Rio Tintos Competences To The Environment Commerce Essay

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This chapter consists of background of the organization, research objectives, research questions, limitation of the study. Rio Tinto was founded in 1873, it is a leading international mining group, combining Rio Tinto Plc, a London listed public company headquartered in the UK, and Rio Tinto Limited, which is listed on the Australian Stock Exchange, with executive offices in Melbourne. The two companies joined in a dual listed companies (DLC) structure as a single economic entity in December 1995, called the Rio Tinto Group.

Rio Tinto is a world leader in finding, mining and processing the Earth's mineral resources. Their products help fulfil vital consumer needs and improve living standards. They operate, and eventually close, operations safely, responsibly and sustainably.

Rio Tinto's interests are diverse both in geography and product. Its works in some of the world's most difficult terrains and climates. Most of their assets are in Australia and North America, but 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.

Rio Tinto operates as a global organisation, sharing best practices across the Group. Values such as accountability, respect, teamwork and integrity are expressed through their business principles, policies and standards. It sets these out in a worldwide code of business conduct - The way we work. Values underpin the way the company manages the economic, social and environmental effects of company's operations, and how they govern business. (

The company also comprises five different principal products such as Aluminum, Copper, Diamonds & Minerals, Energy and Iron Ore, plus two support groups: Technology & Innovation and Exploration.


1.2 Relating Rio Tinto's competences to the environment

Rio Tinto strategy is to invest in and operate large, long term, cost competitive mines and businesses, driven not by choice of commodity but rather by the quality of each opportunity.

The company vision is to be the leading global mining and Metals Company in the industry and its driven by five strategic drivers which help the company to deliver its strategy and vision these are financial and operational excellence, license to operates, growth, globalizing the business and technology and innovation . (


To find out how does Rio Tinto deal with corporate governance and ethical challenges facing the company to ensure success towards reaching to the goals of organization in order to remain competitive in mining industry.

Specific objectives.

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.


The research study will aim at answering the following research question as far as mentioned topic is concerned.

Specific Questions

Are there any ethical and corporate governance issues which affect the organization and strategy used by the company to deal with the problems

How does the company managed the tension between its shareholders and engaged itself in corporate social responsibility4

Identify how does the company applies corporate governance codes


Limitations are factors, usually beyond the researcher's control, that may affect the results of the study.

Limitations that I encountered during my research are:

Adequate time of doing research because of short and limited time of conducting my study.

Availability of primary data and in ability to carry out interviews or circulate questionnaire.

Costly incurred in my study



2.0 Introduction

This chapter introduces the conceptual definitions, purpose, objective, important and terminologies used throughout the entire work, also Sarbanes- Oxley (SOX), combined code, Business ethics and its level, theoretical studies and weakness of literature review. The purpose of literature review is to make the research be familiar with the problem so as to help a researcher to come up with the solution to the problem through experience gained from the literature.



Corporate governance can be defined as "the determination of the broad uses to which organizational resources will be deployed and the resolution of conflicts among the myriad participants in organizations" (Daily et al. 2003, p. 371). This definition raises two major questions (cf., e.g., Steinmann 1969; Steinmann and Gerum 1992). First, whose interests should guide the companies' strategies and policies (question of legitimacy)? Second, how should formal decision-making procedures be designed in order to serve these interests (question of organization), (Alexander Brink (2011), pg 51, chapter 3)

Corporate governance can be defined as a system where by companies are directed and controlled. It provide the structure through which the company's objectives are met and the means of attaining these objectives and monitoring performance. (Kaplan publishing, December 2010, pg 310)

According to Johnson et al (2008) argued that corporate governance it has become an increasingly important issue for organization for three main reasons.

The separation of ownership and management control of organization (which is now the norm except with very small businesses) means that most organizations operate within hierarchy or chain of governance. This represents those groups that influence an organization through their involvement in either ownership or management of an organization.

Since the late 1990s the 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. Most notable here is the relationship between shareholders and the board of businesses, but an equivalent issue in the public sector is the relationship between government or public funding bodies and public sector organizations.

Increased accountability to wider stakeholder interests has also come to be increasingly advocated; in particular the argument that corporations need to be more visibly accountable and/or responsive, not only to 'owners' and 'managers' in the governance chain but to wider social interests.

