Audit Of Governance And Risk Management Practices Of BHP Billiton, Essay.

You will be required to undertake an audit of an organisation’s governance and risk management strategy, commitments and practices. The organisation (for-profit or not-for-profit, government or private) will be selected by you and must be drawn from your personal experience as an employee, manager, stakeholder, volunteer or client.

The managers of a corporate body have to deal with various aspects such as legal compliance, financial reporting, corporate governance, risk and audits, corporate social responsibility, shareholders interest and making profits. In order to ensure smooth functioning of the organization all the aspects needs to be perfectly covered. However the organizations are subjected to various risks which arise out of these aspects. An organization cannot set its future objectives without the existence of a proper risk management system. If objectives are set without taking risk into consideration it is likely that direction would be lost in case these risks arises. One of the main effects on an ineffective risk management system is financial crisis. The organizations not only loose goodwill but also financial resources in form of losses and penalties. The paper will audit the corporate governance, risk management, commitment and practices of BHP Billiton Pty Ltd. The paper will discuss the policies of the organization related to financial obligations, management of stakeholders, corporate governance, products and services, customer base, management structure and accountability and compare such polices to the best practices in the fields in relation to the policies. This comparison would allow a proper audit and analysis of the management system of the company.

The company through its website provides that the company is committed to the highest level in governance and strives to foster a culture which rewards and values excellent ethical standards, corporate and personal integrity along with respect for other. The company defines its corporate governances through various articulated provisions published in its website such as the memorandum, constitution and corporate governance statements. The constitution of the company is a large document which sets out the responsibility and duties of the members and lay guidelines which have to be followed towards the management of the company (BHP Billiton 2017).

This section of the paper discusses about the financial obligations of the company are complied within the organization and what is the approach of the organization towards the obligation. The risk arising out of the obligations and the best practices in the fields are also discussed in this section so that a proper analysis of the financial management is conducted. The steady growth of the company can be attributed to the good practices the company observes towards financial management and accountability (Choi, Mao and Upadhyay 2013). Financial accountability arises from holding a person accountable for properly executing a financial transactions like key control procedures. A good financial accountability structure within the organization lays the foundation of an effective financial process. In the organization accountability in relation to financial process is delegated by the management to the financial officers. The officers are given due credit for the successful completion of the main control procedures. The policy allows the officers to transfer their responsibilities but not accountability to others in case of less important financial matters so that the burden of the financial officers and the management is reduced. The board of directors are themselves responsible and accountable for any stressful financial procedures which take place with respect to the company. The company maintains a flexible business strategy towards financial targets, growth aspirations, capital investment , share buy backs and acquisitions. The company understands that corporate objectives can be threatened by too much financial risk. The company analyzes the financial risks based on case inflow and uses of cash. The company maintains its financial strengths through Credit ratings, liquidity profile, interest covers and gearing. The company indentifies commodities, currencies, capital markets in form of equity and debt as financial markets. Who of the company risk are indentified separately in form of country risks events and market risks. A diversified portfolio for country risks is maintained by the company. Thus summarizing the financial risk management system of the company it can be stated that the company adopts an integrated approach in relation to finance risks management. A well maintained diversified portfolio in relation to commodities and counties is also adopted by the company. The company uses the powerful combination of flexibility, diversity and financial strength to address financial management. The approach towards financial risk by the company also includes knowledge from financial institutions. A capital approval process has also been incorporated into the company which includes analysis of return on an opportunity or project, distribution on such returns, corporate impact (cash flow statements/ balance sheet) and portfolio risk analysis. A strategy to mitigate market risks have also been updated by the company. With respect to this the company manages its risks through flexibility, strength and natural diversification. As a common principle only to hedge in times the residual risk in relation to the portfolio may include the delivery of corporate aims known as risk mitigation. The company believes to enter into a financial transaction to a limited extent only in case financial circumstances in the portfolio change drastically in relation to long term expectations. This policy is referred by the company as Risk leverage. The company strives to communicate the policies of the company along with the resultant risks profile to the stakeholders in a precise, responsive and clear manner. The company provides risks limits for the portfolio which includes cash flow risks limit, gearing target exceed limit, ratio of cash flow and limits to strategic financial transactions. The company adopts to policy of transparent and clear disclosures by maintaining policy updates, view based activities, finance risk monitoring, efficient decision making through quorum, regular meeting and covering the financial policies.

