Rio Tinto: developing and embedding corporate principles

Enron, CSR sceptics won’t be slow to tell you, had an impressive set of business principles – and much good it did them. Briefing examines the strategy of Rio Tinto, one of the world’s largest mining companies, to ensure that its business principles genuinely set the tone for the way it works.

Business travel Rio Tinto-style is a meticulous affair. Weighing up the chances of catching malaria or getting kidnapped are just two of the things Shaun Stewart is required to do before making any long-distance trip. Company procedures also require him to consider taking a small compass, clean syringes and ‘pepper’ gas – providing it’s legal of course. Such is the pervasive culture of safety that the world’s largest mining company is attempting to create.

As advisor on international affairs at Rio Tinto, Shaun is only too aware of the high profile risks endemic to the mining industry. There were 72 fatalities and 9,949 not-fatal lost time injuries in the US mining sector alone in 2001, according to figures from the US Department of Labor.

But the risks are not only safety-related. A recent report by the World Resources Institute finds that over three-quarters of active mines and exploratory sites are located on, or within ten kilometres of, high-conservation areas. Nor should it be supposed that countries blessed with mineral deposits are necessarily blessed with a well-developed social infrastructure. Operating as it does in 47 countries, Rio Tinto has its fair share of environmental and social challenges to deal with.

Developing principles

“The company realised in the mid-1990s that it needed to articulate its core values and a comprehensive set of business principles if it was ever going to effectively manage these complex issues in a consistent manner”, Shaun explains.

Leadership

Driven by the then chairman, Sir Robert Wilson, an initial code of principles was drawn up. The scope and effectiveness of the code was then subject to review by a board-level Committee on Social and Environmental Accountability. Shaun acknowledges that little sustained progress would have been made without this senior leadership.

Engagement

Rio Tinto’s first step was to collate the existing best-in-class procedures from across its business units, a summary of which it presented to a number of key non-governmental organisations (NGOs). What emerged from the process was a statement of business principles in 1997, entitled The way we work. As well as generic principles such as integrity, openness and transparency, the final draft saw new policies on access to land, human rights and political involvement added to existing statements on HSE and community involvement – all big issues for an international mining company.

Five years later, The way we work went through a second, more rigorous process of stakeholder engagement. In part, this was to ensure the external integrity of the principles. Rio Tinto’s management asked the San Francisco-based group, Business for Social Responsibility (BSR), to benchmark the principles against a peer group in the extractive sector and also against best-in-class examples from other sectors. BSR was also invited to undertake what Shaun describes as “crystal ball gazing”. The intention was to determine where society’s expectations on the responsibilities and performance of a company like Rio Tinto might be heading. One substantive outcome was the recommendation, which Rio Tinto subsequently endorsed, that the principles include a separate policy on its commitment to sustainable development.

The over-riding motive for this second iteration of The way we work, however, was to get Rio Tinto’s internal audience – particularly busy, practical, output-driven managers – to identify with the principles. The revised version was therefore sent for comment to managing directors and other senior executives in all Rio Tinto’s businesses. Subsequent to their feedback, the principles were posted on the company’s intranet for review by all 34,000 employees worldwide.

While Shaun’s colleagues only received comments from about 150 employees, the responses were detailed and well spread (four out of five business units responded). Most importantly, the process of internal engagement helped set in motion the kind of awareness raising and buy-in that is required for corporate principles to become genuinely embedded.

Embedding principles

Shaun is clear on Rio Tinto’s aspirations for its business principles. “They are to be no less regarded and accepted than a personal contract with each and every employee”, he states. For a global company working in very different cultural contexts, this presents no small challenge.

Internal communication

The management’s first step was to translate the finalised version of The way we work into the company’s 18 main operating languages. Copies in the relevant language were then sent to every employee, with a covering letter from the chairman. In addition, all new employees are given the business principles statement, which is also explained as part of their induction.

“One of the main challenges is to keep people aware of the principles so that they’re always at the back of their minds, but without becoming prescriptive”, Shaun comments. The company uses a number of conventional communications techniques to ensure this steady drip-drip of information. Employees can access information on the company’s intranet, as well as on CDs and videos that are made available to all business units. The company’s quarterly magazine also features issues related to sustainable development and its business principles. Meanwhile business units also produce regular newsletters on specific local issues, such as aboriginal relations in Australia.

