Corporate Governance Practices at Caltex Australia Limited

This report evaluates the corporate governance practices at Caltex Australia Limited, a leading organisation in the energy industry of Australia. The report examines the importance of adoption of principles of corporate governance for the business. It also analyses the board composition, chairman’s and CEO’s report, director’s remuneration, and board orientation at Caltex Limited. The report concludes with recommendations for the board to strengthen its environmental risk management strategy and promote sustainable development practices.

Running Head: Principles of Corporate Governance
Corporate Governance Practices
Caltex Australia Limited

Principles of Corporate Governance 1
Executive summary:
This report presents the case of Caltex Australia Limited and its corporate governance
practices. Corporate governance practices are those practices that help the company to protect
the interests of its stakeholders by maintaining transparent relationships with them. To
understand the effectiveness of Caltex’s corporate governance framework, its board
composition and the roles of different directors have been studied and it was found that
company is complying with all the relevant laws and provisions of Australian Corporations
Act, 2001 and also it is voluntarily disclosing all the relevant and reliable information related
to its business practices so as to protect its shareholders. To check the company’s efficiency
in the areas of ethical, social and environmental behaviour the use of various theories such as
legitimacy theory, stakeholder theory and stakeholder’s theory have been made.

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Table of Contents
Executive summary:..............................................................................................................................1
Introduction:..........................................................................................................................................3
Part A: About Caltex.........................................................................................................................3
Company’s Background................................................................................................................3
Caltex’s Industry............................................................................................................................4
PART B: Corporate governance at Caltex Australia..........................................................................5
Board composition.........................................................................................................................5
Chairman’s and CEO’s report:.......................................................................................................6
Director’s Remuneration................................................................................................................7
Part C: Board orientation at Caltex Limited:.....................................................................................7
Part D: Interpretation of communication made by Caltex................................................................10
Conclusion:..........................................................................................................................................12
References:..........................................................................................................................................13

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Introduction:
The present report is prepared to critically evaluate the corporate governance practices at
Caltex Australia Limited which is a leading organisation in the energy industry of Australia.
To identify and analyse Caltex’s corporate governance practices, the annual report for the
year 2017 is examined. Along with that the corporate governance statement of Caltex has
been thoroughly examined. As a part of this report, the importance of adoption of principles
of corporate governance for the business is determined. A good corporate governance
framework can make the existence of business easy because it allows it to comply with
various theories such as stakeholder’s theory, shareholder’s theory and the legitimacy theory.
Part A: About Caltex
Company’s Background
Caltex Australia Limited is an Australian stock exchange listed company which had started
its operations in 1990. The company is headquartered in Sydney, Australia. Caltex is one
among the leading corporations dealing in petroleum products in Australia. It supplies fuel
used in the transportation vehicles and along with this it also deals in the retailing business of
convenience stores. It generates maximum portion of its revenues through the refinement and
manufacturing of fuel products. The basic activities that Caltex undertakes as a part of its
business include purchasing, refinement, distribution and marketing of the petroleum
products majorly in the three countries: Australia, Singapore and News Zealand. Caltex
Limited is operating through two of its major segments: Supply & Marketing segment and the
Lytton segment (Bloomberg, 2018). The segment of supply and marketing undertakes the
activities related to selling fuels and lubricants, speciality products as well as the provision of
goods at the convenience stores through the wide network using different distribution
channels such as pipelines, terminals, transportation fleets and depots. The Lytton segment,

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on the other hand, undertakes the activities related to refinement of crude oil into various
products like petrol, diesel, jet fuels and several speciality products like liquefied petroleum
gas. The key products of the company are: Techron Fuels and Star Mart. Also, Caltex is
engaged in the provision of various services such as online account management which
allows the customers to order the company’s products and to obtain the price related
information. Moreover, Caltex also provides the services such as engineering consultancy in
the areas of hydrocarbon management and grease oil (IBIS World, 2018).
Caltex’s Industry
Caltex Limited operates within the energy sector of the Australian economy and is ranked at
11th position out of 2000 corporations in Australia. In 2017, Caltex has earned total revenue
of $21,421,233,000 from sales and other sources (IBIS World, 2018). In 2017, Caltex had an
employee base of around 4700 persons working with the company and its subsidiaries. The
company has a market share of nearly 30% in the products like petrol, diesel as well as jet
fuels (Australian Government, 2009). It also account for approximately 35% of the total oil
refining capacity of Australian economy. Australia holds the ownership of seven oil refineries
and out of this two major oil refineries are owned and operated by Caltex. These refineries
are: Kurnell (Sydney) & Lytton (Brisbane) with each having the capacity to produce 244000
barrels of crude oil every day. The energy industry of Australia aims at supplying the fuel
products of high quality safely and reliably to the customers. Transportation in Australia is
mainly dependent on the petrol-based fuel and hence the energy sector of the country is
growing rapidly. However, since the business of manufacturing and refinement of petroleum
products requires large investment hence risk of entry of new participants is low in this
industry. Thus, there are higher chances of growth of the companies that already exists in this
industry (Australian Government, 2009).