Financial Management and Accountability

According to the finance theory a project should only be taken by a business organization in case it will increase the value for the shareholders. The theory also provides that the value of the shareholders in not increased by the financial managers in case they could achieve the same value at the same cost for themselves (CODE 2014). Applying this theory to financial risk management it can be concluded that managers must not hedge risks which investors can get around at the same cost for themselves. Thus many opportunities for the managers exist with respect to creating values for the shareholders with the use of financial risk management. From the above analysis of the financial risk management and accountability of the company it can be stated that the company is committed to protect the interest of the shareholders (Wu and Olson 2015). The accountability system of the company is distributed among the board and financial officers with respect to the amount of complexity and risk involved in the transaction. This allows the managers to reduce their burdens but they are still accountable for the transactions making accountability a priority.

This section of the paper deals with the analysis of policies which the companies have towards mitigating the risks in relation to its well-being and interest of the shareholders. Risks in relation to the well being of the company arises because of bad working environment such as discrimination, bullying, victimization , harassment, lack of employee development and inadequate health and safety measures in the work place (Merna and Al-Thani 2011). These risks not only make the employee suffer loss of good will , employee relations and well being of the organization as a whole but also exposes the organization to legal risks resulting in financial penalties (Bodnar et al. 2016). At BHP Billiton the management has developed separate policies to address different issues arising out of such risks. For instance the organization maintains policies articulated in its website in relation to environment and climate changes, health and safety, code of behavior, security and emergency management, community and approach towards diversity. The company also maintains a code of business conduct in order to ensure that the interest of the shareholders in not deterred. The company through its health policy established to point out any health hazard which may potentially cause injury or illness. The policy also establishes a risk exposure of profile and verifies in case of a process change. Qualitative and quantitative risk based assessments are also taken for harmful agents.  Exposure control is prioritized by the organization based on magnitude of exposure, number of people and potential health consequences. Isolation, elimination, substitutions or engineering exposure controls are implemented which are substituted by the control of the managements as and when required to meet the health target of the organization. In relation to risk of occupational exposure with respect to carcinogen and the levels going below OEL the company informs the contractors and employees about when to take extra precautions and do personal fit testing in relation to hearing devices. In relation to fitness for work the organization points out positions which require medical assessments with respect to potential risks and taking into account the work environment and the work to be performed (Bromiley et al. 2015). The frequency of assessment is also determined by the organization on the basis of change in health position or likely change in status which may deter the ability of the worker to take up such roles.  The effectiveness in relation to fatigue management is also monitored by controlled methodology. The company ensures medical treatment for works in case of work related illness or injury along which rehabilitation program with respect to medical advice when necessary. The health and safety laws in Australia provide that the employees are the responsibility of the employers with respect to their health and safety during the course of employment (Rampini, Sufi and Viswanathan 2014). The employers have to ensure that they provide all facilities and accessories needed by the employees to take care of their health and well being. Health and safety moreover enhances employee relation which ultimately leads to productivity. For the analysis of the health and safety policy of the company it can be concluded that the company aims to protect the health of employees. The implementation procedures combined with the health and safety policy promotes the confidence of the employee towards the organization and promotes overall well-being. The increase in productivity on the other hand ensures that the interest of the shareholders is ensured by the organization.

Well-being and Interest of Shareholders

The company maintains policies in relation to host communities. The company analyzes social impacts, stakeholders and business risks including corporate alignment planning and community development. The organization reviews all the boundaries belonging to the host committees impacted by the operations of the company. A social baseline study is conducted by the company to analyze political, social, security and economical aspects of the communities. Quality of life indicators are included in the study and are used to identify success over time. An opportunity and social assessment is carried on and updated by the company which is used to point out the opportunities and gaps in relation to the engagement of communities along with social investment and development (Sadgrove 2016). The company also updates and reviews stakeholders analysis and identification in order to point out and discuss the relationships and interest of stakeholders along with informed engagement planning. Thus the corporate social responsibility of the company is taken into account totally in relation to the community policy. All requirements of the responsibility are addressed by the company through the social policies. The company further has a very strict and strong code of ethics which is implemented in the workplace (Hoang and Ruckes 2017). The code provides behavioral guidelines which have to be followed by all the employees of the organization. The organization takes a strong stance against bullying, victimization and harassment at work place. The organization has set a very simple and easily accessible complaint procedure through which the employees can express their grievances to the management (Schittenhelm and Wengert 2013). In case an employee is found to engage in any kind of unethical activity against the company or against each other then strict actions are taken by the company including financial penalties after proper investigation and inquiries. The company maintains a strong anti discrimination policy which is backed up by a diversity inclusion program. Hiring diverse workforces is one of the main aims of the company to enhance the organizations culture and productivity. An anti discrimination policy which is in compliance with the Australian anti discrimination law has been imposed by the company not only with workplace relationships but also in the selection and recruitment procedure. These polices ensure that a healthy work environment is maintained within the company promoting its well being and minimizing risks related to workplace, wellbeing and shareholders (Dionne 2013).

