Corporate Governance and Ethics: A Case Study of Pilbara Minerals Limited

This report sheds light on the concept of corporate governance through a case study of Pilbara Minerals Limited. It analyzes the corporate governance structure of the enterprise and highlights its unethical nature. The report also discusses how the enterprise uses the legitimacy theory to fulfill its responsibilities.

Running head: CORPORATE GOVERNANCE AND ETHICS
CORPORATE GOVERNANCE AND ETHICS: A CASE STUDY OF PILBARA
MINERALS LIMITED
Name of the Student:
Name of the University:
Author’s Note:

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EXECUTIVE SUMMARY
This report intends to shed light on the concept of corporate governance through the usage of
the case study of Pilbara Minerals Limited. The report thus begins by introducing the
enterprises and sheds lights on the different business activities of the concerned enterprise.
The report next outlines the corporate governance structure of the enterprise by highlighting
the different aspects of its Board. The report also undertakes an analysis of the Board through
the usage of the agency theory and finds that the status quo of the Board is largely unethical
in nature. Lastly, the report concludes by highlighting the manner in which the concerned
enterprise takes the help of the legitimacy theory to effectively fulfil its responsibility as a
business enterprise.

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Table of Contents
Introduction................................................................................................................................3
Overview of Pilbara Minerals Limited......................................................................................4
Corporate Governance at Pilbara Minerals Limited..................................................................4
Board Orientation.......................................................................................................................6
Interpretation of Pilbara Minerals Limited’s communications using Legitimacy Theory.........8
Conclusion..................................................................................................................................9
References................................................................................................................................11

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Introduction
As opined by Agrawal and Cooper (2017), the modern-day business enterprises are
required to comply with the legislative framework of the nations of their operations and for
the attainment of this objectives the business enterprises often formulate a corporate
governance guideline which in turn enables them to comply with the same. Bain and Band
(2016) are of the viewpoint that the construct of corporate governance can be seen as a set of
rules, principles, mechanisms, policies and others which enables the business enterprises to
manage its entire operations or business activities for that matter. More importantly, an
important aspect of the construct of corporate governance is the fact that the business
enterprises during the formulation of their corporate governance policies need to take into
account the perspectives of the diverse stakeholders, both internal stakeholders and the
external stakeholders, who would be directly or indirectly affected by the business operations
or the activities of the same (Schmidt & Fahlenbrach, 2017).
As discussed by Larcker and Tayan (2015), the major problem arises because of the
fact that the majority of the business enterprises merely take into account the powerful
stakeholders or the ones which are of greater importance to their business operations and
completely disregard the perspective of the others. In this regard, it needs to be said that this
is not only derogatory from the perspective of the stakeholders whose interests have been
neglected but at the same unethical as well since the business enterprises have an ethical
responsibility to create value for all the stakeholders who are associated with it (Aguilera,
Judge & Terjesen, 2018). This report intends to analyse the corporate governance policy of
the enterprise Pilbara Minerals Limited in the light of the annual reports published by it over
the years. The report begins by providing an overview of the enterprise Pilbara Minerals
Limited and the corporate governance policy followed by it. The report also undertakes an
analysis of the Board of the concerned enterprise through the usage of the agency theory and