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PART B: Corporate governance at Caltex Australia
Corporate governance is a framework consisting of various rules and policies though which a
company is directed and controlled in such a way that enables it to protect the interest of its
stakeholders. It is the system which could balance out the interests of the company with the
interests of its stakeholders such as employees, creditors, investors, shareholders,
government, community and so on (Psaros, 2009).
The corporate governance system of Caltex Limited is set by its Board. The board defines the
corporate governance structure in accordance with the business operations of the company
and in the best interests of the stakeholders of Caltex. The company is committed to adopt the
best of the corporate governance practices to add value to the entire Caltex group (Caltex,
2017). The governance policies of the company are regularly and diligently reviewed by the
company’s Board so as to ensure that all the legal and regulatory requirements applicable on
the company are duly complied with and also to fulfil the expectations of its shareholders and
other stakeholders so that needs of the business could be addressed in the best manner.
In order to meet highest standards in the corporate governance field, Caltex Ltd annually
issues a corporate governance statement which contains the detailed information regarding
the practices of corporate governance. The said statement is issued on 21st March, 2018 and it
sets out all the details of corporate governance practices undertaken by the company during
the financial year 2017 (Corporate Governance Statement, 2017).
Board composition
The board of Caltex Limited comprises of seven directors in total and out of those 7 directors
some are independent, non-executive and MD’s and CEOs of the company. These directors
are:

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 Steven Gregg (Chairman) Independent and Non-Executive Director
 Julian Segal, Managing Director & CEO
 Trevor Bourne Independent and Non-Executive Director
 Melinda Conrad Independent and Non-Executive Director
 Bruce Morgan Independent and Non-Executive Director
 Barbara Ward AM Independent and Non-Executive Director
 Penny Winn Independent and Non-Executive Director
The chairman of the Board of Caltex Limited is an independent director. There are 6
independent directors and a dependent director in the company (Annual Report, 2017).
Chairman’s and CEO’s report:
From the annual report of Caltex Limited for the year 2017, it has been found the chairman of
the company has reported that 2017 was a successful year for the company. It is also reported
that the company continues to keep into consideration the past track record of company’s
financial performance while undertaking crucial decision making processes. It also takes into
account the changing business conditions, increasing demand of the products, new retail
formats and the increasing operating efficiencies to formulate the strategic and operational
plans for the sustainable growth of the business. It is also reported by the chairman that
company has announced a drastic change to its organisational structure during 2017 as a
result of which a cost saving of around $60 million has been achieved by the company. The
matter of fatality loss of one of the employee of Caltex is also reported by the chairman. The
CEO of Caltex has reviewed and reported on the financial performance of the company. The
report shows that the company has achieved overall profit (after tax) of $ 619 million in 2017
and there has been an increase in the profits of the company in 2017 as compared to 2016
(Annual Report, 2017). It has also been reported by the directors that Caltex has a zero

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tolerance capacity for the illegal and unethical business practices. The audit program at
Caltex is reported as an on-going event and the board is making required efforts for the
underpayments of the employees of the company.
Director’s Remuneration
The non-executive directors of the company are remunerated in the following manner:
Their fees are reviewed by Caltex’s human resource committee after taking into consideration
the recommendations made by the consultant from the field of independent remuneration.
Any changes in the remuneration fees after finalisation made by HRC are subject to the
approval of company’s board. Non-executive director’s remuneration is fixed in nature and
is subjected to a pool of $2250000 (Annual Report, 2017). The non-executive directors are
paid statutory superannuation fees however this fee is not paid to overseas directors.
The senior executive directors are paid the remuneration fees under the contract of
employment and there were no changes made in the remuneration structure of managing
directors of the company in 2017.
Part C: Board orientation at Caltex Limited:
The function of the board of directors of Caltex Limited must be following:
 All the directors must attend each and every meeting of Board.
 Directors must voluntarily available to work with the committees of board at-least in
the areas where they can use their practical knowledge and experiences.
 Directors of the company must make active participation in developing the policies
and procedures related to the operation plans and budgets.

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 The directors must be entrusted with the responsibility of the operating model for the
company’s convenience store business.
 The directors must make efforts to avoid their conflicts between with the other
members of the chamber of directors (Schwartz-Ziv & Weisbach, 2013).
Board’s Duty towards public, especially stakeholders:
Each member of the board is the official representative to their membership and is an
unofficial representative of general public. He or she must be readily available to defend the
company against any sort of criticism. In the present case of Caltex, where the investigation
has been raised on the company where it was revealed that company is underpaying and
exploiting its workers, the board must take appropriate action to allow the audit of the
fraudulent practices and to respond properly to the investigation queries so as to maintain the
trust and confidence of the stakeholders in the company.
Also after reviewing the corporate governance statement and annual report of Caltex, the
fatality case on part of Caltex Ltd had been identified which caused various regulatory
actions against the company and the company had to face heavy employee turnover.
Therefore, the board of the company must have proper processes in place to nullify the
employee fatality rate (Corporate Governance Statement, 2017).
Meetings of the board: The meetings of the board at Caltex must be conducted at the regular
intervals as prescribed under corporations act, 2001. Each board meeting must be outlined by
a way of agenda. The agenda of the board must include the key details related to the proposed
board meeting such as the purpose of meetings, the business that are to be transacted. The
meetings of the board must be duly convened.