2.1.3 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 )

2.1.4 SARBANES - Oxley (SOX) act as an example

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 of 423-3 and by the Senate 99-0. In signing it into law 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 11 sections including provision on the following issues:

• Disclosure of mandatory "control of controls systems" related to financial

Reporting, which must be attested by independent auditors (section 404);

• Financial reports to be signed by chief executive officers and chief financial

Officers (section 302);

• Rules on auditor independence (term limits for leading auditor, prohibition against combining consulting and auditing etc);

• Creation of a Public Company Accounting Oversight Board (PCAOB), a semiprivate institution, which is to supervise the auditing profession;

• Mandatory independent audit committees to oversee the relationship between the company and its auditor;

• Ban on personal loans to any executive officer or director;

• accelerated reporting of insider trading;

• Prohibition on insider trades during pension fund blackout periods;

• Significantly increased criminal and civil penalties for violations of securities law;

• Protection of whistleblowers who leak information to the public. (Alexander Brink, Corporate Governance and Business Ethics (2011), pg 33, chapter 2)

Due to the increased number of corporate governance scandal such as Enron, WorldCom in 2002 the number of tough new corporate governance regulations were introduced in the united states ny Sarbanes- oxley (S0X), These are:

Sarbanes - Oxley is a rule-based approach to governance

Sarbanes - Oxley is extremely detailed and carries the full force of the law

Sarbanes - Oxley include requirement for the Securities and Exchange Commission (SEC) to certain rules on corporate governance. (Professional Accountant - P1, 2010:133, )

2.1.5 COMBINED code

The combined code for corporate governance adopted by financial services Authority (FSA) in United Kingdom.

The development of corporate governance is codes is closely associated with the United Kingdom

Cadbury report (1992)

This report concluded that the board requires constant monitoring and assessment.


There was a need to split the chairman/ CEO role

Necessary to ensure the chairman is an independent person at the time of appointment (Professional Accountant - P1, 2010: 55)

The combined codes are unequivocal with regard to the separation of the chairman and CEO roles.

These will help monitor the company and improve performance within an organization and its help creates accountability with investors or shareholders.

Reason for splitting the role

Representation: the chairman is clearly and solely a representative of shareholders with no conflict of interest having a role as a manager within the firm.

Accountability: the existence of separation role provides a clear path of accountability for the CEO and management.

Temptation: the removal of the joint role reduces the temptation to act more in self - interest rather than purely in the interest of shareholders. (Professional Accountant - P1, 2010:69)


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)

3.1 Three levels of business ethics

According to Johnson and Scholes (2008) it provides a useful way of classifying the diverse elements in three levels:

The macro level - the role of business in the national and international organization, the relatives' virtues of different political/social systems such as enterprise, centrally planned economies and international relationships and the role of business on an international scale.

The corporate level - corporate social responsibility and ethical issues facing individual corporate entities (private and public sector) when formulating and implementing strategies.

The individual level - it deal with the behavior and actions of individual within an organization.

4.0 Importance of Corporate governance and Business ethics

Good corporate governance is actually a balance of power among managers, shareholders, and boards. It ensures that the transparency standards are in line with international requirements, shareholders are treated equally, and that the board and auditors are independent. It is empirically proved that good governance is essential for good business which is the need of every organization. Good corporate governance helps in achieving greater fairness and transparency and also discourages fraud Lipman and Lipman (2006). It protects the rights of shareholders along with protecting the long term strategic objectives of the organization. ( of corporate governance)

Business ethics its also important because they add a line of defense to protect the company, enable company growth, save money and allow people to avoid certain legal implications. (Kristina Werden, eHow education)


According to 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(2011) Corporate Governance and Business Ethics)

This assignment reviews 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.

5.1 Fundamental Corporate Governance Theories

5.1. 2 Agency Theory

Agency theory having its roots in economic theory was exposited by Alchian and Demsetz (1972) and further developed by Jensen and Meckling (1976). Agency theory is defined as "the relationship between the principals, such as shareholders and agents such as the company executives and managers". In this theory, shareholders who are the owners or principals of the company, hires the gents to perform work. Principals delegate the running of business to the directors or managers, who are the shareholder's agents (Clarke, 2004). Indeed, Daily et al (2003) argued that two factors can influence the prominence of agency theory. First, the theory is conceptually and simple theory that reduces the corporation to two participants of managers and shareholders. Second, agency theory suggests that employees or managers in organizations can be self-interested.

5.1.2 Stewardship Theory

Stewardship theory has its roots from psychology and sociology and is defined by Davis, Schoorman & Donaldson (1997) as "a steward protects and maximizes shareholders wealth through firm performance, because by so doing, the steward's utility functions are maximized". In this perspective, stewards are company executives and managers working for the shareholders, protects and make profits for the shareholders. Unlike agency theory, stewardship theory stresses not on the perspective of individualism (Donaldson & Davis, 1991), but rather on the role of top management being as stewards, integrating their goals as part of the organization. The stewardship perspective suggests that stewards are satisfied and motivated when organizational success is attained.

