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BHP Billiton has in its operations and financial reporting, strived to comply with corporate governance best practice. For a company that is domiciled in Australia, has operations in Britain and is listed in America, BHP Billiton finds that it has to take into consideration what the requirements on corporate governance are in the three countries and fit accordingly. This is in addition to conforming to industry best in line with industry it operates in. To this effect, BHP Billiton has done exceptionally well in adhering and conforming to corporate governance best practice. Specific instances that are worth to highlight include;
One of the requirements of listing in the New York Stock Exchange (NYSE) it that all listed companies, must have a compensation committee composed entirely of independent directors. At the same time it allows for foreign private issuers-as BHP Billiton is, to follow home practice rules with regards to the independence of directors and composition of the remuneration committee. It is required of all companies in the UK to have a remuneration policy which addresses how executives should be remunerated especially with regards to how big a part performance-related remuneration should contribute to executives entire package, treatment of executive share options and the level of remuneration in when viewed in terms of time commitment and responsibilities of the role.
BHP Billiton has also adhered to the requirement to constitute a nominations committee. This committee has the responsibility of ensuring the board is constituted of competent people and that they remain accountable to the shareholders. In line with this, the nomination committee though not responsible for developing and recommending to the board the corporate governance principles applicable to the organization is supposed to support and advice the board in exercising its authority in relation to the matters of identifying suitable candidates for appointment to he board, plan the succession of the chairman and chief executive officer, asses the performance of individual directors and endorse those retiring and seeking election, provide for appropriate training and development opportunities for directors and authorization situation of actual potential conflict notified by the directors.
The Risk and Audit committee which is an integral component in the adherence to corporate governance best practice is responsible for the remuneration and oversight of the external Auditor and required by best practice. However, the responsibility of appointment and retention of the External Auditor has been left to the shareholders. What the Risk and Audit committee does is recommendations to the board with regards to the matter of appointment and retention of External Auditors, which are in turn reported to the shareholders.
These three specific areas are clear evidence of BHP Billiton's adherence to corporate governance best practice. In as much as this adherence may be slightly different as per the requirements of different countries and oversight bodies, the spirit of the practice is not lost. Overall, BHP Billiton can not be accused of not adhering to corporate governance best practice. In fact, BHP Billiton has totally adhered to corporate governance best practice.
2. Before accepting a directorship or investing in a company you would conduct a due diligence exercise. What questions should you explore? What conclusions do you draw about this company?
Due diligence is used to scrutinize and appraise a business prospect. The term due diligence describes a general duty to exercise care in any transaction. As such, it covers examination into all appropriate characteristics of the past, present, and predictable future of the business of a target company. Due diligence sounds imposing but ultimately it translates into basic commonsense success factors such as "thinking things through" and "doing your homework". Ideally a due diligence will be conducted to determine whether what a business appears to be is true, identify potential defects that could make the deal become sour in order to avoid bad business transactions, gain information that will be useful in valuing assets, defining representation and warranties and negotiation price concessions and also for verification of the compliance of the transaction with investment and criteria.
Specifically in the case of BHP, investing in the firm is a critical decision, so it appointment as a director. As such before undertaking this, it is imperative to determine the exact position of BHP Billiton with respect to specific critical characteristics that are central to a company's success. One will thus scrutinize the corporate documents of BHP Billiton. The essence will be to understand the articles of incorporation and all modifications thereto, bylaws and amendments thereto, list of states and jurisdictions in which BHP Billiton is qualified to do business in and where it has offices and holds properties. One will also look to determine the material documents and information given to shareholders in the past two years and finally the latest acquired excellent reputation official document for all countries and regions where the BHP Billiton is eligible to do engage in trading.
Secondly one will want to look at previous issuance of securities and determine the stockholders information including the number of stocks held, date of issuance and price paid, also any stock option, stock purchase and other employees benefit strategies, any outstanding share options and warranties and any voting trust agreements. Additionally one will want to know of any convertible debt instruments issued or held by BHP Billiton, any other convention, provision, open or confidential papers or obligation in connection to shares of the BHP Billiton and any liability obligations, undertakings or compensation between employees, directors or the investors (owners) and BHP Billiton.
With respect to material contracts and agreements, one will want information of the catalog of financial institutions or other lenders with whom BHP Billiton has financial relationship with a clear indication of the nature of the relationship, credit arrangement, debt instruments, security agreements and any agreements evidencing outstanding loan to which BHP Billiton is party to or was a party to in the last two years, material correspondence with lenders and a list of major clients and their locations.
It would also be prudent to get look at any litigation that BHP Billiton is currently engaged and get copies of any pleadings concerning BHP Billiton or its initiators, break down of disagreements with contractors, rivals or clientele and correspondence with auditors regarding threatened litigation or claims. Also decrees, orders or judgments of courts and settlement documentation.
With this information, one is able to make a fairly informed decision as to the real position of the company. BHP Billiton does not have any critical or major issue that would warranty for a possible investment to be delayed or directors appointment to be declined. At the end of the day, whether one is looking to invest or get appointed as a director of a company it is important that one is very clear of what the exact position of the company is. One does not want to be engaged in issues that preceded them joining the company and which could jeopardize their investment.
3. What evidence is there that this company values corporate ethics?
BHP Billiton has a formal structure for guaranteeing ethical business behavior. It comprises a Global Ethics Panel headed by a senior public affair manager with representatives from staff functions and operations; a Guide to Business Conduct published in several languages in hard copy and on the company's intranet which is accompanied by a facilitator's handbook; and a multilingual ethics telephone help-line across four world time zones. However, close attention is required to internal communications processes required to 'roll out' the ethics program and 'make sure that people understand it right through the business and understand it more deeply than just getting a copy of the book'. The company's 'communication networks' and 'communities of practice' are used to diffuse knowledge about ethical business behavior using facilitated discussions with employees about issues relevant to their work area. Disciplinary action might also be taken in cases of ethics breaches, ranging from counseling to dismissal.
BHP Billiton recognizes values as pertinent to decision-making by specifying the company's values in its charter and providing a framework that facilitates value-pertinent decision-making through the HSEC management system. The BHP Billiton Charter specifies six core company values: safety and the environment, integrity, high performance, win-win relationships, courage to lead change and respect for each other.
The company uses a range of methods to facilitate value-attuned communication, including auditing adherence to the HSEC management system, creating a network of 'thought leaders' to push and pull information through the firm, creating knowledge-based 'communities of practice' to connect employees with similar roles through the company's intranet, sharing values-based learning through a 'best practice' intranet site, linking values to performance bonuses, management participation in industry bodies and local communities, and workshops for managers about values. Each of these methods works by enabling value-pertinent information to be circulated throughout the firm to employees at various levels, and by providing a mechanism to link stakeholder values to business decision-making. Public affairs employees are involved in developing and/or implementing these methods.