Corporate Governance Practices and Analysis: Perpetual Limited

This report provides an in-depth analysis of the corporate governance practices of Perpetual Limited, an investment advice company listed on the Australian Stock Exchange. The report begins with an executive summary, followed by an introduction outlining the scope and methodology. It then details the company's business operations and recent history, including its acquisition of Trillium. The core of the report focuses on Perpetual Limited's corporate governance, examining its board structure, remuneration policies for directors and executives, and employee engagement. The report then applies board orientation theories, concluding that the company aligns with the Stakeholder-Ethical branch theory. Finally, the report explores the application of legitimacy theory within Perpetual Limited's operations, particularly in relation to voluntary disclosures and CSR initiatives, such as environmental risk management and climate change reporting. The report utilizes primary and secondary sources, including the company's annual reports and other relevant websites, to support its findings.

Corporate Governance
1/31/2020
Perpetual Limited
Student Name

Perpetual Limited 1
Executive Summary
Perpetual Limited is selected as company for the discussion over corporate
governance. The company is focusing on diversification of its investment and getting good
returns over the same. Further, among the whole Australian financial sector, the company has
the best employee engagement level. Majority of company directors are independent and get
fixed salary for their position and variable for their performance. Stakeholder ethical branch
theory seems applicable to the board orientation considering board structure, key
communication, and board focus. Lastly, company also seems to pursue legitimacy theory as
it understand social concern, takes steps to address them and inform the stakeholder about the
same.

Perpetual Limited 2
Introduction
Corporate governance is a collection of processes and policies through which a
company is operated or regulated (Managementstudyguide.com, 2020). Perpetual Limited has
been selected as a company of choice for the discussion. The lead motive of this report is to
enhance the understanding of readers regarding corporate governance status pursued by the
same. To develop this report, primary sources such as books and journals and secondary
resources such as the website of the company and other sites have been used. To discuss the
structure of this report, this is to state that in the first part of the same a summary of the
company shall be discussed. Further, the corporate governance practices adopted by the
company shall also be detailed in addition to the applicable theory of board orientation.
Further, the discussion will also be made on the application of legitimacy theory in the
operations of the company and lastly, a conclusion will also be presented that will give a brief
picture of elements of the report.
Before discussing the approach, policies, and practices of corporate governance
adopted by the company, first, the basic information about the company and its operations
need to gather. To discuss the nature of the business of the company this is to state that it is
an investment advice company. The company's shares are listed on the Australian Stock
Exchange and provide a range of financial products and services. Providing financial advice
investment products, corporate services to financial advisers, organizations, and families
comes under the main activity of the company. Headquarter of Perpetual Limited situated in
New South Wales state of, Australia (Bloomberg.com, 2020). To discuss the recent history of
the company, this is to state that the same is to acquire one of the leading specialist ESG
investment firm of the US named as Trillium. The company selected hereby provides

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employment to nearly 1000 employees and working well in its operations (Perpetual.com.au,
2019a).
Corporate Governance
The level of corporate governance adopted by the company can be checked through
its recent activities, object set and a decision made to different stakeholders. This information
can better be achieved through the latest annual report of the company. The board structure of
a company is an important element that reflects how serious a company takes the matter of
corporate governance. Apart from the chairperson and managing director, five other members
are there on the board of the company. The chairpersons, as well as these five directors, are
independent directors. It clearly shows that the decision and working of the company are
likely to be independent and free from any influence of promoter ship or shareholding.
Further one may be aware of the perception of the company regarding good
governance by looking after chairperson as well as the CEO's report that is one of the
significant parts of the annual report. As per the report of the chairperson, the company is
focusing on diversification of its investment and getting good returns over the same. Further,
he also stated that the company has taken the findings of the royal commission seriously and
making a strong focus on the fulfillment of community and business expectations. Among the
whole Australian financial sector, the company has the best employee engagement level. It
clearly shows that the company considers its employees as valuable assets. Further, the report
of the CEO of the company has addressed different segments such as investment, the market,
Opportunities, risks, and the environment. CEO confirmed that the company has the support
and positive response from the client even after the findings of Hayne Royal commission that
shook the community. In addition to this, reflecting an ethical and responsible picture of the

