Corporate governance is at the core of how companies are managed. This is true because corporate governance statements essentially outline the rules, procedures, and laws of how companies operate or should be managed (National Australia Bank Limited 2011, p. 1). Corporate governance also determines the way various company shareholders operate and how they should interact with each other (National Australia Bank Limited, 2010).
In recent decades, there has been a renewed concern over the concept of corporate governance, especially because there has been an eminent collapse of some of the biggest corporations across the globe due to poor corporate governance (such as the case evidenced with Exxon Mobil).
This is to say that corporate governance requirements differ from company to company and from a broader perspective, the success or failure of a given company differs with the corporate governance statement of the company.
To gain a better understanding of the differences and importance of corporate governance statements in the running of companies, this study will analyze two Australian companies, namely BHP Billiton and National Australia Bank.
The two companies are among Australia’s top ten largest companies (according to Forbes magazine), but both companies operate in very different economic sectors (Hitipeuw 2011, p. 1).
Description of the Companies
BHP Billiton is officially based in Melbourne Australia (its management is however, based in Britain) and it essentially engages in mining activities alongside the production of petroleum. BHP Billiton is not only one of Australia’s largest companies, it is said that the company is the largest mining company in the world (according to February 2011 rankings) (Hitipeuw 2011, p. 1).
Australian National Bank, on the other hand, operates in the banking sector and it is one of Australia’s largest banks (Scott 2009). The bank’s operations are of a global nature and it is estimated that it serves more than eight million customers around the globe. In fact, according to recent global rankings, the bank is estimated to be among the world’s top 20 largest banking institutions (Scott 2009).
Compliance to ASX Guidelines
BHP Billiton and National bank of Australia are in compliance with ASX’s regulations that the board of directors should be independent from the running of the company’s operations. In other words, ASX regulations outline that the companies should have a board of directors that does not have direct interests on the company and which is independent of the management (ASX 2011, p. 1).
National Bank of Australia’s corporate governance statement complies with this provision by observing that its board of directors makes independent decisions during board deliberations so that the interests of the company are not compromised by personal objectives. This provision is outlined in the corporate governance statement (cited in BHP Billiton 2011) that:
“An independent director must be independent of management and able to exercise unfettered and independent judgment, free of any business or other relationship that could materially interfere with the exercise of the director’s ability to act in the best interests of the Company” (p. 2).
BHP Billiton also has the same provision as can be seen in the appointment of its directors because of its 13 directors; twelve are nonexecutive and independent of management (BHP Billiton 2011). The same concern (evidenced in National bank of Australia) of a compromise of the board of directors by the company’s management is also registered at BHP Billiton when upholding this requirement.
The company’s stand on the independence of directors is clearly outlined in the company’s corporate statement that “The board considers that an appropriate balance between executive and nonexecutive directors is necessary to promote shareholder interests and to govern the business effectively. It is committed to ensuring a majority of directors are independent” (p. 4).
Another area of compliance that both companies uphold (with regards to ASX guidelines) is the public disclosure of remuneration policies and risk management strategies. This provision is observed through the remuneration committee (in the case of National bank of Australia) and through the remuneration report (in the case of BHP Billiton).
In the case of BHP Billiton, the remuneration reports encompasses details pertaining to the share prices, remuneration policy and structure, aggregate director’s remuneration, group performance, earnings performance, and group management committee details (BHP Billiton 2011).
The National Bank of Australia also discloses more or less the same information because in its remuneration structure, details pertaining to the company’s group remuneration structure, remuneration paid to board members, remuneration paid to top executives and existing remuneration policies and strategies are also included in their remuneration report (Australian National Bank 2011).
Similarities in Corporate Guidelines
BHP Billiton’s management and organizational practices are firmly embedded in the principles of ethics and integrity; an attribute which is quite similar to Australia National Bank’s principles. At National Bank of Australia, corporate responsibility essentially encompasses the behaviors, beliefs and core values of the organization and these principles collectively outlines the overall purpose of the organization’s members.
The organization, therefore, believes that the manner in which it undertakes its corporate responsibilities is equally important to the final product of their organizational output (Australian National Bank 2011).
The same view (of corporate responsibility) is also shared by BHP Billiton in the sense that the organization strives to attain its corporate objective by upholding ethical standards, corporate integrity and a high respect for other stakeholders in the organization.
In the same manner, Australia National Bank believes that how it carries out its operations is as important as its organizational output; BHP Billiton also believes that how it undertakes its corporate obligations is important in maximizing its shareholder values (BHP Billiton 2011).
What the organization’s stakeholders should expect of the company with regards to how it undertakes its obligations is clearly outlined in the company’s business code of conduct.
Also, through an analysis of both BHP’s and Australia National Bank’s corporate statements, we see that both companies value the contribution of their shareholders through the shareholder engagement (for BHP Billiton) and communication with shareholder strategy (for Australia National Bank).
At BHP Billiton, the management sets regular shareholder briefings (annually) where shareholders are encouraged to share their views with management on how best to improve the company.
To make sure the views expressed by the shareholders are factored into how the company is managed, the company’s management has a duty of communicating the shareholders’ resolutions to the directors for action.
Communication is, however, extended to the company’s website incase there are pending matters of concern which cannot be concluded from the physical annual meetings, scheduled on October or November of each year (BHP Billiton 2011).
Shareholder communication at Australia National Bank is done in more or less the same way, considering shareholders often meet with management through annual general meetings and often, the resolutions passed in such forums are communicated to shareholders through corporate publications, letters and the likes (Australian National Bank 2011).
