairman/ CEO role and also necessary to ensure the chairman is an independent person at the time of appointment (Professional Accountant - P1, 2010)
Aim of these code is to separate the role of chairman and CEO which will help monitor, control and improved performance within the company and also it's creates accountability with investors, shareholders which aims to protect their interest.
Reason for splitting the role include representation chairman which aim to avoid conflict with shareholders, provides accountability for the chairman and management and reduce the temptation.(professional Accountant - P1, 2010)
5.0 THEORETICAL BASIC OF THE STUDY
There are various fundamental theories underlining corporate governance. These theories range from the agency theory and expanded into stewardship theory, stakeholder theory, resource dependency theory, transaction cost theory, political theory and ethics related theories such as business ethics theory, virtue ethics theory, feminists ethics theory, discourse theory and postmodernism ethics theory.
Aloy Soppe elaborates on corporate governance as a key element in corporate democracy, stakeholder politics, and sustainable development in governance aims to redress the balance in the relationship between individual interests and collective or community interests through leadership. (Alexander Brink, Corporate Governance and Business Ethics, 2011)
Business ethics helps to identify benefits and problems associated with
Ethical issues within the firm and business ethics is important as it gives a new light into present and traditional view of ethics. In understanding the 'right and wrongs' in business ethics, Crane & Matten, (2007) injected morality that is concerned with the norms, values and beliefs fixed in the social process which helps right and wrong for an individual or social community.
Business ethics often is guided by a law which provides the basis framework that business needs to follow in order to gain public acceptance.
According to James Kamwachale Khomba and Frans N. S. Vermaak, African Journal of Business Management volume 6(9), march 2012, argued that Apart from the requirement that organisations should run their operations in the most economical, efficient and effective manner possible to increase performance, today, there is an increasing insistence on the need for organisations to be ethical as well. Within the business framework, there is a clear relationship between corporate activities and other stakeholders within and outside the organization.
Following such experiences, many parties interested in business activities have begun looking more closely at how morally corporations are supposed to behave in their operations. This has led to a renewed emphasis on business ethics considerations. Ethical issues are usually debated in terms of corporate governance, environmental degradation and global warming, corporate social responsibility, and corporate conscience (Kleine and Von Hauff, 2009; Nakano, 2007).
Due to the increasing debate and tension regarding on how ethical issues and governance operates within the company in modern business, managers must avoid legal implications and scandals within the firm such as Enron, WorldCom and recently scandal involved BP after oil leak from Gulf of Mexico and cause environmental damage, managers need to ensure value, roles that guide the business are monitored, controlled and followed in order to avoid risk and legal implications which will create bad image to the society and community because of ethical behavior of the company operation which cause harmful to the society.
Managers must ensure the specific action in its decision making whether it ethical or unethical before making on their operation which aim to improve performance of the company and avoid problems of ethical and governance issues by monitoring and control all of the resource available which will contribute to the improved performance, ethical and governance helps guide managers on how they perform and achieve.
6.0 RESEARCH METHODOLOGY
This chapter describes the methods and approaches that the study is going to apply in conducting the research. It will involve research methodology, objective of research, data collection, method of collecting data, case study methods.
6.1 RESEARCH METHODOLOGY
Research in common parlance refers to a search for knowledge. The Advanced Learner's Dictionary of Current English Oxford, p. 1069, lays down the meaning of research as "a careful investigation or inquiry especially through search for new facts in any branch of knowledge." Redman and Mory, 1923 p. 10 define research as a "systematized effort to gain new knowledge." (C. R Kothari, 2004)
6.1. 2 OBJECTIVES OF RESEARCH
The purpose of research is to discover answers to questions through the application of scientific procedures. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet. Though each research study has its own specific purpose, we may think of research objectives as falling into a number of following broad groupings:
1. To gain familiarity with a phenomenon or to achieve new insights into it (studies with this object in view are termed as exploratory or formulative research studies);
2. To portray accurately the characteristics of a particular individual, situation or a group (studies with this object in view are known as descriptive research studies);
3. To determine the frequency with which something occurs or with which it is associated with something else (studies with this object in view are known as diagnostic research studies);
4. To test a hypothesis of a causal relationship between variables (such studies are known as hypothesis-testing research studies).
