This case study analyzes the ethics and governance practices of Oz Minerals, a mining company in Australia. It examines the corporate governance framework, board composition, and application of legitimacy theory. The study also discusses the company's background, operations, and sustainability practices.
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Running head: ETHICS AND GOVERNANCE Ethics and Governance Name of the Student: Name of the University: Author’s Note
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1 ETHICS AND GOVERNANCE Executive Summary The focus of the assessment is to formulate an appropriate strategy which can be used by a business to manage the Corporate Governance framework in a business. The company which is selected for analysis is Oz Minerals so that it can estimated whether the business has efficient corporate governance framework for supporting the activities of the business. The management of OZ Minerals is dedicated towards maintaining sustainability practices in the business. The discussion would be covering composition of the board of directors of the business. The discussion would also showing application of legitimacy theory in the case of OZ minerals ltd. Table of Contents
2 ETHICS AND GOVERNANCE Introduction......................................................................................................................................3 Discussion........................................................................................................................................5 Corporate Governance of OZ Minerals.......................................................................................5 Board Orientation........................................................................................................................8 Application of Legitimacy Theory............................................................................................11 Conclusion.....................................................................................................................................12 Reference.......................................................................................................................................13
3 ETHICS AND GOVERNANCE Introduction The main purpose of the assessment is to analyse the case of Oz Minerals ltd which is engaged in the business of supplying materials and mining in Australia. The focus of the assessment is on the relevant activities which are undertaken by the business for the purpose of generation of revenue and also meeting the compliance requirement in the industry. The discussion would then be proceeding with the framework of governance which is adhered by the senior managers of Oz Minerals ltd in order to ensure that there is control in managing the activities of the business (Tricker & Tricker, 2015). The discussion would also be applying appropriatetheoryinordertoshowthededicationofthebusinesstowardsappropriate governance practices in the business. CorporateGovernancereferstoasetofguidelineswhichareestablishedby the management in order to ensure that work process is efficiently conducted and the business is able to meet all the statutory requirements in the business. The corporate governance practices of a business are considered to be important as the same keeps the employees in line and directs them to contribute to the goals and objectives of the business. The application of legitimacy theory is shown in the discussion with respect to the organization. The role of the board of directors in maintaining governance in the business are appropriately shown in the discussion which is shown below. Background of the Company OZ Minerals is a company which is engaged in Mining Sector operating in Australia and the company is also listed under Australian Stock Exchange. The company is known for its mining services and was originally formed due a merger agreement between Oxiana Ltd and Zinifex in the year 2008. The company has extensive operations in significant location such as
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4 ETHICS AND GOVERNANCE Prominent Hill Mine and the Sensitive Military area of the region(Annual Reports | OZ Minerals., 2019). The company is engaged in extraction of minerals through open pit operations and also underground operations. The business focuses on copper mining products and uses modern mining techniques for the purpose of extraction of minerals. The company is also known to be one of the largest copper- gold resource company which operates in Australia. The company also has its resources in Brazil and can operate on offshore basis as well. The company is known for its innovative approach towards extraction of minerals and this is the reason the company is the third largest copper producer in the country. The company has started expanding the operations inProminent Hill operation and the same would be including underground mining operations for the purpose of extracting key minerals from the surface of the earth. The company has its headquarter established in Adelaide from where the operations of the business are effectively carried out. The company had expanded the operations of the business in previous year for the purpose of achieving growth in the operation. The corporate governance of the business is also appropriate and strong emphasis is put on sustainability in the operations of the business.