Agyris (1973) argues agency theory looks at an employee or people as an economic being, which suppresses an individual's own aspirations. However, stewardship theory recognizes the importance of structures that empower the steward and offers maximum autonomy built on trust (Donaldson and Davis, 1991).

5.1.3 Stakeholder Theory

Stakeholder theory was embedded in the management discipline in 1970 and gradually developed by Freeman (1984) incorporating corporate accountability to a broad range of stakeholders. Wheeler et al, (2002) argued that stakeholder theory derived from a combination of the sociological and organizational disciplines. Indeed, stakeholder theory is less of a formal unified theory and more of a broad research tradition, incorporating philosophy, ethics, political theory, economics, law and organizational science. Stakeholder theory can be defined as "any group or individual who can affect or is affected by the achievement of the organization's objectives". Unlike agency theory in which the managers are working and serving for the stakeholders, stakeholder theorists suggest that managers in organizations have a network of relationships to serve - this include the suppliers, employees and business partners

5.1.4 Political Theory

Political theory brings the approach of developing voting support from shareholders, rather by purchasing voting power. Hence having a political influence in corporate governance may direct corporate governance within the organization. Public interest is much reserved as the government participates in corporate decision making, taking into consideration cultural challenges (Pound, 1993). The political model highlights the allocation of corporate power, profits and privileges are determined via the governments' favor. The political model of corporate governance can have an immense influence on governance developments. (Hawley and Williams, 1996). (EuroJournals Publishing, Inc. 2009)

Business ethics helps us to identify benefits and problems associated with

ethical issues within the firm and business ethics is important as it gives us a new light into present and traditional view of ethics (Crane and Matten, 2007). 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. (EuroJournals Publishing, Inc. 2009)

Business ethics often is guided by a law which provides the basis framework that business needs to follow in order to gain public acceptance.


Some times it's difficult to relate the specific thesis or question when developing in articles or from other source such as books.

Also insufficient material enough from books and other sources.



6.0 Introduction

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.


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)


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/ 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. The 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: 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, (year) 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.' (C.R Kothari, 2004: 113)

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, pg 113)



7.0 Ethical and Governance Challenges Currently Facing the Organization

Climate change: riot into 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 climate change has impact the operational costs for mining; for example in areas of health and safety for workers and production processes whereby the company spends a lot of money to reduce carbon emission. (

Rio tinto use different strategies to deal with the problem and ensure it reduce or solve the problem at all.

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.

Understanding and developing low emission product pathways by working with others (government & stakeholders) on supply chain emissions and on breakthrough technologies.

Engaging with governments and stakeholders to advocate sound and efficient domestic and international policies. (

Resource security and particularly, energy security: the company is one of the world's leading producers of coal and of uranium for the electricity industry.

Its consumes energy in 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

Due to the energy production the company faced a number of challenges where by the demand of energy product keeps on increasing especially in Asia whereby they dominates the large amount of energy and the growth of the product has impacted the supply of coal and uranium.

In dealing with energy challenge, Rio Tinto believes the energy challenge can best be met by companies, governments and society all stakeholders working together. Global energy demand growth will require use of all available energy sources: fossil fuels, nuclear and renewable energy sources and increased energy efficiency. The goal in each case should be to continually improve the cost-security-cleanliness equation, by fully recognizing and addressing the risks involved and benefits achievable. Technology development will be at the heart of improved energy solutions.

The company is also working to reduce the energy intensity of new projects through energy efficiency asset design, the use of alternate sources of energy and the development of step change technologies for several of the products. This includes the development of Rio Tinto proprietary AP-Xe smelting technology which has the potential to significantly reduce the energy required to produce aluminium. (

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 can 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.

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 communities policies and standards. it continually review and improve management systems and internal controls 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. (


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. (


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 recent years, concern about corporate responsibility became increasing highly profile issue in many companies.

The company involved in social responsibility whereby its businesses supported 2,900 socio-economic programmes covering a wide range of activities such as health, education, business development, housing, environmental protection and agricultural development during 2010. It spent an estimated US$166 million on community assistance programmes and payments into trusts set up in directly negotiated community impact benefit agreements but it is the direct and multiplier economic effect that demonstrates real contribution and commitment to meeting the Millennium Development Goals in developed countries. The company manages to create good image to the society. (www.Rio


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

Company continues to monitor developments in corporate governance and respond to changes in best practice aim to improve governance and performance of the company.


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.