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undertakes an analysis of the communication followed by it on the basis of the Legitimacy
Theory and finds that the enterprise is largely unethical in its outlook.
Overview of Pilbara Minerals Limited
Pilbara Minerals Limited, headquartered in Perth, is an Australian “Australian
lithium-tantalum producer” which is reputed for its “100%-owned Pilgangoora Lithium-
Tantalum Project (Pilgangoora Project) (Pilbaraminerals.com.au, 2019). Furthermore, the
enterprise under discussed here is one of the largest suppliers of raw lithium in the Australian
mining industry and by the year 2020 is expected to become the largest one on the score of
the amount of raw lithium produced by it (Pilbaraminerals.com.au, 2019). The major mineral
site from which the majority of the raw lithium offered by the concerned enterprise is being
offered to its clients is Western Australia’s Pilbara region and it is in honour of this region
that the name of the enterprise had been selected as “Pilbara Minerals”
(Pilbaraminerals.com.au, 2019). In this regard, it needs to be said that one of the major
reasons for the unprecedented success attained by the enterprise under discussion in the last
four years, that is, since its foundation can be ascribed to the large volume as well as the
high-quality of lithium that the Pilbara region of Western Australia holds. More importantly,
in the year 2018 it was seen that the enterprise produced more than 800-850,000tpa of raw
lithium and this is expected to increase even more in the coming years
(Pilbaraminerals.com.au, 2019). In addition to this, it is seen that the concerned enterprise is
presently trying to enhance the scope of its business and the resultant effect of this is that it is
trying to develop “chemical conversion plants” in the nations of China and South Korea
(Pilbaraminerals.com.au, 2019).

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Corporate Governance at Pilbara Minerals Limited
Tricker and Tricker (2015) have articulated the viewpoint that one of the best methods
to understand the corporate governance policies or measures used by a business enterprise is
to undertake an effective analysis of the annual reports published by the same. As discussed
by Yermack (2017), the annual reports of the different business enterprises not only provide
an overview of the different Board Members, the financial details of the enterprises, the
business practices followed by them and others. In the context of Pilbara Minerals Limited, it
is seen that the annual report of the concerned enterprises highlights the composition of the
Board of the enterprise. In this regard, it needs to be said that Pilbaraminerals.com.au (2019)
in the annual report which it published for the year 2018 states that its Board is composed of
five individuals, one Managing Director and three Director Non-Executives and one
Chairman. As a matter of fact, the annual report of the enterprise under discussion here
mentions Ken Brinsden as the Managing Director of the concerned enterprise; Anthony
Kiernan as the Chairman (Non-Executive) and Steve Scudamore, Sally-Anne Layman and
Nicholas Cernotta Director (Non-Executive) of the enterprise (Pilbaraminerals.com.au,
2019). McCahery, Sautner and Starks (2016) are of the viewpoint that the Board of the
different contemporary business enterprises are composed of independent and non-
independent directors depending on the roles that they perform not only within the Board but
also within the spectrum of the entire business enterprise itself. In this regard, Du Plessis,
Hargovan and Harris (2018) have noted that the independent directors are the ones who do
not share any material or for that matter pecuniary relationship with the enterprise or its
employees and take certain remunerations for each of the meetings or the sessions that they
preside over. This is perhaps one of the major reasons why they are also called by the name
of ‘outside directors’ which as a matter of fact is symbolical of the position that they hold
within the enterprise. On the other hand, as discussed by Cuomo, Mallin and Zattoni (2016),

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the non-independent directors are the ones who share not only material relationship with the
enterprise but also pecuniary relationship with the enterprise as well. These kinds of directors
are thus required to play an active role within the enterprise. In the particular context of the
enterprise under discussion here it is seen that the independent directors of the enterprise are
Steve Scudamore, Sally-Anne Layman and Nicholas Cernotta Director including Anthony
Kiernan and the non-independent director is Ken Brinsden. More importantly, it is seen that
the above-mentioned independent directors are being remuneration on the basis of the each of
the meeting or the sessions that they attend whereas the non-independent directors is being
offered fixed salary along with a percentage of the annual revenue earned by the concerned
enterprise as well.
In the Board setting of the enterprise Pilbara Minerals Limited, it is seen that the
reports of the Chairman generally focus on the conditions in which the Board is going to
work, the issues on which it is going to focus and other similar aspects. On the other hand, it
is seen that the reports of the CEOs of the enterprise under discussion usually are a
compilation of the reports submitted by the different managers or the supervisors of the
enterprise and thereby focus on issues which are important from the perspective of the entire
enterprise.
Board Orientation
Aguilera et al. (2015) have articulated the viewpoint that the business enterprises need
to be maintain an effective relationship with its different stakeholders and they also need to
take active initiatives for the resolution of the different kinds of issues or disputes that they
face with regards to their stakeholders. In this regard, the agency theory is an important one
since it highlights the principle through which the business enterprises need to resolve the
issues or the conflicts with the diverse principles who are related to them. As a matter of fact,
this theory considers the business enterprise or its executives as agents whereas the