The Australian consumer law protects the consumers from the discretionary powers or large corporation in relation to products and services. The company amidst all the bad reputation which large organizations have seeks to prioritize customer satisfaction through a service and products. The safety and reliability of the products is one of the most important priorities of the company. The policy prescribes safety standards which need to be followed in accordance to the Australian consumer law (Faccio, Marchica and Mura 2016). As the company deals with raw materials also along with providing financial services the products are not up to the mark because of natural characterizes the company disregards such products and sells them for a lesser price without any concealment about their quality (Glendon, Clarke and McKenna 2016).  The company independently considers marketing as its core business. It can be described as a link between the global customers and operations. The company has a customer base all over the world however the main clients of the company are based in china and Japan. The iron ore extracted by the company is sold in china where it is converted into steel. The company further transfers copper to Japan and fuel to USA. As the company has to maintain a global customer base the customer policy of the company had to be very flexible and diverse. The fundamental of the policy is to provide customer satisfaction through effective price and quality products. A grievance management team has been established trough the customer satisfaction policy in order to address the needs and problem of the clients (Grace et al 2015). Thus the approach the company takes towards customer and client handling is informed and well defined.

The most important policy which has to be reviewed in this paper is the identifiable managerial accountabilities and management structure in relation to risk assessment and organization governance.  The first and foremost policy in relation to the management of the company is related to the independence of the directors. The policy defines the assessment criteria in relation to the independence of the directors by the board. The company provides that it is committed towards providing high standards of corporate governance. For such governance it is necessary that the directors inclusive of the chairman are kept independent from the board of the company. Not only the directors but also all members of the remuneration, risk and audit committee along with governance and nomination committee are kept independent through the policy (Koh, Qian and Wang 2014). The policy provides a test which is used to assess the independence of the directors. The identification of information which is to be collected from every director for the purpose of the assessment is also highlighted by the policy. The policy ensures that independence of the directors is maintained which is one of the most significant requirements for the proper corporate governance of an organization. The company provides the revisions and audit of policies by external auditors to ensure that a just and fair idea about the policies is obtained by the company. In form of the code of business conduct the company provides guidelines about the governance of the company by the managers (Chance and Brooks 2015). The tools and resources provided by policy can only be accessed by members and directors who are associated with the company. The code provides strict punishments for its breach and is applicable on all members and employees equally.

Conclusion

Thus from the above analysis it can be concluded that BHP Billiton Pty Ltd has designed and implemented guidelines and policies in almost sphere of governance and risk management.  Through its website and articulated documents the company clearly indicates its intentions and commitments towards best possible management. The financial risks and accountability are managed through financial identification and management policies. The company manages its overall well being and shareholders interest through the compliance with work place laws and enhancing employee relations. The costumer bases and product and services of the company are governed and managed through the customer polices which are very efficient for their purpose. The management of the company follows strict guidelines and procedures and makes the directors totally independent of the board.

1. It is recommended to BHP Billiton they enhance their communication policy with shareholders, creditors and stakeholders of the company through organizing meeting more frequently to address their views and grievances
2. The task and responsibilities of boards of directors of the company is good however the company focuses too much on corporate social responsibility which is not proving to be profitable for the company.
3. The composition of the board of directors needs diversity with respect to race religion and cultural belief in order to operate more effectively.
4. The financial reporting and risks management need to incorporate a whistleblower scheme in order to be more effective and identify frauds and immoral conducts.

References

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