Austal Limited: Governance and Ethical Outlook

This report analyzes the governance and ethical outlook of Austal Limited through research and interpretation of voluntary disclosures. It covers the company's corporate governance, board orientation, and remuneration practices.

Running Head: ACCT20080 Ethics & Governance 1
ACCT20080 Ethics & Governance
Name
Institution
Date

ACCT20080 Ethics & Governance 2
Executive Summary
The report aimed at determining governance and ethical outlook of Austal Limited through
means of researching and making interpretations of voluntary disclosures of the company.
Voluntary disclosures help to clarify whether the company’s practices are generally acceptable or
not in the view of the interests of the society. As such, a company that is able to implement
practices that are acceptable to the society is able to flourish in its undertakings due to attraction
of potential customers and increased sales. Corporate governance at Austal Limited has been
through establishment of stakeholders, executive and non executive directors who form part of
its board responsible to ensuring that set objectives are achieved. Most importantly,
remunerations in form of total remuneration packages and total fixed remunerations are
advanced to the director and executives respectively as a compensation for their efforts towards
achievement of set goals of Austal Limited. Additionally, shareholder-agency and shareholder-
stewardship are the two orientation approaches that are being used at Austal to orient its board as
a way of achieving set objectives. Agency theory is appropriate for giving relevant explanations
to the above board orientation strategies at Austal Limited. Austal has also utilized annual
reports and websites as approaches for voluntarily disclosing information about its projects to the
society with a view of creating a legitimate perception among the society towards its activities.
Introduction
The purpose of this report to determine governance as well as ethical outlook of Austal Limited
Company through conducting research and interpreting its voluntary disclosures. Research
indicates that ethical outlook of a company is basically formulated by stakeholder who determine
what elements are generally acceptable and which elements are not acceptable at a company.

ACCT20080 Ethics & Governance 3
Voluntary disclosures help the company to directly communicate with the stakeholders like
investors, analysts, consultants and auditors in regards to its conduct in the society. On the
contrary, a firm which is focused on how the society views its undertakings in relation to the
environment will voluntarily disclose appropriate information to the society. Agency theory,
Stewardship theory and Legitimacy theory are the three theories that will be applied to determine
the governance and ethical outlook of Austal Limited Company. Also, elimination of information
gap about the governance and ethical practices that Austal Limited Company utilizes to ensure
that sound relationships with stakeholders and the society are maintained is the most essential
outcome.
Report
1. Introduction and summary of the company
Austal Limited was established in 1998 with its headquarters found in Perth, Australia. It is a
worldwide ship building entity and a prime contractor mainly specializing in designing,
constructing and supporting of commercial and defense vessels. Some of the products produced
by Austal Limited Company include; patrol boats, warships, passenger ferries, vehicle ferries,
Crew transfer ships, offshore wind-farm ships as well as naval ships. Austal Limited Company's
products are used by a multiple of countries across the world. Currently, Austal Limited
Company has three facilities that are engaging in building of ships for specialized purposes.
Vessels for defense are constructed and designed in Henderson, Australia as well as Mobile,
Alabama. Vessels that are used for commercial purposes are manufactured in Balamban,
Philippines (Globalsecurity.org, 2019). There are a variety of materials which are used in
building of ships and they include; ferrous metals, wood, plastics, fiber glass as well as non

ACCT20080 Ethics & Governance 4
ferrous metals. The above materials are strong, durable and have high corrosion resistance in that
they cannot easily rust. In addition, ship supports are offered through centers for services that are
found in Darwin, San Diego, Muscat, Balamban and Henderson cities. As such, Austal Limited
has subsidiaries in United States, Oman and Philippines. Also, the key persons at Austal Limited
include; John Rothwell and David Singleton who work as Chairman and Chief Executive Officer
respectively.
Austal Limited Company falls under the industry of defense and Ship Building of
Australia. The industry has over ten companies that are engaging in ship building projects and
thus making it competitive. Some of the other companies which are engaging in ship building
projects include; BSC Marine Group, Incat, Mort's Dock, Oceanfast, Williamstown Dockyard
among others. Such a factor means that Austal Limited is not a monopolist in the defense and
ship building industry of Australia. Australian Submarine Company based in Adelaide was 50%
owned by the government and BAE systems which were a British company was based in
Melbourne (Globalsecurity.org, 2019). These two entities were the only two major ship builders
in Australia by the end of 2010. However there existed smaller naval ship yards in Western
Australia particularly in Henderson city which contributed to navy contracts. Over the past years,
Western Australia has been able to attract a huge volume of investments ion ship building which
has given rise to big companies like Austal Limited. As part of recent history of Austal, the
company had constructed and designed more than 260 ships for a multiple of defense forces as
well as commercial operators by 2017. It has been in position to attract clients across the world
and they include; U.S Navy, Condor ferries, Royal Navy of Oman as well as Royal Australian
Navy. As of 2016, Austal Limited had close to 5,500 employees. The company had an operating
income of A$29 million, Revenue of A$1.309 billion and net income of A$15 million in 2017