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stakeholders are being considered principals (Larcker & Tayan, 2015). For example, it is seen
that one of the most important aspects of this theory is the fact that it highlights the manner in
which the majority of the decisions are being made by the agents since the decisions made by
them financially affect the principals or the stakeholders (Aguilera, Judge & Terjesen, 2018).
This is important since in the recent times with the extensive work which is being done in the
field of the stakeholder management, it is considered highly unethical that all the important
decisions of the enterprises would be made by the agents just because of the fact that the
stakeholders are going to derive economic or financial benefits from the same.
In the particular context of the Board of Pilbara Minerals Limited, it can be said that
there is one non-independent director which can be seen as the agent whereas there are four
independent directors who can be considered to be the principals in the concerned scenario.
The resultant effect of this is that the majority of the important decisions within the Board of
the enterprise under discussion here are being made by the agent, that is, the Managing
Director of the enterprise and the four non-executive directors of the concerned enterprise
had to abide by the same on the score of the fact that they are gaining financial benefits from
the same. However, in the particular context of the Pilbara Minerals Limited, it can be said
that unlike the other stakeholders of the concerned who are directly influenced by the
decisions of the concerned enterprise, the principals in this case are getting remuneration for
presiding over the meetings or the sessions and thereby it can be said that they are also
gaining or earning financial benefits from the same (Schmidt & Fahlenbrach, 2017). Needless
to say, this is highly unethical in nature because of the fact that although there are five
members in the Board and all the important decisions of the enterprise are supposed to be
made by them in unison or congruency of opinion yet it is seen that almost all the decisions
are being made by the Managing Director which as a matter of fact complies with the
stipulations of the Agency Theory.

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In the Board of Pilbara Minerals Limited, it is seen that a substantial amount of bias
and all the power is being placed within the hands of the Managing Director of the concerned
enterprise since he acts as the sole agent in the scenario. This in turn had given rise to a
substantial amount of bias on both sides, namely, the principals and the agents. For example,
the principals have become biased against the agent because of the fact that they are being
deprived of all their power and also the important decisions are being made by the agent itself
although they hold the majority in the concerned Board (Agrawal & Cooper, 2017). On the
other hand, the agent is biased against the principals since they are merely taking
remuneration for presiding over each of the meetings or the sessions and they are not giving
the enterprise anything back in return. The resultant effect of this is that the principals in
Pilbara Minerals Limited are not very clear regarding the business processes, operations,
mission, values, vision and other aspects of the enterprise. This lack of knowledge on the part
of the independent directors or the principals of the enterprise had contributed in a substantial
manner to place all the power in the hands of the agent of the concerned enterprise. In
addition to these, it is seen that the majority of the reports of the enterprise under discussion
here, that is, Pilbara Minerals Limited, like the annual reports, financial reports, sustainability
reports and others are being composed by the Managing Director himself and the principals
of the concerned enterprise have a very little role to play in the composition or the
formulation of the same. On the score of these aspects, it can be said that although the
enterprise states that it follows all the stipulations of the national government of Australia and
also the ethical standards of conducting business yet at the same time it needs to be said that
the Board orientation of the concerned enterprise do not abide by the ethical standards of the
relationship which should exists between the stakeholders and the agents.

