One of the main points from BHP Billiton Corporation’s annual report about their corporate governance structure can be summarized by the following statement given by the company’s chairman himself:
“At BHP Billiton, we have a governance framework that goes beyond an interest in governance for its own sake or the need to comply with regulatory requirements. Instead, we believe that high quality governance is good business, and our approach is to adopt what we consider to be the better of the prevailing governance standards in Australia, the United Kingdom, and the United States” .
As of July 2015, the company’s market capitalization stands at $141.56 billion, which again, is one of the highest, if not the highest in the entire ASX . BHP Billiton Corporation’s core business operations lie within the industrial metals and minerals mining industry. This means that it generates profit by taking advantage of the world’s insatiable demand for basic, precious, and industrial metals and minerals such as but may not be limited to copper, nickel, gold, silver, platinum, aluminum, tin, and zinc. Although it operates in the industrial metals and minerals industry, BHP Billiton Corporation is involved in the basic materials sector, thanks to its decisive move to start diversifying its business a few years ago. Now, the public, which includes the people and the government’s general perception about mining companies, is negative; because they think that mining companies only exist with an intention to exploit the natural resources of a country (which in this case are the minerals and metals) for profit generating purposes. However, BHP Billiton Corporation has made it clear in its 2014 Annual Report Corporate Governance Statement, just like how it continues to clarify since the past financial years since the company’s inception that it is not one of those companies. One of the central corporate governance issues common among mining firms and corporations is sustainability .
This is because; mining is an unsustainable business . Mining firms such as BHP Billiton Corporation admit that they generate revenue by extracting “non-renewable” industrial materials from the earth’s surface and selling them to the market for a certain price. However, as BHP Billiton Corporation would like to point out, the sustainability issues are not caused by that. The sustainability issues are caused by irresponsible business practices in the mining industry.
BHP Billiton Corporation’s mining activities are properly guided by its charter values and cod of business conduct, which are in turn based on integrity and respect . The company also interacts with the communities, governments, its business partners, and its employees. The main purpose of the interaction is for the corporation to receive much needed feedbacks with regards to its operations. This is because the company recognizes the fact that the sustainability factor in its operations are vital and fragile at the same time that it cannot manage to satisfy the interests of all the stakeholders without receiving proper feedback.
One direct example of a business situation where BHP Billiton Corporation’s corporate governance policy on sustainability may be directly applied would be when it comes to mining site closure and rehabilitation. Mines have a certain shelf-life. This time generally refers to the time or the number of mining cycles it take before the natural resource reserves in a mining location gets depleted.
Now, during the mining process, the land, vegetation, and even the ecosystems that exist on top of the land (which contains the resources to be mined) inevitably get damaged because those vegetation and ecosystems have to be removed in order to give way for the mining activities that would be commenced in order to extract the natural resources lying underneath that piece of land . This is inevitable. It is important to note however that this is not where the sustainability issue is supposed to circulate but rather on the way how the mining site has been set for closure and rehabilitated after it has been inevitably exploited.
The government, often through its environmental protection department, sets standards and policies when it comes to site closure and rehabilitation that mining companies such as BHP Billiton Corporation have to follow . In BHP Billiton Corporation’s case, they always walk an extra mile because of their high regard for sustainability. They ensure that the mining sites they have touched are not just properly closed and rehabilitated, they see to it that more than enough provisions for land vegetation and ecosystems to be sustainably developed are made so that by the time they end their operations in one site, they are not damaging the environment in the process. This is because for BHP Billiton Corporation, “good governance is good business”.
In order to gauge where BHP Billiton Corporation stands in terms of its corporate governance structure, it would be important to compare it and its corporate governance structure with that of other publicly listed mining companies in the ASX as well. Newcrest Mining Ltd (Stock Quote: NCM) is a publicly listed Australian mining company. Its core business operations can be easily compared to that of BHP Billiton Corporation because they operate in the same industry and it may well be argued that they follow the same set of government set policies and standards when it comes to their mining operations.
However, that does not mean that the way how they do business must be expected to be identical as well because after all, these two companies are guided by different corporate governance structures and policies, core values, and code of doing business. This is a fact in almost any business regardless of the industry or sector that they are involved in. When compared to BHP Billiton Corporation’s corporate governance policies, the ones being implemented by Newcrest Mining would pale because of several reasons. The first and perhaps the strongest reason would most likely be the size discrepancy between the two corporations. Newcrest Mining is a lot smaller compared to BHP Billiton Corporation with only a market capitalization of $9.62 billion, making it roughly 14x smaller than BHP Billiton Corporation .
