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Here’s a rule of thumb for boards in a crisis: if your company’s reputation is still being shredded three weeks after you tried to put a lid on events, you probably got your response wrong.
Rio Tinto’s board did. Having confessed in an internal report that “systemic failures” lay behind the blowing up of two 46,000-year-old Indigenous Australians rock shelters in western Australia in May, the non-executive chairman, Simon Thompson, proceeded to argue that nobody at the mining group should have to resign.
Instead, three executives deemed to carry “partial responsibility” for the appalling error suffered a trim in their pay pockets. A collective £4m penalty was, presumably, intended to wow the outside world, but the numbers were never likely to have that effect. Jean-Sébastien Jacques, the chief executive, was docked £2.7m in bonuses, a tolerable inconvenience when you’ve been paid £17m in the past four years.
In any case, rather than bonus deductions, many Australians wanted to see proper accountability. Jacques admitted he hadn’t read the report that warned of the shelters’ significance until it was too late, so one “systemic failure” was corporate incompetence in not booting a critical document up the chain of command. On the other hand, shouldn’t a competent boss install strong reporting systems?
The same internal report rather suggested so: “As chief executive, Jean-Sébastien Jacques is ultimately responsible for the group’s cultural heritage management,” it said.
The result is a fine mess. Hostile headlines and questions in the Australian parliament have kept coming. Many investors – and not just the “socially responsible” contingent – feel a top 10 FTSE 100 company should have responded more forcefully.
Rio stands somewhere between laughing stock in Australia (the former prime minister Kevin Rudd refers to “Rio TNT”) and target of outright hostility. Both are problems when your core division requires land rights to dig up chunks of the Pilbara desert for its iron ore.
The board will meet to rethink. That doesn’t sound good for Jacques’ hopes of surviving. Mind you, Thompson should also ask himself if he’s the right chairman.
Solid but hardly a supermarkets’ renaissance
“I believe we are seeing the renaissance of British supermarkets,” declared David Potts, the chief executive of Morrisons. It’s a bold claim to make when your half-year profits have just fallen by 25% and your share price, like your rivals’, is becalmed.
One can see what he’s getting at, of course. Morrisons et al have performed well during the pandemic. Tens of thousands of new employees have been hired and the shelves never seriously ran short of stock, which didn’t feel 100% guaranteed in March.
It is why there is no political pressure on supermarkets to return the chancellor Rishi Sunak’s freebie on business rates (worth £93m to Morrisons over four months) even though the stores remained open. The nation is seen to have got something for its money – Morrisons put extra direct costs from Covid at £155m.
The old guard have also reclaimed some market share from discounters. And they’ve learned new tricks in a hurry, ramping up online delivery capacity, something they should probably have been doing anyway.
Does this amount to a renaissance, though? When talking to his shareholders, Potts may be wise to set sights a little lower. A revival of the industry’s good old days of easy growth and fat profit margins (good, that is, for the chains rather than the shoppers) is not on the cards. Aldi and Lidl, the price police, remain on the beat. Online is also less profitable than obliging customers to do the time-consuming slog.
Morrisons could, though, claim to have demonstrated resilience in spades. Potts didn’t quibble with City analysts’ forecasts that pre-tax profits over the full-year will rise 6% to £432m as pandemic costs fade. That would be a decent outcome amid the upheaval. The half-year dividend was improved by the same percentage. Come next March, special distributions should restart.
The picture, then, is one of a solidly defensive stock with healthy income characteristics. There’s no shame in that, especially these days. But if shareholders are dreaming of excitement, they may have to hope there’s something in the idea that Amazon will one day want to own Morrisons, as opposed to merely distributing its groceries.
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