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There must be a committee for the determination of reasonable amount of wages and salaries
payments to the workers of the company which must be consistently reviewed by the board
of directors to avoid the occurrence of wage frauds (Ferguson & Christodoulou, 2016). The
overall board of the company must direct and monitor the wage payment system in the
integrated manner for all the operational sites owned and run by the company.
There must be proper committees for the annual review and to audit the various compliance
processes of the company so as to ensure that all the applicable laws and franchisees
contracts are duly complied (Fleming, 2003).
The board of Caltex must have due processes in place to conduct the independent forensic
investigation to determine whether any of its franchisees are violating the workplace laws as
applicable to the Australian entities.
Further, as a part of good corporate governance practices the board must be comprised of
equal number of women representatives as that of male representatives. Moreover, the Board
of the company must provide appropriate and adequate developmental and promotional
opportunities (Caltex, 2017).
The board of the company must also strengthen its environmental risk management strategy
to promote the sustainable development practise. As the business of Caltex Limited requires
the consumption of natural resources, the board of the company must ensure that it fulfil its
responsibility towards sustainable reporting in the most effective manner. The board must
ensure that only those business practices must be undertaken that are not harming the
environment and its constituents (Ferrell, Fraedrich & Ferrell, 2015).
Further, a corporate social responsibility must be there in the board structure of Caltex
Limited in order to ensure that the company takes necessary initiatives towards meeting its

Principles of Corporate Governance 10
responsibilities towards the society in which it is operating its business. The CSR committee
must be comprised of adequate number of independent directors and chairman of such
meeting must be an independent director. The members of the committee must have requisite
knowledge and expertise in the areas of environmental studies, economics, sustainable
practices and human right protection (Du Plessis, Hargovan & Harris, 2018).
There must be the proper systems put in place in the areas of debt financing made by the
company. The board of directors must have certain members who are authorised with the
powers of approval of loans transactions undertaken by the company. In 2017, the gearing
ratio of the company has increased from 13.9% in 2016 to 20.8% in 2017 (Annual Report,
2017). It reflects the increased financial risk on the company due to increase in the debt
proportions of the company in its capital structure. Such loans must be approved by the
proper board members.
Further, there must be appropriate bodies to consistently monitor the performance of the
company against the Health, Safety, Environmental and Community standards for the
protection of stakeholder’s interest.
Part D: Interpretation of communication made by Caltex:
Legitimacy theory: The said theory works on the belief that there exists a social contract
between the entity and the society within which it operates its business. Thus, those entities
strives to legitimise their respective corporate actions by participating in the CSR activities
and by adopting CSR reporting practices so as to seek approval from the society for their
business practices for their continuous and smooth survival (Omran & Ramdhony, 2015). In
the present case of Caltex Ltd., the company has adopted ASX principles and
recommendation in relation to corporate governance practices and by way of this it has
achieved a satisfactory degree of transparency in maintaining the sound relationship with all

Principles of Corporate Governance 11
its stakeholders (ASX., 2014). To protect its shareholder’s interests company has effectively
communicated its financial results by way of annual reporting. It has adequately disclosed the
dividend payments made by it in 2017 and also in the financial reports it has incorporated the
financial results of 2016 so as to allow the shareholders to compare the financial performance
of the business and to analyse the overall return potential (Caltex Australia, 2017). Through
the compliance with the requirements of financial reporting, Caltex has duly complied with
the shareholder’s theory by proving them timely and balanced financial information so that
they can make sound decisions. Moreover, the financial results of Caltex as provided in its
annual report for the financial year 2017 are approved by the independent external parties
called auditors of the company. Further, by way of issuance of corporate governance
structure, Caltex has communicated in the most transparent manner to all the bodies that
regulates it about the compliance with all the relevant laws and provisions applicable to the
company. The issuance of corporate governance statement and sustainable reporting are the
kind of voluntary disclosures which enhances the credibility of company’s ethical, social,
environmental and other practices (Farrar, 2008). The communication of company’s
performance toward environmental practices clearly reflects the level of regard that Caltex
gives to the society in return of using society’s resources. Further, the code of conduct of
Caltex Ltd. is applicable on the all the employees and other parties which are related to the
company in any capacity such as suppliers, customers. The company has formulated its code
of conduct to formally communicate to its associated parties about the desired ethical
behaviour at Caltex so as to maintain the transparency in their business practices. The
disclosure in relation to the employment initiatives shows tells the way Caltex protects the
interests of its employees and avoids the ill-practices of exploitation and harassment. These
disclosures suggests that Caltex is committed towards its workforce in the most loyal and
ethical manner (Mohamed, Olfa, & Faouzi, 2014).

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Conclusion:
After examining the annual report of Caltex Limited for the year 2017 along with the
corporate governance statement which was issued recently in the month of March, it was
observed that company is duly complying with the relevant principles of ASX in relation to
good corporate governance and is also operating in the most ethical manner by maintaining a
high degree of transparency while communicating with its stakeholders.

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