This report discusses the ethics and governance framework of South32 Limited, a successful mining organization in Australia. It explores the corporate governance practices, board orientation, and company communication strategies. The report also highlights the importance of ethics and sustainability in the organization's business model.
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1ETHICS AND GOVERNANCE Executive summary South32 Limited is one of the successful business organisation that actively doing business in Australia. The organisation is belonged to the mining industry and effectively expands its business in international market such as South America and Africa. However, there are specific elements that are considered to be played major role for embolden the organisational exposure of South32 Limited. The corporate governance, incorporation of the shareholders and the company communication are the important facets on which the report discusses ethics and governance framework of South32 Limited.
2ETHICS AND GOVERNANCE Table of Contents Introduction......................................................................................................................................2 Company history..........................................................................................................................2 Corporate governance..................................................................................................................3 Board orientation.........................................................................................................................5 Premium rate of environment..................................................................................................5 Business model........................................................................................................................6 Collaboration, culture and value..............................................................................................7 Performance.............................................................................................................................7 Outlook....................................................................................................................................8 Company communication using legitimacy theory.....................................................................8 Conclusion.....................................................................................................................................10 Reference.......................................................................................................................................11
3ETHICS AND GOVERNANCE Introduction South32 is a globally reputed diversified mining and metals company operates in Australia, Southern Africa and South America. The company was a child organisation of the mining giant BHP Billion but started independent operation since 2015 (asx.com.au, 2019). Listed in the Australian Securities Exchange, currently South32 is doing business successfully in Australia. The mission statement of the organisation reveals the focus on improving peopleās live and ensure the best use of natural resources for the next generation. Putting emphasis on the partners and the owners is also a unique feature of South32 to make a sustainable business orientation. Based on this understanding, this report aims to evaluate the corporate governance, board orientation and the communication of the organisation in reference to the annual plan of the organisation. Company history South32 is doing good business in Australia with the help of focusing on corporate governance and the practice of establishing sustainable business practice across the world. Ethical business practice is one of the major aspect on which South32 is started putting focus (south32.net, 2018). In respect to this, it can be stated that the purpose of the company is related to the benevolent practice of safeguarding the nature and the next generation. A sustainable approach is followed by South32 as a strategic approach that makes the organisation more acceptable to the global market and foster strategic advantage. The market capitalisation of the organisation is healthy and effective in respect to its business orientation. In the Arizona Mining plant,theorganisationencapsulates83%oftheminingfieldwiththeHermosaproject (asx.com.au, 2019). Moreover, strategic alliance with North Queensland and Resources also
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4ETHICS AND GOVERNANCE considers to be an important aspect for the organisation to establish a good business practice in both regional and international field. Recently in 2018, the organisation expanded its business to South Africa for coal mining and got a standalone business that is helping South32 to establish a strong and effective business practice. The ongoing sustainability framework is also an important part for the organisation in order to bring more efficacy and market capitalisation in the international market. Currently, South32 is contributes 40% of bauxite, Aluminium and Alumina, 12% in Energy coal, 31% in manganese extraction (south32.net, 2018). This range of products helps the organisation to establish an effective business practice in association with corporate governance framework. There are more than 14,000 people currently employed in South32 in all over 7 countries. 