BHP Billiton is one of the Anglo-Australian multinational mining, petroleum and metal company. BHP Billiton is a duel listed public company having its headquarter in Melbourne, Victoria in Australia (BHP Billiton 2018). BHP Billiton was founded during the year 1885 and in the year of 2017 the company was ranked as the world’s largest mining company based on the market capitalization and held as the Australia’s third largest company in terms of revenue that significantly triple folded between 2004 and 2012.
BHP Billiton was formed in the year 2001 with the merger of between the Broken Hill Proprietary Company Ltd and Anglo-Dutch Billion Plc turning out to be a dual-listed company. BHP Billiton Australia limited is primarily listed on the Australian Securities Exchange while the English registered PLC is primarily listed on the London Stock Exchange and it is held as the constituent of the FTSE 100 index (BHP Billiton 2018). The major purpose of the stud is understanding the corporate governance principles of BHP Billiton and lay down the comprehensive explanation of the corporate risks.
Implementation of ASX Corporate Governance Principles:
The philosophy of the BHP Billiton corporate governance goes further than the obedience. The company believes that a high quality governance structure helps in acting as the support in the long run value creation. Strong process is placed to make sure that delegation of authority flows through the Board and executive leadership team into the organization. Meanwhile the responsibility of the board flows upward from the group to shareholders (Dodd 2017). The charter of the governance framework of the BHP Billiton embodies the corporate purpose, strategy and values to foster culture and higher ethical standards and corporate integrity.
As the part of shareholders rights it engages with the shareholders and communicates with them to make their views known. BHP Billiton uses the wide range of formal and informal medium of communication to engage with the shareholders (Tricker and Tricker 2015). Additionally, BHP Billiton has robust mechanism of ensuring that all the directors of the company should remain aware of the issues raised and have the better understanding of the present views of the shareholders.
In compliance with the laying the foundations for management and oversight the role of the board is to represent the shareholders. The board of the BHP Billiton responsibly creates value and delivers the value with the help of effective governance (Allen 2017). The board of directors lay down the solid foundations in making a contribution in the decision making process. The governance report of the board provides that BHP Billiton has adopted and implemented the foundations of reserving its considerations and decision making authority of delegating the responsibilities. The document of the BHP Billiton governance states the role of board’s chairman and the role and conduct of the Non-Executive Directors. The governance documents provides secretary of the company as the accountable person for advising the chairman, the board and the directors regarding the subject of governance procedure.
In accordance with the principle of structure of board composition BHP Billiton present has nine members. The non-executive directors are regarded by the board as the independent management and free from any form of business associations or any other circumstances that may materially create an interference with the board’s objectives (McCahery et al. 2016). The board of directors of BHP Billiton have maintained a suitable balance the executive and non-executive directors in order to promote the interest of the shareholders that govern BHP effectively.
Agreeing to the principles of Integrity in corporate reporting Risk and the audit committee of BHP Billiton helps in making sure that the financial statements are in accordance with the integrity. The risk and the audit committee of the BHP Billiton assesses and provides recommendations to the board regarding the correctness of the accounting policies and judgments to company with the relevant accounting standards (Aguilera, Judge and Terjesen 2018). The company has included formal adoption of the financial statements so that BHP Billiton can maintain the integrity of financial reporting.
Complying with the principles of remuneration the company has set up a remuneration committee that helps in provides assistance to the board regarding the policy of remuneration and its detailed application to CEO and general application to each of the employees (Armstrong et al. 2015). The company has adopted longer term incentive plans to determine the degree of rewards. BHP Billiton complies with the appropriate legal and regulatory requirements that are related with the matters of remuneration.
BHP Billiton identifies and manages business risks as it covers each of the asset and provides assistance to the management in rendering necessary information so that it can allow the risk and audit committee to properly discharge their responsibilities (Fox et al. 2016). BHP Billiton has the appropriate management committee and performs the necessary functions of monitoring the inclusive governance of the company.
BHP Billiton directors respects the rights of the shareholders by providing financial information to its shareholders with the fair and understandable information so that they can assess the position of BHP Billiton, its securities, performance and business strategy (Rodriguez-Fernandez 2016). BHP Billiton has placed considerable corporate governance framework in place which comprises of management presentation of financial statements to its shareholders.
In accordance with the principles of the ASX Corporate governance policies BHP Billiton makes timely and balanced disclosure. The management with the participation of its CEO and CFO carries out the disclosure controls and procedures that are designed to give sufficient assurance that the material functions and the non-financial information that are required to be disclosed are provided in a timely manner (Du Plessis, Hargovan and Harris 2018). The company has appropriate controls for disclosure and process which is effective in giving reasonable assurance.