ACCT20080 Ethics & Governance 5
(Marketscreener.com, 2019). Therefore, Austal Limited Company has significant financial
resources to sustain its ship building projects.
2. Summary of corporate governance at Austal Limited Company
Austal Limited's Board comprises of Directors who have a number of qualifications, experience
and expertise. The selection of the members of the Board was aimed at meeting the purposes of
their ability to add more value to Austal Limited Company. Austal Limited Company’s Board is
made up of a Chairperson who is an independent director in that his decisions cannot be
influenced by any other party on behalf of the company. In addition, Chief Executive officer and
two Non Executive Directors who are independent (Austal.com, 2019). The above information
reveals that ratio of independent to non-independent directors at Austal Limited is 3:1. The name
of the Director at Austal Limited is Mr. Charles Roland Giles Everist
Summary of the report by Chairperson of Austal Limited
From the 2018 annual report of Austal Limited, the Chairperson reports that the company
realized improvements in their operations due to the desirable financial outcomes that were
achieved in the Fiscal year of 2018. These desirable financial outcomes were derived from the
fact that shipbuilding activities in United States were relatively stable and contributed to revenue
of $1.163 billion. Although, delivery performance and quality has been desirable in Australia and
Asia, the Chairperson asserts that financial performance did not depict the operational standards
in the two regions. He also hinted on projects like Royal Australian Navy that failed to yield
desirable financial outcomes in spite of the tireless efforts that were devoted by the team.
However, he clarified that volumes of work accompanied by pricing margins on the work will

ACCT20080 Ethics & Governance 6
result into a significant revival in the following years (Investor.austal.com, 2018). As a result,
financial performance of Austal limited's operation in United States will greatly be enhanced.
Summary of the report by Chairperson of Austal Limited
Austal Limited's CEO asserted that significant improvements in a multiple of key points of their
business will help to sustain and shape its nature for the forthcoming years. The giving out of
Offshore Patrol Vessel contract to a foreign competitor was the major setback that Austal
Limited faced during a fruitful fiscal year of 2018. He hints that diversity in their undertaking is
an element which is making Austal to flourish as they continue to construct new advanced ships
using up to date technologies so as to meet needs of their customers (Investor.austal.com, 2018).
How Directors and Executives are remunerated
Remunerations are executed within the scope of principle habits and actions especially in the
view of safety, compliance, risk and control. From the 2018 remuneration report by Austal,
Directors are remunerated through total remuneration packages which include; inclusion of
social security, allowances, superannuation, and arrangements of salary sacrifices. In regards to
Executives, remunerations are advanced through total fixed remunerations which are always paid
in cash. However, the Board and Executives may agree that at the start of every year, about 30%
of total fixed remunerations can be unconditionally paid in share rights (Investor.austal.com,
2018).
Austal’s immediate priorities and plans to achieve them
Currently, Austal Limited has an immediate priority of enhancing performance of ships that are
made out of aluminum as part of its new strategies to meet needs of their clients. In order to

ACCT20080 Ethics & Governance 7
address the above priority, Austal is planning to make use of strongly optimized designs to a
distinct level which is not visible in steel vessels. The plan implies that Austal will also make use
of best designers of marines and engineers in the shipbuilding industry of Australia
(Investor.austal.com, 2018).
3. Board orientation
Board orientation is an element that is used to enable all shareholders of a given company to
familiarize with the undertakings of the company so as to achieve the set objectives. Board
orientation can be facilitated through use of corporate governance by a company. Moreover,
corporate governance is a practice that helps to ensures that objectives are set and achieved and
as well identified ways through which risks can be monitored so that overall performance can be
optimized. In other words, corporate governance consists of systems, principles or systems
through which authoritative practices can be exercised and managed in a given company (Greg,
2010). In regards to Austal Limited, Board orientation is taking place in two forms that is to say
Shareholder Agency Orientation. The orientation is derived from the nature of board
composition, board focus as well as key communications that are employed at Austal Limited
Company.
Shareholder-Agency Orientation
Majority of the Board members at Austal Limited are independent in that they were
installed by the shareholders. Austal Limited’s Board consists of Non Executive Chairperson,
Chief Executive officer and two Non Executive Directors who are independent. These were
established to add value to the company as far as its projects are concerned through execution of
various duties and responsibilities. Non Executive Chairperson does not hold any management

