Corporate dysfunction on Indigenous affairs: Why heads rolled at Rio Tinto
Outraged investors have forced the board of Rio Tinto to sack its chief executive Jean-Sebastien Jacques along with two of the senior executives partially responsible for the destruction of the Juukan Gorge caves in the Pilbara region of Western Australia, which contained evidence of human habitation 46,000 years ago. Why did the company commit this egregious act? There are several layers to the answer. First, Rio Tinto’s iron ore division was under extreme production pressure. The iron ore in the vicinity of the caves was very high grade and the company needed as much of it as possible to mix with other grades so as to supply the market with its trademark Pilbara blend. Its reputation as a reliable supplier depended on it. Rio Tinto was siloed It was authorised under West Australian law to mine the area, even though this would destroy the caves, and it intended to exercise this legal right, regardless of any opposition. Second, Rio has a segmented organisational structure. It’s product divisions – iron ore, aluminium, copper and diamonds, minerals and energy – operate as autonomous business units with relatively little control from the corporate centre. When things go well, such an organisational structure is highly profitable for the corporation as a whole, because it leaves each product division free to take advantage of whatever opportunities there are in its particular market. But there is a downside. It leaves the corporation vulnerable to poor decision making by any one of its product divisions, decisions that may have disastrous human and environmental consequences that threaten the social license of the whole corporation. That is what has happened in the Juukan Gorge case. Organisational weakness Of course, Rio was aware of this downside of its organisational structure and had taken steps to deal with it. It had various functional lines – chains of command […]