Ethics and Governance of South 32 Limited

This report discusses the importance of corporate governance in managing business operations, with a focus on South 32 Limited. It covers topics such as board orientation, communication, risk management, and the role of audits in enhancing organizational effectiveness.

Running head: MANAGEMENT
Ethics and governance of South 32 Limited
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Executive summary
The context of this report is the corporate governance, which forms an essential parameter in
managing the business operations. Management of the operations is crucial in terms of
ensuring whether they align with the identified and specified goals. The role of the board
panel is crucial for controlling the activities. This report takes up the issue of South 32
Limited for enhancing the awareness of the readers regarding corporate governance. The
board panel is responsible for conducting meetings, scheduling site visits, allocation of the
duties and responsibilities to the CEO and directors. Along with this, community
development is one of the essential elements of the board operations, which enhances the
corporate social responsibilities. Audit, reviews and meetings suffice the need for evaluation
of the achieved performance. The outcome of the report is enhancing the awareness of the
readers regarding the importance of audits on enhancing the organizational effectiveness.

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Table of contents
Introduction................................................................................................................................3
Corporate governance................................................................................................................4
Board orientation........................................................................................................................6
Interpretation of the company communication through legitimacy theory..............................10
Conclusion................................................................................................................................11
References................................................................................................................................12
Bibliography.............................................................................................................................14

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Introduction
South 32 Limited achieves accolades and glory by emerging as a globally diversified
mining and materials company. As a matter of specification, the company produces bauxite,
aluminium, energy and metallurgical coal. Along with this, coal, manganese, nickel, silver,
zinc, lead are the metals, which form a central part in the operations in the threshold of
Australia, Southern Africa and South America. The company takes pride in being the owner
of high grade zinc, lead and silver, acting as the prospective developmental area in North
America. Joint ventures with start-ups adds flexible focus into the production of the base
metals (South32.net, 2019).
Sustainable development towards natural resources help in transforming the standards
of living for the stakeholders and shareholders. Inclusive workplace culture enhances the
unity and collaboration in terms of the values of care, trust, togetherness and excellence. The
values govern the approach towards executing the operations, especially in the decision-
making process. According to the recent trends, ensuring safe accommodation for the
stakeholders and shareholders is a vital aspect. Authentic joint ventures justifies the purpose
with which the business operates (South32.net, 2019).
One of the other objectives of the company is realizing the potential and maximizing
the return on investment. This is an approach towards influencing the purchasing decision
and power of the customers. Lean functions help in realizing the potential capabilities, acting
as an agent in fulfilling the needs, demands and requirements of the customers. Technological
innovation is one of the crucial elements, which assists the personnel to encounter radical
transformation in the business outlook. Environmental and social leadership concept seems
beneficial for mapping the benefits, which needs to be achieved for enhancing the corporate
social responsibility. Creation of pipelines has exposed the staff to a pool of opportunities in
terms of achieving competitive advantage in the base metals (South32.net, 2019).

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South 32 Limited has emerged successful in generating a revenue of US$7.5 billion,
which has increased the earnings by 16% to US$1.3 billion. This has simultaneously
increased the profit by 8% to US$1.3 billion. Free cash flow from the operations include the
net distribution from equity investments, where the investments account for US$1.4 billion.
Increase in the net cash, brought balance in the operations, which assisted in ending the
financial year with US$ 2.0 billion. Along with this, the achievements comprise of the
delivering 13.5% return on the investment capital and the total shareholder return accounted
for 53%. Strong cost control and abiding by the decisions of South Africa Energy Coal has
acted as an agent for delivering the annual cost savings of US$ 50 million from the financial
year FY20 90 (South32.net, 2019).
Gold Rush of 1850 makes the mining industry of Australia one of the well-established
sectors in the market. It contributes 7% to the total GDP. The industry mainly deals with
exports with minimal onshore. In the era of 2007-08, the industry accumulated an income of
50-60% from the total exports. Australia is enlisted among the top five producer of gold, iron
ore, lead, zinc and nickel. Along with this, the industry achieves accolades and glory by being
the world’s largest uranium and fourth largest black coal resource producers. From the period
of 2005-2013, the industry encountered significant growth. The major drive behind this is the
bulk orders of construction projects. In 2013, the industry experienced a clear shift from
construction to production and exports (Australianmining.com.au, 2019). Maintenance and
service are the major areas, expanding the scope and arena of the business to the US markets.
Corporate governance
Corporate governance plays a vital role in the operations of South 32. Right people
are hired for executing the tasks according to the requirements. Their skills, competencies
and capabilities are assessed for the allocation of duties and responsibilities. Their
capabilities are assessed through involvement in the strategy development process. Currently,