95% of the employees are permanent and only 5% are recruited as temporary or fixed term basis (south32.net, 2019). Moreover, the organisation does not believe in gender discrimination and it can be seen in the organisational structure of South32 where 33% of the Board members are women and the senior leadership encompasses a percentage of 31. Moreover, for prohibiting any kind of threat from racism the organisation intends to employ more African people in its operations in South Africa. In the total employee strength 81% are comprised with the African nationality which has grown since the financial year of 2016 and 2017 (south32.net, 2018). Therefore, it can be stated that the organisation pledge to do business in association with effective and strong organisational values and social responsibilities. Corporate governance As far as the corporate governance is concerned, South32 practices a clear vision of commitment to transparency in the dealings with the stakeholders based on the 8 points organisationalprinciples.Basedonthisunderstanding,itisessentialtoevaluatethe
5ETHICS AND GOVERNANCE organisational structure for making a clear version of the corporate governance initiative by the organisation (AlonsoāAlmeida, FernĆ”ndez de Navarrete,, 2015). Graham Kerr is the Managing Director and the CEO of the company who has profound knowledge in the business activities of South32. Apart from that the governing body of South32is also comprised of seven non- executive directors and one chair. David Crawford is the head of the Board of Directors who has enough experience in risk management and organising the business (south32.net, 2019). The advisory body of South32 is primarily focused on several key aspects like improving the premium rate environment, establishing culture and values. However, there is no such measure mentioned in the context of environment protection. It should be the organisationās core corporategovernancestrategiestotakeadequatemeasuresinordertosetupeffective environmental practice. However, the governing body is failed to identify the environmental issues that are most of the important factors in global business. Therefore, it is a pertinent measure that the South32 Board of Directors should consider as a threat for the international image of the organisation. Moreover the annual report of the organisation reveals that in Australia, there was a growing trend of environmental protection and the business organisations came to install measures for safeguarding the environment properly. Therefore, it is important for South32 also to formulate effective measures for protecting ecology. In the remuneration report of South32, it was found that the organisation tries to develop an effective and fair remuneration process for the organisation. In this regard, the organisation emphasis on the governance and culture of the remuneration process. In the governance, the CEO of South32 enjoys the responsibility to implement an effective company remuneration policy and also finds out the flaws within the system so that those issues can be resolved as soon as possible. Moreover, there is also a people committee that is also played a major role in
6ETHICS AND GOVERNANCE shaping an effective remuneration practice in South32 (south32.net, 2018). The committee is comprised of the key management personnel of the organisations such as the non-executive directors of the board. On the other hand, the organisation follows a remuneration culture that will formulate a philosophy of treating the employees on the basis of their performance. Therefore, competitive rewards are given to the employees to attract high calibre and also link the executive rewards to shareholder value. It can be argued that the organisation puts huge importance to extract more efficacy into the organisational practice of the employees and for this there are both the short term and long term remuneration system has been implemented in order to bring more efficacy into the organisational performance (Kelchner, 2017). From the annual report of the company, it can be seen that there is a sharp increase in the remuneration weightage and volume of South32. For instance, in 2018, the projected shareholders return was estimated at 53%. It is essential for the South32 to increase the shareholders return to a great extent so that it will satisfy the shareholders. However, there is an improvement of 15% can be found in the remuneration practice that will provide a boost for the employees and management to perform extensively(south32.net,2018).Itprovestheaggressiveandfairrewardsystemofthe organisation. However, lack of highlighting the basic criteria for rewarding with remuneration provides a serious problem for the organisation and it is important for the business organisation to resolve this issue by stating a clear projection of the reward criteria for both the executives and the employees. Board orientation In course of discussing, the board orientation of South32 it can be stated that the board of directors illuminates a number of important factors such as the premium rate environment, focus on the business model, collaboration, culture and values, outlook and the performance.