ACCT20080 Ethics & Governance 8
post in the company. The main role of the Chair is to receive business plans as well as proposals
from Chief Executive Officer through the secretary of the corporate company. Thereafter, the
Chair presents the proposals and plans for approval to the board. In addition, the Chief Executive
Officer (CEO) holds the highest position in the Executive whereby he plays leadership and
management roles (Janet and Greg, 2012). In the due course, CEO undertakes major decisions on
behalf of the company, manages all resources and operations of the company to achieve the set
objectives. Also, he acts as a linkage between the company’s team and the Board of Directors.
Furthermore, Non Executive Directors are members of the Board who do not hold any
responsibility concerning day to day management of Austal Limited Company. They are
responsible for setting values and standards of the company, strategic goals as well as provision
of entrepreneurial leadership. Under shareholder-agency orientation, the board at Austal Limited
is focused on meeting needs of its stakeholders which include; growth, profits and dividends
during the processes of executing its projects. Currently, the board is focusing on building ships
that are up to date with the latest technologies so as to vessels that can compete favorably on the
world markets. For example, Austal Limited has planned to build high speed ships made of
aluminum instead of steel as a technological innovation strategy for enhancing its growth. In the
due process, more clients are likely to be attracted to buy its products and thus increased sales
and profits both in the short and long runs (Kim and Nofsinger, 2014). Therefore, it is from the
widened profit margins arising from increased customer base due to better quality vessels that
dividends of shareholders will also be maximized.
Furthermore, key communications under shareholder-agency orientation of the board at
Austal Limited have been exhibited through the remuneration report. Austal Limited in its 2018
remuneration report reveals that its shareholders are awarded for their efforts towards various

ACCT20080 Ethics & Governance 9
shipbuilding projects through total remuneration packages. Remunerations are in form of
payment of allowances, social security and superannuation as a way of compensating for their
efforts and meeting their interests whilst working for the company. Agency theory is the most
appropriate theory for the above mode of board orientation at Austal Limited. This is due to the
fact that shareholders are the owners at Austal Limited whereby executives and the board are its
agents. As such, executive and the board are given the freedom to make decisions that meet their
interests without any consideration of the interests of shareholders. In the due course, the board
has been required to establish approaches that align their interests with those of the shareholders
(Janet and Greg, 2012). The above approach has been exhibited during remunerations whereby
bonuses have been based increments of share prices.
Additionally, agency theory is the most appropriate to explaining the shareholder agency
orientation in that it helps to resolve agency conflicts that may arise between the managers and
the shareholders at Austal Limited. In most case, shareholder and managers may have conflicts
due to differences in motivations and goals. In other words, the shareholders may require the
decisions of managers to achieve their ambition of increasing their share value. On the contrary,
the managers may be interested in expansion of the business so that their salaries can be
increased without any prior interests in the increase of share value. In the due course, conflicts
may arise due to such differences in goals and motivation between managers and shareholders.
As such agency theory comes into play to resolve such conflicts by monitoring and making use
of written contracts (Kim and Nofsinger, 2014). In the due course, the interests of the
shareholders and the managers will be aligned in a way that both parties are able to achieve their
own interests respectively. For example, Apple Inc made it mandatory for its board of directors
and senior executive members to own significant portions of its stock as a way of aligning the

ACCT20080 Ethics & Governance 10
interests of shareholders with those of executive members. The above theory can be applied
directly to Austal Limited to eliminate any prospects of managers reaping from the actions that
cause havoc to the shareholders due to the fact that managers are considered to be part of the
investors of the company. From module 8 of the course, it can be seen that effective
communication between the managers and shareholders can help to ensure that conflicts are
educed between the two parties. More so, they can be able to agree on how Austal Limited's
undertakings can be executed so that their individual interests as parties can be fulfilled to take
the company to greater heights (Ilott, 2018). The above situation can as well able considered to
be a win-win aspect for both the managers and the shareholders at Austal Limited
Interpretation of company communications using Legitimacy Theory
Legitimacy theory is an approach which offers support to a company to implement,
develop voluntary environmental and social disclosures as a way of fulfilling its social contract.
As such, legitimacy theory aims at helping the company to recognize objectives and survival in a
dynamic business environment. In addition, legitimacy theory is centered on an idea that a firm
should always ensure that its undertakings are within acceptable norms and bounds of the
societies that it serves. As a result, a company that voluntarily discloses information about its
undertakings to the society that it serves makes it easy to have its activities perceived as
legitimate. Moreover, norms and bounds are always dynamic due to the fact that they change
with changes in the society that is served by a given company (William, 2011). During social
contract, the company is required under legitimacy theory to give up on its rights and depict to
the society that it is devoting its efforts to meet their interests so that a perception of legitimacy
can be developed.