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9 Directors serve the board. Along with this, there are 8 non-executive directors, among
which 7 are independent. David Crawford is the Chairman and independent non-executive
director. Graham Kerr is the Chief Executive Officer and Managing Director. Mention can be
made of Frank Cooper, who is Independent Non-Executive Director. Xiaoling Liu is the
Independent Non-Executive Director Xolani Mkhwanazi holds the post of Non-Independent
Non-Executive Director. Ntombifuthi Mtoba also holds the post of Independent Non-
Executive Director (South32.net, 2019).
Risk management is one of the essential components of the corporate governance.
Continuous improvement strategy is used by risk identification, assessment, monitoring and
embedding risk management for undertaking beneficial decisions for the betterment of the
company. In this, adherence to the integrated structure of objectives, realization of
opportunities, resilience to change helps in enhancing the corporate social responsibility. The
management informs the Board about the significant risks, which the company encounters.
This is through the means of meetings, which reflects the open communication between the
Board, management and the other staffs. This communication involves essential information
of the understanding of the business models, recent business trends, specific interest of the
stakeholders and shareholders (South32.net, 2019). In this, the main aim is to create
sustainable shareholder value.
Reports from CEO
Creating sustainable value is the key message, which the CEO of South 32 Limited
delivers to the clients and the customers. Commitment towards ensuring safe accommodation
for the stakeholders and shareholders governs the operations. However, he is concerned about
the failure in terms of fulfilling the targets in the field of overall safety. In terms of providing
a safe and congenial workplace environment, the company averts any kind of compromise,

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which can act as interplay with the needs, demands and requirements of the clients and the
customers. The CEO highlights the commitment towards investment grade credit ratings and
broader capital management framework, which enables the staffs in making proper
investments in the business through dividend share (South32.net, 2019). Mutual
understanding is reflected from returning the dues to the shareholders in the most efficient
way.
Remuneration report
In the financial year 2018, the remuneration was not increased in case of non-
executive directors or Executive Key Management Personnel. In the same year, consistency
was maintained in the changes in the strategy. The intention here is to ensure that the
executives focus on the influential factors, so that the outcomes can be aligned with that of
the experience gained by the shareholders. According to the decision of the Board, no
fundamental change is to be made in the remuneration of CEO fixed for the financial year
2019. The fixed remuneration of other Executive KMP increased by 1.9% and 2.4% in
September. The average salary increased provided to the employee population accounted for
2.8% (South32.net, 2019).
Board orientation
The board panel of South 32 work towards enhancing the standards and quality of the
teamwork of the Lead Team. In this, the key elements of focus are leadership capability,
hazard identification and improvising on the risk management. In the financial year of 2018,
the workforce of the board represented 33% of women, which was more than the financial
year of 2016 and 2017 indicating 13 and 14% respectively. Currently, there are 9 Directors
serving the board of the company. Also, there are 8 Non-executive directors, of which 7 are
independent. The board panel members presides the general meetings, where discussions are
held regarding the mitigation of the intensity of the potential risks. Along with this, the Board