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7ETHICS AND GOVERNANCE Premium rate of environment The premium rate of environment means the South32 is willing to put focus on its stakeholders to a great extent. It is, in fact, mentioned within the organisational mission and vision where the company illustrates that it is their primary concern to set a better business by putting emphasis on the interest of the clients. Moreover, it can be argued that South32 shares grave concern for the shareholders and the stakeholders (south32.net, 2019). There is a reason for prioritising the shareholders and clients on top because the organisation knows that the clients and the shareholders are the key elements to foster sustainability in its business (Teo, T. S., Nishant & Koh,, 2016). Most of the shareholders are independent and ventilate their interests through investment. It is of course an important aspect for the company to run its business properly. The operating division is entitled to look after the interests of the investors and clients. Besides this, employees are also considered to be played a major role in procuring a healthy environment within the organisation. Therefore, the Board intends to set up a business model in order to value the clients, partners, employees and shareholders. It brings confidence to the organisationalactivitiesandidentifiedasakeycomponentforthedevelopmentofthe organisation. Business model Building an effective and profitable business model is another important facet on which the board tries to fix its gaze. The business model is resembled with the practice of developing better strategy and purpose for future stability in business. Henceforth, using shared value will get benefit for South32. The Board of the company also believes in such practice so that create a value in all over the operational activities. According toSharfman(2017) the business model guides the organisation towards achieving high rate of profitability. In the intense competitive
8ETHICS AND GOVERNANCE market of insurance in Australia it seems effective for the financial enterprises like South32 to use its stakeholders as a driving factor for elevating the marketing capitalisation more effectively and prosperously. The product and service offering is also a part of strategic value setting for South32 where the board members are directly emphasizes on the upgradation of the service delivery. With the growing change in the consumer behaviour, pursuing for new technology and training of the employees are referred as the crucial part South32 to consider (south32.net, 2018). The Board shares its intention to train the leaders and re-evaluate the underwriting agreements so that the company will get a fresh start to revamp its success. Collaboration, culture and value For an efficient business practice, South32 tries to develop a strong cultural backbone with the help of effective policy making. In this regard, the Board of Directors are directly involved into the practice of facilitating an effective practice by emphasizing on all the employees and managers (Hummel, & Schlick, 2016). The board shared a vision of collaboration among all the key players who are contributing for the growth and progress of the organisation. The cultural values in South32 is associated with the practice of delivering an in-depth focus on the environment and social leadership approach. As a member of the International Council on Mining and Metals the organisation is always highly concerned about the social, economic and environmental conditions. Therefore, putting great deal of emphasis on the United Nations Sustainability Development Goals is a strategic approach for the organisation to establish healthy business practice across the international market (south32.net, 2019). Furthermore, a close introspectionontheemployeesisalsopivotalforsettinggoodorganisationalpractice. Henceforth, an inclusive workplace practice with demonstrating the values of the organisation through employing right people in right roles. As a matter of fact, ensuring the interests of the
9ETHICS AND GOVERNANCE employees and empowered them through reward reflects the significance of the organisation for safeguarding its employees. Performance Performance is identified as one of the leading factor that facilitates better practices for the business organisations to establish and develop effective workplace culture. The vitality of performance is based on two clear facts. First of all it can be argued that high demand in the international market for energy consumption makes it more relevant for South32 to keep an eye on the performance of the employees (Heskett, 2017). Apart from that Globalisation also plays a pivotal role in terms of influencing the significance of performance in South32. Due to the globalisation, competition in the Australian mining and coal industry has been increased to a rapid pace and it leaves an impact on the performance of the performance of the mining companies in Australia. (Zhang & Moffat, 2015). Fluctuation in the rate of energy prices is not only interrupts business practice of the corporate enterprises but also symbolises the urge for the companies to incorporate new ideas and innovation as a part of the performance. Therefore, putting great deal of emphasis on the performance development is an important concern for the CEO in South32. Outlook Performance is not enough to encapsulate the market effectively. It requires an image or outlook for the organisation to attract the clients and investors as more as it can. Therefore, the board tries to point out two inter-related points that will bring more efficacies into the organisational practice. For instance, performance is obviously the first choice for South32 to expand its market and foster a steady growth in business orientation. Apart from that discipline is also pertinent for the company so that a healthy business practice and cooperation among the
