Running Head: The Impact of Corporate Governance in BHP Billiton.

THE IMPACT OF CORPORATE GOVERNANCE IN BHP

BILLITON.
The Impact of Corporate Governance in BHP Billiton.

Table of Contents
1. Effect of Corporate governance on BHP Billiton ............................................................... 3

Introduction ................................................................................................................................ 3

2.1 Corporate governance ...................................................................................................... 3

2.2 Responsibility of corporate society .................................................................................. 3

2.3 Effect of both the corporate heads on the company ......................................................... 4

3.1 How the firm relates to corporate governance? ............................................................... 4

3.2 Implications of Governance ............................................................................................. 4

3.3 Impact on ASX ................................................................................................................. 5

4.1 Governance and business nature of BHP ......................................................................... 5

4.2 Effect of Governance issue on safety, pollution and environment .................................. 5

4.3 Public Policy .................................................................................................................... 5

5. Board of Directors top concern .......................................................................................... 6

6. Treatment towards Risk Management of BHP in international market and law related to
different environment ............................................................................................................. 6

7. Collaboration of skills, capabilities and experience ........................................................... 6

8.1 Public Scandal of BHP ..................................................................................................... 6

8.2 Analysis of downfall of BHP mines ................................................................................. 7

9. Table relating to impact of stakeholders towards governance ........................................... 7

10. Relation of it towards governance .................................................................................... 7

11. Table of Freeman and Friedman ...................................................................................... 8

12.1 Principles of ASX based on BHP’s year of its foundation ............................................ 8

12.2 Relation of it towards its governance ............................................................................. 8

12.3 Board holder that relates to dividend stakeholder .......................................................... 8

13. Description of 3 ASX principles ...................................................................................... 9

14.1 Carroll’s model ............................................................................................................... 9

15. Effect of BHP on corporate governance in conclusion .................................................. 10

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The Impact of Corporate Governance in BHP Billiton.

1. Effect of Corporate governance on BHP Billiton

An effective corporate governance of BHP Billiton should have a favorable influence towards
their stakeholders to uphold their confidence. They should do so by making them sure that
their company participation on doing smart decision for their business and proper assembled
internal factors.

As BHP Billiton’s value increases, it also increases in capital generation to for making all
types of purchases based on its sustainability towards their growth (Adhariani, et al. 2017,p.
114). BHP Billiton can have a positive effect on its business growth through corporate
governance. It will help BHP to raise their necessary capital to get new and developed
products and territories.

Introduction

2.1 Corporate governance

Corporate governance is the internal structure of that practices processes and rules
through which an organization controls and guides itself. It is an essential
involvement that balances all interests of a particular organization’s stakeholders
(Epstein, 2018,p. 120). It helps to balance the interest of stakeholders like their
shareholders, customers, all types of suppliers, their financiers, Governmental body
and even the community.

Concepts that are relevant for a business regarding their operation, management and
also to their ethics and corporate governance is vastly because of the differences.
These differences that is present in their definition and attitude of that classification
and any identification of other factors that influence those categories.

2.2 Responsibility of corporate society

It plays an important role towards a society by providing those credits, proper storage
and procurement also their distribution of operating materials and also to their market
product. They also produce opportunities of employment especially in non-
metropolitan areas and also help any backward groups to become more organized in
getting economic and social benefits.

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The Impact of Corporate Governance in BHP Billiton.

Additionally, with social and economic benefits come political benefits to people.
These benefits mostly based on principle of equality and identical distribution of
revenue earnings (Tricker, and Tricker, 2015,p. 114). It is basically found on
democratic values and norms. It also encourages an individual their freedom.

2.3 Effect of both the corporate heads on the company

Corporate governance is generally concerned with keeping the balance between social
and economic goals. It also balances between communal and individual goals (Azeez,
2015). A corporate governance structure helps to encourage any efficient usage of a
resource and also equally requires accountability for any administration of that
resource.

3.1 How the firm relates to corporate governance?

Corporate governance is also termed as a system with which a business firm has to comply to
control and administer their operations. BHP Billiton also uses this system in order to
administer and control their business related operations (Adhariani, 2015,p. 273). It can be
used by BHP Billiton to set their upcoming business purposes along with proper purpose and
meaningful objectives through which it will be achieved. Another important element that will
represent any BHP Billiton’s transactions and relationships that concerns with the
management and reveal its practices and policies.

3.2 Implications of Governance

It has multiple ways of implicating itself on BHP Billiton. It has purpose towards
stakeholders. It is to test whether it is effective in managing its results in any financial
reporting which is transparent.