5 ETHICS AND GOVERNANCE Figure 1: (Mining Companies in Australia in terms of Market Capitalization) Source: (Statista. 2019). Discussion Corporate Governance of OZ Minerals The framework of governance of the company is based on the decisions which are taken by the directors of the company. The corporate entity has also established different committees for the purpose of ensuring that the governance structure is effectively followed in the business (Khan, Muttakin & Siddiqui, 2013). The board of directors of the corporate entity are made up of morenon-executivedirectorswhoareindependent.Theemphasisofthebusinessison enhancing long term value from the operational process of the business. The total directors of OZ minerals comprises of 6 directors out of which 4 directors are independent. The chairman of the business is Rebecca McGrath who is one of the independent director for the company and heads the board of directors of the business considering the major decisions relating to the business (McCahery, Sautner & Starks, 2016). The important decisions which are taken by the management of the company are based on the term goals and sustainability requirements of the business. In addition to this, the composition of the board also shows the management team of OZ minerals ltd which looks after the operational process of the business and involves key executives such as Chief financial officer and Chief Executive offer of the business. In addition to this, it is recognised from the annual report of the business that the management of OZ Minerals ltd follows lean business processes for the purpose of ensuring that there is accountability and further room for innovation in the business process of the company. In addition to this, the company has its own code of conduct established which allows the business
6 ETHICS AND GOVERNANCE to guide its employees and managers regarding the work processes and execution of duties (Armstrong et al., 2015). The above table shows meeting attendance of the directors of the business in important meetingsofdifferentcommitteeswhichareestablishedintheorganizationalongwith involvement of independent directors of the business. The letter from the chairman and CEO of the business shows that the executives of the company has reorganised business structure for the purpose of supporting the activities of the business and thereby further refined strategies and strengthen the governance process of the business (Jizi et al., 2014). The company has focused on enhancing the growth of the business and thereby focused more on refining the strategies of the business for the purpose of achieving the objectives of the business. The priorities of the company in 2019 is to look for expansion and growth in the operations of the business and focus on innovations for achieving the desired results and also establish a proper mining culture. The company also aims to acquire new
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7 ETHICS AND GOVERNANCE footholds for starting their mining projects and or starting new pipeline which can meet their future growth requirements. The remuneration policies which is set out by the business is to ensure that the welfare of the employees is considered and on the basis of the same appropriate steps are taken for compensating the key personnel of the business (Chan, Watson & Woodliff, 2014). The top tier employees of the business get their remuneration by cash payments, short-term incentives, long term incentives and superannuation fund contribution so that the business is able to keep such employees satisfied and also is able to retain such employees. The above chart is an extract taken from the annual reports of the company for the year 2018 which represents the total compensation which is received by management personnel who are responsible for managing the day to day operations of the business (Larcker & Tayan, 2015). The remuneration report which is formulated by the remuneration committee clearly states that the salary of the personnel has been increased from last year’s percentage and judging from the
8 ETHICS AND GOVERNANCE strong performance of the business during the period against the KPIs which are established. The salary of the staff members has also increased. In addition to this, it is also to be noted that the managementofthecompanyfollowscertainprinciplesforthepurposeofmeetingthe remuneration objectives of the business and the same is shown below in details: Board Orientation The directors of the business are accountable for taking major decisions relating to the business and also for ensuring that the governance principles in the business are appropriately followed by those charged with governance. The framework for governance in the business requires the board of the directors take the steps for managing the operations of the business and alsofollowtheguidelineswhichareestablishedintheboardcharter.Itisfurtherthe responsibility of the board of directors to set company’s goals and responsibilities thereby reviewing material risks and internal control compliance of the business (Sapra, Subramanian, & Subramanian, 2014). The board delegates some of the responsibilities and powers to the executive committees for proper management of the operations of the business. The process is appropriately followed by the board of directors of the business so that long term value is created for the shareholders of the business.
9 ETHICS AND GOVERNANCE The board of directors of Oz Minerals ltd at present comprises of 6 directors who are made up of executive and non-executive directors. The board follows a unitary structure and all the executive directors of the business including the chairmen of the business are independent. The management team of the company comprises of CEO and CFO who handles day to day operations of the business and also have exclusive powers to take major decisions on behalf of the company. Further the structure of the corporate governance for the business of OZ minerals ltd shows that the management follows the principles which are laid out by the ASX Corporate Governance’s Council as the reports relating to governance is formed accordingly. The management of the company for the purpose of properly managing the operations and affairs of the business has established executive committees for handling specific areas of performance relating to the business. In addition to this, the management has also delegate power and responsibility to such committees so that they can execute their functions in an effective manner. There are three standing committees which are established by the business which are audit committee, people and remuneration committee and sustainability committee. The roles and responsibilities of such committees are discussed below in details: Audit committee is given the responsibility of managing the framework for reporting which is adopted by the business in terms of providing disclosures and showing financial information in the annual report of the business. In addition to this, the audit committee also ensures whether the external audit function of the business is being effectively carried out by the management of the company or not. The remuneration committee is given the responsibility of computing the payments which is due to the directors, chief executives and employees of the business. The remuneration committee also looks out for diversity and inclusion practices formation