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company, he confirmed that the company protects the capital of people as well as their
lifestyle. It also shows that the company effectively thinks of its stakeholders.
Every company adopts different modes and methods in which directors and
executives get remuneration. This manner with respect to the selected company is clearly
stated under the annual report of the same. The company provides variable remuneration to
directors and executives in addition to the fixed salary. This fixed remuneration includes
basic salary, superannuation tax benefits (fringe) and packaged employee benefits and is
granted irrespective of the performance of the receiver. The concept of variable remuneration
is there to motivate executives and directors for working efficiently. Financial and non-
financial parameters used to consider while variable remuneration of directors/executives.
The non-financial parameters include risk and behavioral performance. The variable
remuneration of the executive has been paid partly as cash and party as share rights for the
financial year ended June 2019.
The remuneration committee of Perpetual Limited approves the manner to pay
remuneration as well as the amount of the same. As all the members of the remuneration
committee are independent directors, it clearly reflects that the process does not contain any
conflict of interest.
Board orientation
Board orientation is a manner in which the duties and roles of board members are
defined and addressed/informed to them. In this manner, the orientation makes the
expectations of the community and other stakeholders clear and helps the directors/officers to
understand their required behavior. It can be stated that the aspect of board orientation is
more useful for those directors who are not able to understand what they are likely to do.
There are different theories of board orientation. These theories have different beliefs and

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focus. For instance, some of them focus on stakeholder whereas some of them focus on
resources. These theories are shareholder agency theory, shareholder stewardship,
Stakeholders managerial branch, stakeholder ethical branch, and resources theory.
To check which theory applies to an entity three factors are required to be checked. In other
words, this can be stated that three factor-defined orientation of a company’s board and
clarify the difference from one to another. These factors are detailed below.
The very first factor is board composition, which can be explained as an expected
belief on dependent or independent directors. It can understand in a way that represents the
ratio of dependent and non-dependent directors. Under different theories, different ratios of
directors are there (Muchemwa, Padia & Callaghan, 2016). For example under shareholder
stewardship theory, a company has the majority of dependent directors who know idol
manner to run a business and to grow its assets. On the different side, in resource theory, the
ratio of dependent and independent directors takes no matter. Another factor is board focus
which refers to the priorities and main agenda of the board. As board composition under each
theory differs, similarly focus of the board also varies according to the application of
different theories. For example, if a company adopts stakeholder managerial branch theory
then the focus of directors remains on most powerful stakeholders that can either be
shareholders or customers of the same. On the different side, under shareholder stewardship
theory, board focus remains on capital management and growth strategy of the company.
The third factor to define the board orientation of a company is key communication. It
refers to different kinds of communication, which the board of the company chooses. For
instance, if the board is using shareholder agency theory then the same would focus on
financial statements of the company to show that the manner in which the manager is bound
to the objectives of shareholders. But on the other side if the board is pursuing stakeholder

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ethical branch theory then the same is likely to do focus on voluntary disclosures especially
related to the CSR. As mentioned above, these factors vary according to the application of
theories hence the table given below provides a summary of these theories along with their
focus.
After looking at the above-mentioned table, one can easily determine the theory,
which applies to an organization. The company selected hereby i.e. Perpetual Limited seems
to have Stakeholder – Ethical branch theory considering its composition, the board focuses
and key communication. Firstly as given in the above table, applying stakeholder ethical
branch theory, the company has a majority of independent directors that present
diversification of stakeholders. If to have a look after the report of the CEO and Chairperson
of the company, this also reflects that the company believes in diversification. All the
independent directors of the company have experience in different areas are likely to provide
a safeguard to the interest of different stakeholder groups (Perpetual.com.au, 2020).