Its approach is regarding linear model that gets informed by stakeholders which establishes
its measures. It helps to organize measures any management of stakeholders, their quality of
earnings and also their management towards earnings.

An upcoming research should always be carefully be classified for different measures in

respect of earnings quality. It should also clarify its institution that is based on cross-national
that differs itself to reconcile any contradictions in an extent research.

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The Impact of Corporate Governance in BHP Billiton.

3.3 Impact on ASX

The concept was first introduced by the council of ASX Corporate Governance in the year
2003. This concept was formed in order to recommend an application of ASX which are
enlisted entities. There are reprove of many shareholder primacy towards it which was asked
to stimulate any short termed shareholders. It also encourages the organization’s activist’s
attack and also reduces investment which are sustainable towards long term basis.

4.1 Governance and business nature of BHP

BHP Billiton is one of the leading global business companies that diverse its resources. It is
considered as one of the world’s biggest and major commodities manufacturers. This
business firm produces commodities like iron ore, energy coal, gas, oil, metallurgical,
aluminum, copper etc.

Its main focus is towards owning assets that provides low cost and longevity. To keep
themselves more focused towards their goal they came up with a decision to spin off their
assets.

4.2 Effect of Governance issue on safety, pollution and environment

They believe their manpower is mostly empowered towards getting safe, creative and extra
efficient method towards working their plans for more productive and safe at BHP. Their
investment is in technology and also towards simplifying the process to help their people to
achieve this particular vision.

Their main focusing areas include making proper culture that will encourage faithful care and
relationship. Specifically, they work in advancing their capabilities and recognizing their vital
responsibility which they play in order to create employees.

4.3 Public Policy

They maintain ethical bonding with their government and their bodies, personnel and
officials. Their code of conduct is mostly based on their charter values. These codes presents
their commitment to uphold an ethical business that practices and meets and sometimes
exceeds applicable requirement that relates to law (Black, et al. 2018,p. 333). BHP Billiton

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The Impact of Corporate Governance in BHP Billiton.

governs twenty different governing documents which is known of their requirements for an
outline the minimum standards which requires all BHP employees.

5. Board of Directors top concern

The board generally meets minimum six to seven times a year. They have four different
standing committees, like a committee is allocated for finance and its works. There is also a
committee for monitoring their programmed, a committee for risk, evaluating and auditing
purposes and one specific committee for remuneration. Some concern governance undertakes
certain regulations that the board members may not get paid or might be a paid staff.

6. Treatment towards Risk Management of BHP in international market and law

related to different environment

They constantly analyses and assess to learn new and upcoming risks. They also take proper
control towards places above their material risks and also periodically assess their
effectiveness under themselves. They even assess the materiality of their risk which generally
be based on the financial degree and also for non financial effects. It includes impacts that
relates to their health, environment, community, legal impacts, reputational factors (Chen et
al. 2019,p. 335). They even assess the ability of certain risk that might be based on a
combination of controlled effectiveness and residual risk.

7. Collaboration of skills, capabilities and experience

Mining engineers should always have a strong knowledge in science and mathematics. They
should belong from a background which includes science and math. They must also possess
the skill of solving strong problems. Ability towards creativity and for effectively
communicate is very important and is strongly get measured by BHP Billiton in their
employees. An individual should be a technical and a manual worker.

8.1 Public Scandal of BHP

BHP Billiton and are currently facing a 30 billion pound claim towards the Brazilian
prosecutors on a mine of iron ore dam which fell the previous year. It released a flood of mud
that was toxic and ends up killing 19 people and leaving around 700 people homeless

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The Impact of Corporate Governance in BHP Billiton.

(Kukah, Amidu and Abor, 2016,p. 38). BHP said they did not receive any kind of formal
notice regarding the legal claim.

8.2 Analysis of downfall of BHP mines

Recently this firm with one of its partners had a downfall due to a sudden fall of a dam and
was claimed for 155 billion Real as compensation. Many workers died and over seven
hundred were homeless due to this disaster. The firm claimed that they did not get any formal
notice from the law board for this incident. Even though they are tend towards helping the
affected workers and their families.

9. Table relating to impact of stakeholders towards governance

Stakeholders Interest Engagement method

1. The investment 1. They are spread 1. They regulate proper

community includes
individuals that are
the mainstream of
financial analysts.
2. Some are responsible
socially.
3. Analysts that are
corporate
governance.
worldwide.
2. They get assess
whether if BHP
Billiton performs 2. Proper analysis on
closely which aligns
with other
shareholder interests.
3. It includes delivery
of good financial
income and strong
demonstration of
group performance.
communicates to vast
investing
organizations.
briefings on key
issues which includes
mainstream analysis
particularly for the
interest of conserving
the environment.