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10 ETHICS AND GOVERNANCE and supervision in the business. The remuneration committee is provided appropriate power for discharging their responsibilities in an effective manner. ï‚·Sustainability committee looks after the sustainability practices in the business and also looks after the safety and activities of the business. The sustainability committee advises the board regarding whether the activities of the business have any severe impact on the environment or the well being of the employees of the business. The managing team of OZ minerals looks after the policies and effectiveness of the practices of the business so that the internal and externa functions of the business are effectively carried out by the business. The company is also dedicated to incorporating continuous improvement in the functions of the business. In order to make continuous improvement in the business process, the management of the company has devised a training a competency program for the benefits of the employees of the business. The business model which is developed for the company is based on innovation, transformation and developing the skills of the employees of the business. The management of the company has also established a risk management framework for ensuring that the risks are properly adhered to in taking major decisions of the business and further the business follows an ethical framework for executing proper functions related to the entity. Further the focus of the management is on continuous disclosures and maintaining health and safety policies of the business. The business also aims to conduct regular internal audits so that it can be confirmed that the business processes of the business are ethical and the same is compliant with the regulations which is relevant to the business. The management of the company has also established a code of conduct process which specifically states the issues of conflict of interests, actions which needs to be taken against bribery, fraud and corruptions. The
11 ETHICS AND GOVERNANCE framework which is formulated by the management is done keeping in the mind the nature of operations and the risks which the business can face in its day to day operations. Application of Legitimacy Theory The legitimacy theory provides that it is the responsibility of the management of a company to report regarding the social and environmental activities which is undertaken by the business. The legitimacy theory makes it clear that every business is bound by a social contract to make contribution towards the social and environmental cause of the business. The theory requires businesses to provide appropriate disclosures in the annual report of the business regarding the contribution which is made by the business towards its social responsibility during the period. In the case of Oz Minerals ltd, the management of the company has provided appropriate disclosures relating to environmental and sustainability practices which is followed by the management of the company. The disclosures regarding the environmental and sustainability issues are covered in the financial statements as well as the sustainability report which is formulated by the business regarding the operations of the business. The legitimacy theory of the business makes it clear that the management of the company needs to follow appropriate reporting framework for the purpose of ensuring that the approach which is taken by the business. OZ Minerals on a regular basis oversees its agreement with permits and licenses which is done through environmental audits along with the audits which are conducted for regulatory purposes. In an overall estimate, it can be said that the management of the company is compliant with the regulations which re relating to environmental and social contributions of the business.
12 ETHICS AND GOVERNANCE Conclusion The above discussion shows the importance of corporate governance principles in a business environment and how the same affects the performance of the business in the long run. The business of Oz Minerals is considered for the analysis and for the same purpose, annual report of 2018 is considered. The business has shown appropriate standards for reporting regarding the governance structure which is followed by the management of the company. The business of OZ minerals effectively follows proper risk management and sustainability policies so that efficiency can be maintained in the organization.
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13 ETHICS AND GOVERNANCE Reference Annual Reports | OZ Minerals. (2019).Ozminerals.com. Retrieved 27 September 2019, from https://www.ozminerals.com/media/reports/annual/ Armstrong, C. S., Blouin, J. L., Jagolinzer,A. D., & Larcker,D. F. (2015). Corporate governance, incentives, and tax avoidance.Journal of Accounting and Economics,60(1), 1-17. Australia - largest mining companies by market capitalization 2018 | Statista. (2019).Statista. Retrieved 27 September 2019, from https://www.statista.com/statistics/687317/australia- largest-mining-companies-by-market-capitalization/ Bell, R. G., Filatotchev, I., & Aguilera, R. V. (2014). Corporate governance and investors' perceptions of foreign IPO value: An institutional perspective.Academy of Management Journal,57(1), 301-320. Chan, M. C., Watson, J., & Woodliff, D. (2014). Corporate governance quality and CSR disclosures.Journal of Business Ethics,125(1), 59-73. Jizi, M. I., Salama, A., Dixon, R., & Stratling, R. (2014). Corporate governance and corporate socialresponsibilitydisclosure:EvidencefromtheUSbankingsector.Journalof business ethics,125(4), 601-615. Khan, A., Muttakin, M. B., & Siddiqui, J. (2013). Corporate governance and corporate social responsibility disclosures: Evidence from an emerging economy.Journal of business ethics,114(2), 207-223.
14 ETHICS AND GOVERNANCE Lanis, R., & Richardson, G. (2013). Corporate social responsibility and tax aggressiveness: a test of legitimacy theory.Accounting, Auditing & Accountability Journal. 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. Sapra,H.,Subramanian,A.,&Subramanian,K.V.(2014).Corporategovernanceand innovation: Theory and evidence.Journal of Financial and Quantitative Analysis,49(4), 957-1003. Schiopoiu Burlea, A., & Popa, I. (2013). Legitimacy theory.Encyclopedia of corporate social responsibility, 1579-1584. Tricker,R. B., & Tricker,R. I. (2015).Corporategovernance: Principles,policies,and practices. Oxford University Press, USA.