Rio Tinto changes its designated driver

Congratulations, Simon Thompson, current non-executive director of Rio Tinto, you are deemed sufficiently safe to step up to the chairmanship. The world’s second biggest mining company didn’t describe the appointment in this way, of course – but nor did it refer to the extraordinary behind-the-scenes lobbying that killed the hopes of the board’s original preferred candidate, Sir Mick Davis.

It was already known that the process had been hijacked by big shareholders, who had written to Rio to say they weren’t keen on Davis, the former boss of Xstrata and the current chairman of the Conservative party. But the blistering tone of the now-leaked letter is worth noting. It is hard to recall a similar instance of a board of a large FTSE 100 company being read the riot act over the appointment of a chairman.

Here’s an extract: Andy Griffiths, executive director of the Investor Forum, which represents big fund management groups, said he was relating the views of 13 shareholders representing 20% of the London investor base and wrote on 21 November: “While these long-term shareholders are supportive of the company and its operational strategy, given the challenges facing the organisation, they are of the strong opinion that the individual currently being identified in the media as a potential chairman is not an acceptable candidate.

“The clear position of these shareholders would suggest that the company should expect a very hostile audience should it choose to pursue this course of action.”

Davis’s business career has always divided opinion. Some fund managers applaud the deal-making that built Xstrata into a $50bn company at the moment he was taken over by Glencore. Others can’t stomach the personal rewards for Xstrata’s top brass, including the £140m retention package that executives were offered to stay after the takeover. But, remember, Davis had been interviewed and picked by the board of Rio as the frontrunner. A U-turn in these circumstances is unusual.
A welcome victory for shareholder power? Up to a point. Almost everybody is in favour of big investors engaging actively with companies and, in this case, there’s a fair argument that Rio doesn’t need a swashbuckling, deal-making chairman at a moment when it is preaching a gospel of disciplined capital allocation. That, as it happens, was this column’s view a few weeks ago.

But, in Davis’s shoes, you would also want to know why the Investor Forum mentioned “high personal integrity” as one of three “key investor considerations for this appointment”. That could be read as a general comment. But, in the context of the letter, it could also be taken as personal, nasty and below the belt. Davis, a well-known philanthropist, is entitled to an explanation.

Stock market highs are just a sugar rush
Another day, another record for Wall Street, and another chance for Donald Trump to spin the shallow idea that his presidency must be successful because stock prices are rising.

The notion is shallow because cutting corporate taxes – and thereby delivering an instant boost to companies’ earnings – was always likely to push the stock market higher. The process is almost mechanical, especially for big US-focused companies such as banks and energy companies.

But, once the sugar rush fades, expect investors question the long-term economic benefits of cutting corporate taxes. If investors truly believed that the US economy was now set on a course towards higher growth, you would expect a reaction in the market for US government debt. Investors might start to predict higher inflation, for example.

But that is not happening. Instead, short-dated and long-dated US Treasury stocks are trading at very similar yields, which traditionally signals economic trouble ahead. Funnily enough, Trump never tweets about that.

Workers on boards? How about a non-executive director?
Let’s recall, one last time, that ground-breaking pledge made by Theresa May in her brief period as a corporate reformer: “We’re going to have not just consumers represented on company boards, but employees as well.”

In the latest proposed tweaks to the corporate governance code, there’s no sign of either consumers or workers being installed on the boards of public companies. Taking its cue from the government’s green paper, the Financial Reporting Council says companies can take their pick from one of three options.

They can indeed nominate an employee to serve on the board. Or they can create an employee advisory council, if they don’t have one already. Or they can just assign a non-executive director to look out for employees’ interests. This third option is known as kicking the issue into the long grass. It will be popular.

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