There are things that Newcrest Mining could not do or provide for in its site closure and land mining site rehabilitation that BHP Billiton Corporation can. This is where most of the retained earnings of mining companies go and naturally, the higher the volume of retained earnings from mining operations (which is also directly affected by profitability and the competitiveness of the prices of the materials being mined and sold in the industry), the more the mining companies in the industry can allocate for their sustainability efforts and other corporate governance focuses.
It is normal, however, for mining companies to target sustainability as one of their corporate governance efforts because mining companies, at least in the case of the ones listed in the ASX, have already developed a negative impression among the public, mainly because of the extent of damage that the environment inevitably receives as a result of their core business activities. The purpose of their sustainability efforts and corporate governance focuses (such as proper mining site closure and rehabilitation) is to offset that negative impression and for a change, counter the public’s negative perception about mining companies and perhaps make them perceive such companies as responsible businesses that also care for the environment.
Financing is another issue that serves as one of the pillars of focus of BHP Billiton Corporation’s corporate governance structure. One of the greatest challenges for BHP Billiton Corporation is centered on the question how they can efficiently manage and monitor the financing issues such as but not limited to the capital structure, funding, and commitment to due diligence processes (i.e. research, feasibility studies, mining area exploration, community research and etc.) of their overseas affiliates and subsidiaries. Money serves as the lifeblood of a business and the same is true in the case of BHP Billiton Corporation. Sound financial management has been one of the focuses of BHP Billiton Corporation’s corporate governance. The goal is to see to it that every dollar is spent on things that really need financing. One of the biggest challenges for mining companies’ corporate governance under this issue is the financial challenge brought about by its effort to pump up sustainability . Basically the more sustainable a business is, the larger its operating costs would normally be. Sustainability is something that BHP Billiton could not afford to take for granted and so it took the financial challenge to make all of its mines and mining operations sustainable, even if it meant incurring a lot more expenses.
Remuneration issues have also been touched in the company’s discussion on corporate governance. Mining firms have, including BHP Billiton Corporation have always been highly dependent on manpower. Without the miners, who serve as the functional units of mining firms, generation of revenue via sales of mined ores and minerals such as copper, nickel, gold, silver, platinum, among others, would be impossible . Basically, the goal of BHP Billiton Corporation’s corporate governance in terms of remuneration is to ensure that every worker is well compensated based on their productivity and contribution to the company, and that the company’s remuneration policy is in line or at some point, even above the standards set by the government. A well-compensated workforce is a well-motivated workforce. Motivation is what sets a productive and a less productive workforce apart. In this case, the company aims to generate and maintain a well-motivated workforce in order for all of its activities to be cost effective and efficient .
Part of BHP Billiton’s Corporate Governance Structure is its nomination and governance committee efforts. Through this committee the company overseas, monitors, and regulates its renewal and succession planning and execution processes. There will come a time when the company’s present leaders will have to be replaced by a new generation of leaders and it is the responsibility of the present leaders in the company, through this nomination and governance committee, to guide those new leaders on how they can continue the legacy of BHP Billiton in terms of the other parts and focus issues of its corporate governance structure such as that on sustainability, risk management and avoidance, finance, and remuneration.
And lastly, and in fact most importantly, risk management has also been a key part of BHP Billiton Corporation’s corporate governance. The main goal within the context of this issue is to ensure that risks are well monitored by means of doing responsible and ethical auditing, financial reporting, and risk containment and prevention processes. Mining operations are always coupled with risks such as accidents and injuries and it is part of the responsibility of BHP Billiton Corporation’s as the company that operates and runs the mines to ensure that all forms of risks are well accounted for. Injuries and risks may include accidents during mining operations, destruction of property, and even loss of lives in some cases. BHP Billiton recognizes these risks and has set in place proper mitigation plans and risk avoidance strategies to minimize the effects of those risks if not prevent them altogether. After all, risks, regardless of what type of risk they are, cause business disruptions .
It is indeed true that there are mining companies, a lot of them actually, that do their business in an irresponsible way. These instances, however, only happen in countries whose mining industries are poorly supervised and regulated. In the case of mining companies in Australia, most, if not all of them, at least based on their annual reports, engage in responsible and sustainable mining operations, as it is in line with their corporate governance. However, the public, after so many years of being engaged in unsustainable and irresponsible business practices, have already developed a negative perception of mining companies. As a result, companies like BHP Billiton who now conduct their operations responsibly and sustainably, suffer. As more and more mining pits and sites get opened for extract either by BHP Billiton or by any other ASX listed public company in the mining sector, people would lose hold of their negative perceptions about mining firms. Later on, they will see such companies as socially responsible and sustainable businesses—all thanks to their corporate governance structure.
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