ACCT20080 Ethics & Governance 11
In regards to Austal Limited, the company has been able to communicate on its
environment and social disclosures through use of annual reports. Most importantly, Austal
Limited has consistently produced annual reports for all the periods that the company has existed
in the shipbuilding industry. As such, society is able to access these annual reports via the
internet so as to read about some of the projects that the company has undertaken to meet the
society’s interests. For example, a recent annual report of 2018 indicates that Austal limited is
planning to introduce technological innovation in its ship building projects as a way of improve
their quality of its vessels. Upon reading such information from its annual report, the society can
be updated about the strategies that Austal intends to implement so as to meet the ever changing
needs and interests of the society. Most significantly, Austal's annual reports have been
indicating an overview of its operations whereby successes and failures are comprehensively
discussed (William, 2011). For example, Austal is able to apply basics of legitimacy theory to
voluntaries disclose undertakings that yielded significant revenues.
On the contrary, challenging situation and failures are also communicated through annual
reports whereby proposals to address the above events are also formulated. Additionally, Austal
has created websites whereby any information and updates about its products and activities are
always made voluntarily and publicly available online. As such, interested groups within the
society can directly access any information about projects or any other operations of Austal
Limited through its website. Most importantly, websites are easily accessible to every society
and individuals through use of technological devices like Smartphones, tablets or laptops. In the
due course, Austal is able to directly communicate with the society it serves as far as usage of its
products and any other services are concerned (Mobus, 2013).Therefore, annual reports and use

ACCT20080 Ethics & Governance 12
of websites have helped to the general society to develop a legitimate perception towards
activities and projects of Austal Limited over the years.
Conclusion
The report has given a comprehensive description about governance and ethical outlook of
Austal Limited as a shipbuilding company of Australia. Governance is an element that is mainly
undertaken by top members of the company such as the board, directors, shareholders as well as
executives to ensure that all projects are executed as planned. Moreover, entities always have an
interest of realizing maximum possible returns from their undertakings at least possible costs. As
such, a company can only flourish in its undertakings provided it has strong and experienced
management, executive and non executive teams. In order to develop a legitimate perception
within the society about given products of a company, communications should be delivered
through publicizing of annual reports and making use of websites. Therefore, customers will be
attracted to consumption of the company’s products basing on the information that the company
communicates through its websites and annual reports and thus widened sales and profit margins.

ACCT20080 Ethics & Governance 13
References
Austal.com (2019).Principle 2: Structure the Board to add value: Retrieved from:
http://investor.austal.com/principle-2-structure-board-add-value
Globalsecurity.org (2019).Ship building Industry: Retrieved from:
https://www.globalsecurity.org/military/world/australia/shipbuilding.htm
Greg, S (2010). An introduction to Corporate Governance in Australia: Pearson Education
Australia, Sydney
Investor.austal.com (2018).Austal Limited Annual Report 2018: Retrieved from:
http://investor.austal.com/static-files/6aa9d4f2-2a67-4416-a56c-dbf792a15f09
Janet, L and Greg, S (2012).The Effect of Board-Related Reforms on Investors’ Confidence:
Australian Accounting Review; 18(5), p. 123-134
Kim, K.A and Nofsinger, J.R (2014).Large shareholders, board independence and minority
shareholder rights: Evidence from Europe: Journal of corporate Finance, 13 (5): p. 859-
880
Marketscreener.com (2019).Austal Limited (ASB): Accessed at:
https://www.marketscreener.com/AUSTAL-LIMITED-6492610/
Mobus, J.L. (2013).Mandatory environmental disclosures in a legitimacy theory context,
Accounting, Auditing, and Accountability Journal, Vol 18 No 4, pp. 492-517
William, G (2011).The Board Book: An Insider's guide for directors and Trustees, W.W.Norton
& Company, New York & London. ISBN 978-0-393-06645-6

ACCT20080 Ethics & Governance 14
Ilott, G.L (2018).Module 8: Transparency— How the corporation communicates with
stakeholders, p. 1-17