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Another factor i.e. focuses on the board also reflects the application of stakeholder
ethical theory. The company considers every group of stakeholders important from
employees to the environment. The report of the chairperson clearly states that the company
is providing safeguards to the investment and capital of people. It shows that customers are
important for the same. On the different side, significant steps have been taken by the
company to save the environment and to maintain sustainability in its operations. The
company has also developed many share plans for its employees as well as it has 73% of
employee engagement, which clearly shows how significantly the company considers the
interest of employees.
To check the final factor i.e. key communication used by the company also shows that
the company is following the stakeholder ethical theory of board orientation. The company
has made voluntary disclosures where the focus of most of them are on CSR. The company
provides much information related to the directors and services on its website. The company
also provides climate change related to voluntary disclosure, which provides a snap of
profitability of the company and long-term sustainability that is closely related to CSR
(Perpetual.com.au. (2019b). In this manner, the application of stakeholder ethical theory can
clearly be seen in the operations of Perpetual Limited.
Legitimacy theory
Legitimacy theory explains the idea of the social contract and it is about voluntary
disclosure decisions of the board. The theory explains what information might be disclosed,
the reason for the same and intendant audience (Lu & Abeysekera, 2014). The theory
believes that to be legitimate in the eyes of stakeholders, a company has to make some
additional disclosures to those issues, which are the main concern for that entity. Legitimacy
theory believes that this is the society in which it works that can define what is legitimate and

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what is not instead of the company. In this manner, society determines whether a company is
legitimate or not considering the work it does. Legitimacy has real economic results. There
are many advantages to being legitimate for companies. One such benefit is greater access to
capital and other supports from communities.
Another feature of this theory is that the same believes that a company must always
work in the boundaries allowed by the respective society. The theory says that if a company
does something in favor of society then the same must inform it through disclosures. The
company selected hereby often makes voluntary disclosures where the same present efforts
taken for society. Environmental risk is one of the major concerns for each business. The
company has started its carbon disclosure project where the same tries to reduce the risk of
climate change through its activities. As mentioned above, the company makes voluntary
disclosures about the practice carried on in the field of climate change. It shows the
legitimacy of the company. The CSR and sustainability report of the company also believes
that its voluntary disclosure raises companywide awareness. In such a situation it is clear that
the company is being legitimate in its operations. Nevertheless, details of other voluntary
disclosures are not available there hence can be stated the company understands this theory
and working in this direction.
Conclusion
In order to conclude the report, this is to state that Perpetual limited is a company that
belongs to the financial sector. The majority of the directors of the company are independent
and get fixed as well as variable remuneration as similar to all other executives. As per the
report of the chairperson and CEO of the company, the main focus of it to ensure compliance
with legal and ethical requirements. Further, the board orientation of the company was
discussed where it is clearly reflected that the company works according to stakeholder

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ethical theory as it consists of the majority of independent directors who represent a
diversification of stakeholders. Further, the board focuses on all the stakeholders and uses
voluntary disclosure to communicate with the stakeholders where the majority of them are
focused on CSR. Lastly, the legitimacy theory has been discussed that believes a company
should fulfill social contracts and inform the stakeholders about the same. Perpetual Limited
follows this theory in practice as the same is addressing concern related to the environment
and making voluntary disclosures with respect to the same. The whole discussion says that
the company has a good level of governance but there is also a good space and many areas
such as employees and community development where it can do better in the future.

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References
Bloomberg.com. (2020). Perpetual Ltd. Retrieved From:
https://www.bloomberg.com/profile/company/PPT:AU
Lu, Y. & Abeysekera, I. (2014) Social and Environmental Disclosure by Chinese Firms.
Oxon: Routledge.
Managementstudyguide.com. (2020). Corporate Governance - Definition, Scope and
Benefits. Retrieved From: https://www.managementstudyguide.com/corporate-
governance.htm
Muchemwa, M. R., Padia, N., & Callaghan, C. W. (2016). Board composition, board size and
financial performance of Johannesburg Stock Exchange companies. South African
Journal of Economic and Management Sciences, 19(4), 497-513.
Perpetual.com.au. (2019a). Perpetual Limited 2019 Annual Report. Retrieved from:
https://www.perpetual.com.au/~/media/perpetual/pdf/annual-reports/2019/
perpetual_limited_annual_report_2019.ashx, pp 26.
Perpetual.com.au. (2019b). Perpetual Limited 2019 Annual Report. Retrieved from:
https://www.perpetual.com.au/~/media/perpetual/pdf/annual-reports/2019/
perpetual_limited_annual_report_2019.ashx, pp 19
Perpetual.com.au. (2020). Perpetual’s Annual Result - The Benefits Of Diversification.
Retrieved From: https://www.perpetual.com.au/insights/the-benefits-of-diversification