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10ETHICS AND GOVERNANCE clients, investors, employees and management can be harnessed properly (south32.net, 2018). It is also coupled with the aspiration to procure a long term growth that will generate sustainable progress for South32. Based on the perception of the Board, it can be stated that growth and development are part and parcel of the motive of the senior management. Therefore, a code of conduct and the proper channels of communication can render an optimistic outlook for South32. It will also enhance the confidence of the clients and shareholders to invest money and seeks services from the company. Company communication using legitimacy theory As far as the Legitimacy theory is concerned, it is closely associated with the corporate governance practice of an organisation. In other words, the legitimacy theory reveals the behaviouroftheorganisationinimplementinganddevelopingvoluntarysocialand environmental disclosure of information for fulfilling the social contract of recognising the objectives of the organisation (Deephouse et al., 2017). In this regard, it is important to understand that the social contract does not cope with the clients only. It is also relevant in the context of managing the employees as well. From that point of view, it is essential for South32 to follow a better communication policy that will connect both the employees and the clients. In this regard, the purpose of South32 is related to the timely, balanced and comprehensive information of the company providing to the shareholders and promote the active participation of the shareholders and the employees for active participation in the general meeting. Based on this understanding, South32 also sets some strategies that can bring an effective communication with the shareholders and creates a healthy relationship between the shareholders and the employees. Information sharing is a crucial part of the communication. In fact, it is also signifies the relevance with legitimacy theory (south32.net, 2018). Updating the website and
11ETHICS AND GOVERNANCE ensure sharing of information through effective communication are the key concept of the organisation. Moreover, the organisation encourages its employees to become proactive and feed the shareholders with up to date results and information of the organisation. As a result of that an ethical business practice can be restored and the communication with the shareholders can also be made. In fact, for procuring more transparency in the communication, South32 follows some written policies including the Continuous Disclosure policy under the ASX listing rules. It will help the organisation to set better practice of corporate governance throughout the levels of organisational structure. Conclusion The above discussion intends to correlate between the corporate governance of the organisation and the role of the board of directors in order to facilitate a strong communication in external and internal aspect. The policy making for better business practice can lead the management towards making effective measures. Nonetheless, there are some problems in terms of the lack of ecological development and absence of integrated remuneration strategy that will bring major concern for South32. Therefore, it can be concluded that the report tries to highlight both the loss and the gain of South32 and propose some solution in order to bring efficacy of the company in global context.
12ETHICS AND GOVERNANCE Reference AlonsoāAlmeida, M. D. M., FernĆ”ndez de Navarrete, F. C., & RodriguezāPomeda, J. (2015). Corporate social responsibility perception in business students as future managers: a multifactorial analysis.Business Ethics: A European Review,24(1), 1-17. asx.com.au. (2019). SOUTH32 LIMITED. Retrieved from https://www.asx.com.au/asx/share- price-research/company/S32/details Deephouse, D. L., Bundy, J., Tost, L. P., & Suchman, M. C. (2017). Organizational legitimacy: Six key questions.The SAGE handbook of organizational institutionalism, 27-54. Heskett, J. (2017). Should Management Be Primarily Responsible to Shareholders?.Working Knowledge: Business Research for Business Leaders. Hummel, K., & Schlick, C. (2016). The relationship between sustainability performance and sustainabilitydisclosureāReconcilingvoluntarydisclosuretheoryandlegitimacy theory.Journal of Accounting and Public Policy,35(5), 455-476. Kelchner, L. (2017). The importance of ethics in organizations.Accessed May,10, 2017. Sharfman, B. S. (2017). The Importance of the Business Judgment Rule.NYUJL & Bus.,14, 27. south32.net. (2018). Annual report-2018. Retrieved from https://www.south32.net/docs/default- source/exchange-releases/annual-report-2018.pdf?sfvrsn=624522bf_6 south32.net. (2019). Our People. Retrieved from https://www.south32.net/sustainability/our- people
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13ETHICS AND GOVERNANCE Teo, T. S., Nishant, R., & Koh, P. B. (2016). Do shareholders favor business analytics announcements?.The Journal of Strategic Information Systems,25(4), 259-276. Zhang, A., & Moffat, K. (2015). A balancing act: The role of benefits, impacts and confidence in governance in predicting acceptance of mining in Australia.Resources Policy,44, 25-34.