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Interpretation of Pilbara Minerals Limited’s communications using Legitimacy Theory
McCahery, Sautner and Starks (2016) have articulated the viewpoint that the
Legitimacy Theory can be seen as a mechanism which helps the business enterprises to
implement as well as develop voluntary environment or social disclosures so as to effectively
fulfil their social obligations. In this regard, it needs to be said that Pilbaraminerals.com.au
(2019) offers different kinds of disclosures regarding the social, environmental and other
kinds of initiatives undertaken by the concerned enterprise for the purpose of effectively
fulfilling its social obligation as a business enterprise. As a matter of fact, ‘safety matters’ is
one of the six major pillars of the enterprise under discussion here and thereby it tries to offer
safe working environment to the workers within its sites (Pilbaraminerals.com.au, 2019).
More importantly, it is seen that various measures are being taken by the concerned
enterprise not only for the improvement of the health of its workers but also the health of the
citizens of the nation of Australia as well (Pilbaraminerals.com.au, 2019). On the other hand,
it is seen that the official website of the concerned enterprise also discloses different kinds of
measures which are being undertaken by the enterprise for the improvement of the Australian
community and its environment. In this regard, it needs to be said that special focus is being
given on the local indigenous groups, local community members and others by the enterprise
not only for the protection of their rights but also to ensure that they are being able to lead a
quality life (Pilbaraminerals.com.au, 2019). In addition to these, it is seen that the enterprise
offers different kinds of employment facilities, education opportunities and others to the
Traditional Aboriginal Owners so as to help in the process of their development
(Pilbaraminerals.com.au, 2019). More importantly, the concerned enterprise through the
usage of the industrial best practices and also through the active involvement of the different
stakeholders is trying to reduce the environmental damage cause by it, its ecological
footprinting and thereby contribute in a positive manner towards the improvement of the

10CORPORATE GOVERNANCE AND ETHICS
condition of the environment (Pilbaraminerals.com.au, 2019). On the score of these aspects,
it can be said that the concerned enterprise effectively follows the dictums of the legitimacy
theory for the purpose of effectively disclosing its environmental or the social initiatives so as
to fulfil its role as a business enterprise.
Conclusion
To conclude, the framework of corporate governance had gained a substantial amount
of prominence within the spectrum of the modern-day business world and it is seen that it
outlines the rules or the policies which guides the business operations or the processes used
by the enterprises. More importantly, it is seen that the framework of corporate governance
and the reports published by the enterprises in a succinct manner also highlights the structure
which is being followed with the Boards of the enterprises, the relationship which exists
between the non-independent and the independent directors, the manner in which decisions
are being and others and also whether the outlook of the enterprise is ethical or not. These
aspects become apparent from the above analysis of the corporate governance policy of the
enterprise Pilbara Minerals Limited.

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References
Agrawal, A., & Cooper, T. (2017). Corporate governance consequences of accounting
scandals: Evidence from top management, CFO and auditor turnover. Quarterly
Journal of Finance, 7(01), 1650014.
Aguilera, R. V., Desender, K., Bednar, M. K., & Lee, J. H. (2015). Connecting the dots:
Bringing external corporate governance into the corporate governance puzzle. The
Academy of Management Annals, 9(1), 483-573.
Aguilera, R. V., Judge, W. Q., & Terjesen, S. A. (2018). Corporate governance
deviance. Academy of Management Review, 43(1), 87-109.
Bain, N., & Band, D. (2016). Winning ways through corporate governance. Springer.
Cuomo, F., Mallin, C., & Zattoni, A. (2016). Corporate governance codes: A review and
research agenda. Corporate governance: an international review, 24(3), 222-241.
Du Plessis, J. J., Hargovan, A., & Harris, J. (2018). Principles of contemporary corporate
governance. Cambridge University Press.
Larcker, D., & Tayan, B. (2015). Corporate governance matters: A closer look at
organizational choices and their consequences. Pearson Education.
McCahery, J. A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance, 71(6),
2905-2932.
Pilbaraminerals.com.au, (2019). Pilbara Minerals. Retrieved from
http://www.pilbaraminerals.com.au/site/content/

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Schmidt, C., & Fahlenbrach, R. (2017). Do exogenous changes in passive institutional
ownership affect corporate governance and firm value?. Journal of Financial
Economics, 124(2), 285-306.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
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