6.1.3 Data collection
The task of data collection begins after a research problem has been defined and research design/Â plan chalked out. While deciding about the method of data collection to be used for the study, the researcher should keep in mind two types of data, primary and secondary. TheÂ Primary data are those which are collected afresh and for the first time, and thus happen to be original in character. The secondary data, on the other hand, are those which have already been collected by someone else and which have already been passed through the statistical process.
The methods of collecting primary and secondary data differ since primary data are to be originally collected, while in case of secondary data the nature of data collection work is merely that of compilation. (C.R Kothari, 2004: p 95)
6.1.4 METHOD of collecting Data
Due to the limited and short time I decided to use secondary data because it's easy to access information of the company in various source such as magazines, Reports prepared by research scholars, universities, speech, company website.
6.1.5 Case Study Method
According to H. Odum, argued that "The case study method is a technique by which individual factor whether it be an institution or just an episode in the life of an individual or a group is analyzed in its relationship to any other in the group."Thus, a fairly exhaustive study of a person (as to what he does and has done, what he thinks he does and had done and what he expects to do and says he ought to do) or group is called a life or case history. Pauline V. Young, 1960 describes case study as "a comprehensive study of a social unit be that unit a person, a group, a social institution, a district or a community.'
The important characteristics of the case study method are:
1. Under this method the researcher can take one single social unit or more of such unit's for his study purpose; he may even take a situation to study the same comprehensively.
2. Here the selected unit is studied intensively i.e., it is studied in minute details. Generally, the study extends over a long period of time to ascertain the history of the unit so as to obtain enough information for drawing correct inferences. (C.R Kothari, 2004, p 113)
7.0 RESEARCH FINDINGS.
7.1 Ethical and Governance CHALLENGES FACING the COMPANY AND their solution.
Environmental challenges: Dealings with finding, mining and exploring minerals, this creates environmental damages within the society due to their measures of their operations they use to operate by the company. company recognize climate issue as being one of the greatest challenges causes global warming and impacts the company and its community in different ways due to the company operation .
Also the company is one of the world's leading producers of coal and of uranium for the electricity industry. Its consumes energy in all operations and also produces it. Its smelting and mineral processing operations are energy intensive and depend heavily on electricity, coal, oil, diesel and gas to keep them running. The majority of electricity used is from greenhouse friendly hydro and nuclear power.
In dealing with climate change, the company developed measures to tackle climate change by ensuring that every sector needs to be part of the solution by reducing greenhouse gas emissions, the root cause of climate change. But preparing for the ongoing reality of climate change is in the best interests both of mining companies and communities whose well-being is tied to the success of the industry. (www.rio tinto.com)
Political challenges: this include administration change, taxation, change in government will lead to political problem such as policy reform, change in laws may cause unrest to Rio Tinto operations where by the changes that are made have an impact on the company's profitability, the ability to finance some of the operation and increase cost to the company.
Government policies impact along the entire 'mine to market' chain - in infrastructure, environment, land access, industrial relations, emissions trading, and on and on the legislative list goes.
Also the company has already faced with ethical issues and its has ant bribery police after four staff of riot into in Asia charged with bribery and sentenced up to 10years in prison.
Social issue: the company committed to provide a safe and healthy at workplace for their employees where their rights and dignity are respected. Social issues have been occurred in some parts of the Rio tinto's operation whereby there are countless examples of alleged human and labour rights violations and environmental devastation perpetrated by Rio Tinto around the world and over decades.
In dealing with social issue the company have developed and implemented a number of different practical management programmes in line with health, safety, employment and communitiesÂ policies and standards. it continually review and improve management systems and internal controlsÂ to be sure they are fit for purpose and that they are being consistently implemented by all operations. Also have engaged an independent external organisation to provide assurance on selected sustainable development subject matter. (www.riotinto.com)
Securing site-level buy in: Some site-based managers are fully cognisant of the importance of the community relations function, but others retain the traditional short-term focus on maximising production and minimising costs. Persuading this latter group of managers to improve their community systems can be a challenge, particularly if there are no local issues 'on the radar'. A complicating factor here is that the main benefits of improving management systems are often collective in nature whereas many of the costs of implementing these improvements are borne by individual operations. In an industry where there is a very strong focus on cost containment, this can create incentives to engage in 'free riding'.