10. Relation of it towards governance

A stakeholder community of investment consists of mainstream analysts of financial and

social responsible investment. Some might also be interested in analysts of corporate
governance. These bodies are located worldwide and are assessed with whether BHP’s
performance. It closely aligns itself with stakeholders who shares similar interest which could
also include delivering proper financial return (Lewellen and Lewellen, 2018,p. 223) . Their
engagement methods consist of continuous communication to individuals who are involved
in mass investments.

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The Impact of Corporate Governance in BHP Billiton.

11. Table of Freeman and Friedman

Freeman Friedman

1. Freeman stated that anyone can be a 1. Friedman stated, a stakeholder needs

stakeholder.
2. According to him a stockholder,
competitors or any internal and
external body that is related to an
organization should be termed as a
stakeholder.
3. He also concluded that a segment of
employees of a firm should also be
termed as a stakeholder to that firm.
to be some special body to an
organization.
2. Here, Friedman failed to look over
this.
3. He mistakenly overlooked this
segment and did not conclude this.

12.1 Principles of ASX based on BHP’s year of its foundation

Its initial principles were their regulatory changes and recent legislative to their Corporation
Act. Their accounting standards were also one in which it was resulted in duplication and
overlap with principles. Proper understanding and also practices in reporting on managements
that are risky. All the relation towards a financial reports certain risk and other risk. Accurate
recommendations of two reviews internally got undertaken by their Council to improve it
further. A feedback of their Council from its users informed its User Survey.

12.2 Relation of it towards its governance

There are three pillars of corporate governance. These three pillars are transparency, security
and accountability. These factors are critical and essential towards running an organization
successfully. It helps an organization to form a solid relationship which is professional among
their stakeholders. It also includes board of directors, employees, most importantly
shareholders and managers (Yermack, 2017,p. 11). Attaining all above mentioned points is
not easy. Luckily firms now make partner insider their board portals to make it happen.

12.3 Board holder that relates to dividend stakeholder

There are different tiers towards board holders that relates to dividend stakeholders. First
their conflicts potential or actual conflicts between any board members and an organization.
Second tier conflicts arise when a member from board proves loyalty to stakeholders or its

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firm is compromised. Third tier conflicts on emerging of interests of stakeholder groups that
are not harmonized or balanced. Fourth tier conflicts among a firm and its society. It happens
when a company acts by its own interests.

13. Description of 3 ASX principles

Three ASX principles are -

- Lay Solid foundation for management and oversight: A list of entity that should be
disclosing or establishing the respective roles and its responsibility.
- Structure the board to add value: It consists of a list of entity which should have a
board of proper size skill commitment and composition.
- Act ethically and responsible: Listed entity should act as ethical and well responsibly.

14.1 Carroll’s model

Carroll’s model BHP context Relation to governance issues

- •Four part of Carroll’s ● In this a firm has only way ● This pyramid is basically

in surviving and getting intended towards seeing a

definition of CSR originated
benefits from society in the stakeholder’s perspective
as a social corporate
long run. where its focus should be on
responsibility that
● Legally employment, total and not on any specific
encompasses economically.
health, safety and body.
- •Then comes economic,
competition are attached in ● It was said earlier that both
followed by ethical, legal
it for a firm like BHP. legal and economic are needed
and philanthropic.
● Ethically a responsibility of in a society. For ethical and
- •In economic it states acting ethically and morally philanthropic, it exists in

responsibility of a business comes under this. Like desired and expectation part.

and its profitability. treating suppliers and its ● Representation of being

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 The Impact of Corporate Governance in BHP Billiton.

- •In legal part, it portrays employees. displayed is that its total social

responsibilities that are ● For philanthropic, it states responsibility of business any

needed to be obeyed by law any responsibility that gets concurrent fulfillment of their

back to a firm’s society. It firm’s economic, legal, ethical

and regulations.
states responsibility and and philanthropic
- •In ethical responsibility
discretions but is still responsibility.
towards acting ethically and
important. Like staff time
morally is shown.
on project, donations that
- •Lastly in philanthropic
are charitable comes under
comes, all responsibility that
here.
is given back to society.

15. Effect of BHP on corporate governance in conclusion

BHP Billiton strives in maintaining a solid background based on decisions made and
executed by its directorial board in its working environment. It helps in setting up of goals
and objectives that can be easily achieved by available workforce of the organization based
on their capabilities. Decisions that are made are based on moral and ethical values that
prove to be beneficial for every associated member of enterprise. Reports generated are of
accurate nature due to responsible working method of employees under BHP Billiton.

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