3 Reasons Why Rio Tinto Plc’s CEO Is Great News For Shareholders

Something that comes with the territory of being a CEO is pressure. Pressure from the Board of Directors, pressure from the media and, most importantly, pressure from shareholders.

Indeed, it is easy for CEOs to cave in and bow to pressure from any one of those three groups of people and end up running the business not in the way the CEO sees fit, but rather how ‘armchair CEOS’ think it should be run.

So, I was encouraged by comments made recently by Sam Walsh, CEO of Rio Tinto (LSE: RIO) (NYSE: RIO.US) regarding the proposed sale of one if its subsidiaries, Pacific Aluminium.

Pacific Aluminium was among assets put up for sale by the company as it seeks to reduce its $22bn net debt and retain its single-A credit rating. However, partly due to it having high-cost smelters, and also because it is loss-making, it didn’t sell. So, Rio Tinto is going to continue to hold onto it (for now) and “get on with life”, as Sam Walsh stated.

Indeed, I think that this decision to stick with it for the time being is a crucial one and highlights the fact that Walsh is doing at good job for the people who matter: shareholders.

Firstly, he’s sharp enough to see that a “sale at any price” is not good for the company. Simply shifting a business for a fraction of its potential future value does not make sense — especially when interest in such assets will inevitably be low as a result of question marks surrounding the merging market growth story.

Secondly, Walsh has made it clear that he’s happy to stick with Pacific Aluminium and try and make a go of it. This will help Rio Tinto to achieve a higher price than if he had talked down the asset and/or complained about not being able to sell it. Tesco should take note and try and ‘talk up’ its Fresh and Easy operation if it wants to sell it!

Thirdly, Sam Walsh can see that although the subsidiary is loss-making at the moment, this could be a temporary blip in the emerging market growth story and it may turn a profit in future. Chinese data seems to be better than many commentators are giving it credit for and, although profitability could be some way-off for Pacific Aluminium, a profitable business is always easier to sell than a loss-making one.

Although the ability of a CEO is one factor in the overall success of a company, I’ve learnt over the years that it can be the difference between mediocrity and a substantial profit for investors.

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> Peter owns shares in Rio Tinto and Tesco. The Motley Fool owns shares in Tesco.