In dealing with this issue company defining clear minimum standards for all operations and building this into performance monitoring processes. It also has an ongoing internal communication program aimed at promoting organisation-wide understanding of the business case for improving corporate social performance. However, it will take some time to embed these new ways of thinking throughout the different layers of the company and to align the various internal drivers of management behaviour so that operational managers receive consistent signals from the organisation about what is important.
(Harvey, Bruce, Document report)
8.0 ethical challenges
Rio tinto has already been charged with unethical behavior whereby in Asia a shangai court has sentenced four staff of riot into up to 10years for bribery and stealing commercial secrets in the riot into case.
This case involves executive Stern Hu and other three employees of the British- Australia Company and was closely watched over fear of government to crackdown foreign companies doing business in china.
Due to unethical behavior engaged by those staff, both employees were fired because of the wrong doing which is totally against riot into culture said by Sam Walsh another chief executive.
In spite of unethical behavior, the company still continues to build strong relationship with china. (John vause, www.cnn.com)
9.0 MANAGING TENSION BETWEEN SHAREHOLDERS AND CORPORATE SOCIAL RESPONSIBILITY
In recent years, concern about corporate responsibility became increasing highly profile issue in many companies.
Rio Tinto recognizes the importance of shareholders and the investment community, the company use effectively communication and all the information released to the markets is posted on the company website, The main channels of communication with the shareholders and other investment community used by company are through the chairman, chief executive and finance director, who have regular meetings with the Companies major shareholders.
in spite of the fact that their operation cause harmful, damages to the environment surrounding, The company also engaged in social responsibility in different communities by ensuring it provides health care, housing project, agriculture project, also company spend a lots of money community assistant programmes and payment into trust or charity. Through millennium development goal in development countries helps the company engage in different social responsibility, due to that company manages to create good image to the community and society show them it care in spite of their operation cause damages to the society.
10.0 CORPORATE GOVERNANCE ISSUES
Rio Tinto plc and Rio Tinto Limited have adopted a common approach to corporate governance and apply the principles contained in Part 1 of the Combined Code on best practice in corporate governance appended to the Listing Rules published by the UK Listing Authority and in the Australian Securities Exchange (ASX) Corporate Governance Principles and Recommendations. Both companies have voluntarily adopted the recommendations of the US Blue Ribbon Committee in respect of disclosures to shareholders.
The Group continues to monitor developments in the area of corporate governance in its three principal share markets corporate overview, board of directors and reporting. (Www. Rio tinto.com)
Company continues to monitor, control developments in corporate governance and respond to changes in best practice aim to improve governance and performance of the company.
11.0 CONCLUSION AND RECOMMENDATION
In conclusion, based on the findings above that I have been able to answer my research question about Rio Tinto that concerned the governance, ethical challenges and performance that are facing the mining industry and the strategies that are used by the company to deal with the challenges seeking to solve those problems, improve performance and continue being competitive in the mining sector industry.
In order for the company to continue being competitive, it must take into account the challenges that are faced the company especially the climate change and environment issues which create awareness and discussion to the communities whereby it needs to take action against these problems in order to minimize challenges. Further, the company must be innovative and use of new technology in mining industry in order to reduce emissions in their operation and create zero harmful to workers in working areas.
12.0 LEARNING STATEMENT
During my study I have been able to learnt that ethical issues and governance and it's important to the company where by governance concerns with how it helps, promote and balance power among managers and shareholders in order to ensure transparency and accountability within the company also dealing with ethical where by its provides laws, principles, values and standards that guide manager to do the right thing and protect the interest of shareholders.
Also ethical and governance within the company it helps manager determine how the company operates and perform in order to avoid corporate scandals and protect the company interest and shareholders as well. So due to that manager must be aware of the ethical and governance issues when making decision in order to serve company interests, shareholders and avoid legal implications.