The kind of group disclosure adopted by the company is that of utmost transparency because all shareholders are supplied with timely and freely accessible corporate information.
Evaluation of Corporate Governance Statements
BHP Billiton’s corporate governance structure is quite conducive for the global nature of the company and for the context in which the company is operating in. This is true because the company’s corporate governance guidelines is in conformance to corporate practices outlined in Australian and Britain’s corporate circles where the company primarily operates.
To back-up these claims, it is essential to note that the company’s corporate governance statement ensures the communication of timely information to its shareholders (through its annual general meetings and website communication). Basically, the information communicated in this manner includes data relating to the company’s profitability/loss, corporate debt, cash reserves and such like statistics (Jie 2010).
The level of transparency that the company uses in communicating such information is a plus for the company’s corporate governance document because it is transparent and timely. This is one of the strengths of the company’s corporate governance statement.
As mentioned earlier in this study, the shareholder communication strategy of Australia’s national bank bears close similarity to BHP Billiton’s and therefore, the above strength observed in BHP’s corporate governance documents is also shared by Australia National Bank.
The strength is especially manifested through the transparency in shareholder communication that Australia National Bank upholds. This strength can be represented through a segment of the company’s corporate governance document (cited in Australian National Bank 2011), which states that “The Group aims to be open and transparent with all stakeholders, including the owners of the business – the shareholders.
Information is communicated to shareholders regularly through a range of forums and publications” (p. 6). To show the transparency adopted by the company with regards to shareholder communication, the company’s corporate document further states that “The Group is committed to maintaining a level of disclosure that provides all investors with timely and equal access to information” (Australian National Bank 2011, p. 6).
Since Australia National Bank’s provisions of proper corporate practice and an upheaval of ethical standards seek to maximize shareholder value and in the same manner, BHP’s upheaval of ethical standards seeks to maximize the company’s shareholder value; it means that both corporate governance statements strictly uphold the rights and interests of the shareholders which is at the very core of both companies’ existence.
This regulation also means that both companies are likely to refrain from engaging in short-term profit-making ventures that may not necessarily be done with the interests of the shareholders at heart. Such sort of actions will, therefore, be avoided because they are likely to affect shareholder interests in the wrong way.
The manner of appointment of directors for both companies is also quite transparent as can be evidenced from an excerpt of Australian National Bank’s corporate guideline (cited in Australian National Bank 2011) which says that:
“The process for appointing a director is that, when a vacancy exists, the Nomination Committee identifies candidates with the appropriate expertise and experience, using external consultants as appropriate. The most suitable candidate is appointed by the board but must stand for election by shareholders at the next annual general meeting of the Company” (p. 3).
With such recruitment guidelines in effect, competent and qualified personnel are likely to be recruited by the board and therefore, the company is likely to benefit from skills and expertise of highly qualified individuals. This initiative is also centered on maximizing the shareholder value and therefore, such a provision in both companies’ corporate governance statement is a plus for both companies as well.
The fact that both companies uphold the independence of their directors in their corporate governance statements is a plus for both companies meaning that even though the interests of the companies’ shareholders is at the very centre of the company’s existence, the board of directors can still be able to act independent of the shareholders’ or management’s interests.
Consequently, this means that both organizations can be steered in the right direction without compromise from any wing of the company’s stakeholders.
How the Corporate Governance Statements Can Be Improved
Since fraud cannot be totally eliminated, no matter how airtight a company’s corporate governance statement may be, it is important for BHP’s Billiton to have a whistle-blowing provision in its corporate governance statement which seeks to protect whistle-blowers.
This provision is however, contained in Australia National Bank’s corporate statement, where there is a secure channel through which people can report instances of fraud or corruption in the company.
Moreover, BHP Billiton’s workforce guidelines does not essentially embrace the diversity expected of present-day international organizations, considering its corporate statement only envisions the utmost fulfillment of worker needs. Little reference is therefore made of how the company should deal with the issue of employee diversity.
A provision on how companies should deal with Employee diversity is essential for BHP Billiton’s corporate governance statement because it undertakes very extensive operations across the globe and therefore its workforce is likely to be characterized by a very diverse workforce.
The embracement of a diverse workforce is essential for the reduction of employee turnover and for the increase of innovation in the workplace. These recommendations are incorporated in Australia National Bank’s corporate governance statement.
Conclusion
This study identifies that the corporate governance statements of Australia National Bank and BHP Billiton are in order and conform to the laid down stipulations of ASX corporate governance guidelines (with regards to corporate communications and director’s independence).
However, we establish that BHP’s corporate governance document is inferior to Australian National Bank’s in the sense that it lacks a whistle-blowing and employee diversity provisions, which are essential for a company of its nature. These are the areas identified to warrant improvement of the corporate governance document.
References
ASX. (2011). Corporate Governance – ASX. Web.
Australian National Bank. (2011) Corporate Governance Document. Web.
BHP Billiton. (2011) Corporate Governance Statement. Web.
Hitipeuw, J. (2011) Bigger Than Microsoft. Web.
Jie, M. (2010) Examples of Good Corporate Governance. Web.
National Australia Bank Limited. (2010) The Corporate Governance Statement. Web.
National Australia Bank Limited. (2011) Corporate Governance. Web.
Scott, M. (2009) Big Four Australian Banks Have Joined the Global Elite. Web.
Appendix
National Bank of Australia Corporate Governance link.
BHP Billiton Corporate Governance link.