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also presents approval for the Zero Tolerance policies regarding the fraud and corruption
cases (South32.net, 2019).
Free on Board (FoB) monitors and controls the pricing strategy of calcinated
metallurgical smelter grade alumina. Mention can be made of the investments in the US$ 62
million in the financial year of 2018 for progressing on 4.3 billion South African rand KPSX
project, which was approved by the Board. For determining the STI outcomes in the financial
year of 2018, the Board considers the factors related to the sustainable development. The
Board resolves the influential factors in case of the Executives KMP. Monitoring in this case
enhances the awareness about the below targets achieved in STI outcomes. One of the other
responsibilities of the Board is monitoring the remuneration of the Directors and CEO.
Meetings are conducted for discussing on the results of the site meetings (South32.net, 2019).
Being a global organization, the South 32 conducts site visits every year for attracting
the directors from the diverse pool of talents. Plans are conducted for increasing the non-
executive director base fees and committee between 2.2%- 2.8% in September 2018. No
increase is planned in case of the travel allowance. Considering the degree of change in the
executive pay in the market, consistency is to be maintained by Board in testing the
arrangement of the remuneration. In this, the main focus is on aligning the arrangements with
the Guiding Principles, governing the Reward Framework. Apart from this, the Board
consider the KMP’s of the executive directors with the key performance indicators
(South32.net, 2019). Meetings in this case helps in developing the ways and means to align
the performance with the core values.
As per the control of the Board, discretion to determine the level of vesting is an
important issue. In this, assessment is done for excavating the portion of the vesting time,
which has elapsed. Along with this, the updated performance against any other applicable

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performance conditions is also included for undertaking decisions. The Board of South 32
possesses full authority to reduce or clawback the vested and unvested STI and LTI awards.
In this, the objectives, which do not contribute in extracting the necessary benefit is ignored
by the Executives. Exercising this is a broad aspect for which the Board needs rational and
systematic planning (South32.net, 2019). Typical example in this case is misconduct,
material misstatement, disrespect and any other behaviours, which are deemed as justifiable.
The lead team assists the board in reviewing the remuneration policy. Specific
application is made to the CEO, lead team and non-executive directors and the employees.
The Board exercises its discretion withholding the cash payments and lapses in the shares.
This resembles the structure of the STI. The business scorecard is approved by the Board
before the financial year commences. Guidance from the Board is vital for progressing to the
functions in the fields of Risk and Audit, Remuneration and Sustainability. The business
modifier assists the Board in producing the absolute discretion for assessing the overall
Business Scorecard outcomes. Discretionary operations are performed with the application of
15% Modifier to the CEO and COO of Africa. The rest of the negative 5% is levied to the
other members of the Lead Team (South32.net, 2019).
The Board of South 32 determines the Individual Scorecard measures for CEO and
other executives in terms of the strategies developed. The assessment process includes
whether each of the executive KMP achieves the targets with due consideration to the core
values. Transparent relationship is maintained between the Board and senior management
team. Along with the service operations, the Board panel determines whether any or some of
the rights are vested with regards to the performance of the sector index TSR; contribution to
the company performance; roles and others. Committee fees are provided to recognize the
additional responsibilities of the members participating in the Board Committee.

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The Chairman of the Board is paid a fixed wage for performing the responsibilities
including the participation in the Committee activities. Board members are entrusted with the
responsibility to plan the time and venue of the meetings (South32.net, 2019). These are
scheduled in Australia, South Africa and other locations. Site visits are crucial component in
the programs and practices of the Board panel of South 32. Travelling is needed for the
personnel for attending the meetings of the Board. Additional time is allowed when the
meetings are arranged in the remote areas. In case of the situations where the air travel to the
Board meetings is more than 3 hours but less than 10 hours, one-off allowance of A$ 7840
per trip is applied. On the contrary, when the air duration is 10 hours to the destination, the
allowance per trip is A$16800 (South32.net, 2019).
Approval of the remuneration report is accounted as one of the other responsibilities
of the Board. Scheduling the meetings is the duty of the board panel. Evaluation and reviews
is conducted for ensuring whether any additional meetings are needed. In the schedules,
seven face to face Board meetings are organized in the duration of two to three days. Mention
can be made of the financial year of 2018, when 4 meetings were held in the threshold of
Australia, 2 in South Africa and 1 in Columbia. The CFO is entrusted with the responsibility
to send regular reports to the Board for enhancing their awareness about the achieved
performance and their outcomes (South32.net, 2019).
On 23rd April 2019, South 32 limited conducted the press release, exposing the
agreement towards the renovation of Hillside Aluminium. This is in compliance with the
standards and protocols of the Labor Relations Act. In this, the focus was on ratification of
the parties concerned, for enhancing the unity and coordination for upgrading the
organizational effectiveness. The objectives in this case is to ensure that the sustainable
approach is applied towards sustaining smelter. Along with this, resilience towards volatility
in the market is also considered for securing the market position in the competitive ambience