Training

In certain areas, however, it is clear that implementation requires more than the effective promulgation of the company’s business principles. Take human rights for example: the fact that The way we work explicitly endorses the Universal Declaration of Human Rights falls well short of providing meaningful guidance to the manager of an operation in a remote area, where the host government may be increasingly in violation of human rights. With the input of managers themselves and external experts, Rio Tinto has produced a 20-page booklet on human rights that spells out what is expected of managers and employees, whether it be in the case of hiring security guards or dealing with incidents of workplace harassment.

Similar guidance documents are available on compliance and business integrity. The latter spells out what action employees should take in respect to issues such as bribery, gifts and facilitation payments.

Shaun’s colleagues are now also rolling out a web-based training scheme across the business. The move follows successful pilots of modules covering community investment, employment and business integrity. With modules now developed for each separate business principle, the online programme begins with an introduction to the individual components of The way we work. Employees are then required to answer questions and complete a case-study scenario to show they have understood each separate principle.

Compliance and reporting

Every business unit has a compliance officer responsible for monitoring alignment with the company’s statement of business principles. As part of the compliance programme, each subsidiary is required to submit a six-month report to the corporate centre detailing any compliance risks, and the steps taken to mitigate those risks. Information on training, incidents of non-compliance, resultant investigations and changes to procedures are also required in this report. All the business units are subject to periodic compliance reviews by external auditors.

Rio Tinto also provides a whistle-blowing procedure, through which employees can anonymously report incidents of non-compliance with the company’s business principles. The SpeakOut programme is a phone-in service funded by the company, but operated by an entirely independent provider.

To deliver on its commitment to transparency, Rio Tinto requires all its business units to issue an annual social and environmental review. These publicly available reports are available through its corporate website (http://www.riotinto.com/se). Rio Tinto issued its first group-wide social and environment report in 1996. From 2004, this combined report will be formatted in the same subject order as the statement of business principles in order to reinforce the centrality of The way we work.

Incentives

For some years Rio Tinto has been running an annual award championed by the Chairman for the best safety record among all the company’s businesses. The award acts to stimulate a degree of internal competition towards better performance.

One of the most ambitious aspects of Rio Tinto’s implementation policy, however, is its attempt to link its principles with employees’ performance reviews. The logic is hard to argue with. “If you want to change employee behaviour”, Shaun notes wryly, “an effective starting point is the hip pocket”.

Matching short-term bonus payments to safety targets is relatively commonplace in the mining industry, as in other sectors. Rio Tinto employees, however, are also judged on their commitment to “breathing life into the company’s sustainable development policies”. Shaun admits that augmenting its current guidance standards with tougher metrics in this area remains a challenge. Certainly the steer from the top is positive, however, with a proportion of senior executive remuneration being tied directly to key performance targets for safety and sustainable development.

Inspiring change

One of the most successful ways of inspiring employees to identify with the business principles comes through practical experiences of community involvement. Rio Tinto’s policy is for every site to have a five-year community plan, which has been shown to help build relationships with the local community and encourage greater employee participation.

Rio Tinto is also working to build a culture where employees “take the business principles home with them”. Central to achieving this is creating habit-forming practices, such as the travel advice noted earlier (guidance on avoiding being carjacked, for example, is of generic use in certain parts of the world). Another innovation by the company has been to work with its NGO partners to design community involvement opportunities that match up employees’ personal interests with a better appreciation of the company’s stated principles. Though a partnership with the Earthwatch Institute, for example, Rio Tinto funds two dozen employees every year to spend between two and three weeks on one of the charity’s international environmental projects. Not only is the volunteer’s understanding of sustainable development issues enhanced, but they are also encouraged to share their experiences within their business units on their return.

Challenges

Rio Tinto makes a commitment in its business principles to take practical, positive steps to educate joint venture partners and other business partners and contractors as to how it expects them to perform. Working with another entity that has different values, or no value statement at all, presents perhaps the single toughest challenge of all Rio Tinto’s commitments.

Some of Rio Tinto’s businesses, such as US Borax, undertake an assessment at the tender stage to determine a supplier’s capability to comply with its own business principles. Where Rio Tinto does not control a majority stake, it often seconds key personnel to its business partners. The secondees, often from safety or environment functions, act to cajole Rio Tinto’s partners with the business case for principle-led management.

Similar cajoling remains a continual challenge for Rio Tinto internally, as well as externally. With its framework of ongoing engagement, education, compliance and reward, the company is on track to effectively embedding its principles. The end goal, however, is for ‘its’ principles to one day become ‘my’ principles for every one of Rio Tinto’s 34,000 employees. If that ever comes to pass, Shaun will be justified in retiring somewhere hot – malaria and kidnap threats allowing, of course.

Send us your views on this issue

Corporate Citizenship Briefing, issue no: 73 – January, 2004