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(South32.net, 2019). Long term sustainability goals are to be developed for upgrading the
standards of living of the community groups living in the Richard Bay and the adjacent areas.
Interpretation of the company communication through
legitimacy theory
Transparency is one of the key elements in the corporate governance of South 32
Limited. This is also reflected in the communication with the stakeholders and shareholders.
Communications with the governmental agencies results in detecting whether additional
requirements are needed. These requirements are reported to Board for getting approval
regarding starting off the work at the earliest. Online access is provided to the shareholders
regarding extracting the information related to the transactions, dividend statements and
documents, change of address, upgradation of the communication preferences and banking
details (South32.net, 2019). The customers can get this access on the website of
Computershare Investor Centre. The shareholders are encouraged to access the website for
accessing the information. For this, registration needs to be done for updating their
preferences either through online means or through telephonic means.
In this, one of the important aspects is the voluntary disclosure, in which ethical code
of conduct is followed. Special mention can be made of the Data Protection Act (1998),
which helps in securing the privacy and security within the confidential data. Privacy cookies
and policies are installed in the website for preventing the intervention of the third parties. In
this, the main aim of the board is involvement of the stakeholders in the mainstream business
activities. According to Müller et al., (2016), transparency can be perceived as a virtue of the
ethics. On the other hand, Menzel, (2016) is of the view that transparency falls under the
deontological approach. In this context, legitimacy theory can be infused in terms of mapping
the stakeholder relations.

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As per the arguments of García-Sánchez et al., (2015), legitimacy is mostly
considered as a “badge of honour”, as it helps in envisioning long term goals. In this, real
objective and scientific knowledge is developed, contradicting the chance of
misinterpretations. The members of the board panel in South 32 are expected to consider that
they are serving legitimate operations to the clients and the customers. What the society
considers as legitimate might not be legitimate by the company. Legitimacy is granted to the
corporations, who work for the interest of the society. In this, egoism contradicts the aspect of
corporate social responsibility. Respect towards the stakeholders in terms of the deontological
approach reflects the participative management style. However, Şahin, (2018) is of the view
that not all the stakeholders are equal in their thinking skills and judgmental capabilities. For
the board panel of South 32, management of the stakeholders is not just ethical but also
strategic, as feedbacks are collected for aligning the performance to that of their interests and
expectations. This relates to the aspects of the legitimacy theory, where the social contract
relates to the act of ensuring community development.
Conclusion
This report was conducted, keeping in mind the importance of corporate governance
on maintaining the organizational effectiveness in case of South 32 Limited. Press releases
sufficed the need for the approaches of the clients and the customers towards the activities
conducted by the company. Legitimacy theory enhances the awareness of the readers about
the measures towards enhancing the corporate social responsibility. Audits are an integral
part of the business, which helps in estimating the effectiveness, feasibility and
appropriateness of the strategies towards executing the operations. Consistency is maintained
in organizing the audits, which acts as an agent in terms of upgrading the standards and
quality of performance.

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References
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Menzel, D. C. (2016). State of the art of empirical research on ethics and integrity in
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Müller, R., Turner, J. R., Andersen, E. S., Shao, J., & Kvalnes, Ø. (2016). Governance and
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South32.net (2019). About us. Retrieved 4th June 2019 from https://www.south32.net/
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South32.net (2019). Hillside aluminium restructure agreed. Retrieved 9th June 2019 from
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restructure-agreed.pdf?sfvrsn=946adde5_6

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Weaver, G. R., & Clark, C. E. (2015). Behavioral Ethics, Behavioral Governance, and
Corruption in and by Organizations. In Debates of Corruption and Integrity (pp. 135-
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