BHP Billiton is considered as the world class leader in the resources. The nature of the business consist of extracting and process of minerals, oil and gases with greater than 60,000 employee strength and contractors that are primarily engaged in Australia and Americas. The products of the company are sold across the world with sales and marketing activities being carried on through Singapore and United States (Griffiths 2016). The company generally employs the portfolio of its assets in minerals and petroleum. These mainly consists of the Coal, Iron Ore, Copper, Petroleum and Potash.
Considering the market factors and trends the long term view of the market continues to remain positive. The rise in population and growth will result in increasing demand for energy, metals and fertilisers (Sadgrove 2016). New centres for demand would rise where industrialisation and urbanisation both appears to be opportunity and threat. Despite this there is still challenge of weak prices. There are numerous products of BHP Billiton trade in the long term forecasts. Furthermore, the company faces geopolitical uncertainties and protectionism that has the ability to inhibit overseas trade. However, the company remains confident that it has the correct assets and the correct commodity with diversified demand from the end-user segment and geographical boundaries.
The activities of the BHP Billiton is regulated and in compliance with the Australian Accounting Standard which comprises of the interpretation of accounting and Companies Act 2001.
The business strategy of BHP Billiton is to operate a low cost, expandable, large and upstream assets under the diversified commodity market (Leung et al. 2014). The company has six point business strategy plan that are consistent with the approach of creating a long term shareholders value.
- Cost effective focus: BHP Billiton has simple set of standards with greater connectivity with the assets and commodity so that it can enhance its productivity.
- Restricted risk and attractive returns: The Company debottleneck its current mine to derive greater production and replace the production with cost effective infrastructure (Knechel and Salterio 2016).
- Big projects timed for valued returns: BHP Billiton has channel the probable aspects of growth which helps in creating significant value for the shareholders in the long run especially in copper and coal.
- Reduced risk for future results: BHP Billiton business strategy is discovering new oil and copper deposits with the help of targeted exploration. The company employs lowest exploration costs to take the advantage of its portfolio of resources.
- Improved technology:BHP Billiton continues to develop new technology to increase the efficiency and unlocking resources.
- Onshore flexibility:BHP Billiton constantly reviews is onshore portfolio to productively increase the value of acreage through disciplined development and divestments.
BHP Billiton faces some of the business risk that are stated below;
- Failure to identify and acquire resources:The failure of the BHP Billiton in identifying and acquiring the resources or developing the new assets may negatively create an impact which may hamper the future results and financial conditions of the company. Decline in the price of commodity might make some of the BHP Billiton reserves uneconomic (Nicholds and Mo 2015). The company faces the business risk of inherent uncertainties. The demand for the products of BHP Billiton and production from its assets may lead to depletion of the existing reserves. Furthermore, the reserve restatements might be negatively impacted by the results and products.
- Risk of potential changes to portfolio assets and financial conditions:BHP Billiton faces the business risk of potential changes to its collection of assets through the acquisition and divestments that might materially create an adverse impact on the future of the financial conditions (Haimes 2015). The adverse regulatory conditions and obligations may result in adverse reaction to the timing and terms on which the changes are made. The unforeseen in the liabilities and changes originating from the portfolio might result in commercial objective not being attained as anticipated.
- Rising costs and scheduled delay might negatively create an adverse impact on the development projects:Even though BHP Billiton has devoted significant amount of time and resources for its project planning many of the company’s project are considered to be highly complex and remains dependent on the factors which is beyond the control (Li 2014). This may result in underestimation of costs or time that is required to complete the project. For example, unforeseen conditions encountered at the time of project development might result in setback of overruns that might be unobtainable at the anticipated cots or may be derived only after the significant delay which may force a change in the market conditions. Any of the above stated situations may result in rise in capital costs and schedule delay in the development projects and may materiality impact the expected financial return.
Relevant Audit Risk:
- Risk of compliance: BHP Billiton is exposed to compliance audit risk as the company is globally located the assets of the company is exposed to legal compliance.
- Sustainability audit risks: BHP Billiton is exposed to the sustainable audit risks that may hamper the governance and monitoring of minimum performance requirement of its assets. The company is exposed to the legal and regulatory requirements that are less stringent.
Closure planning: BHP Billiton has internal audit functions tests that helps in providing effectiveness in the internal test plans (Griffiths 2016). BHP Billiton reviews the reports of corporate assets and develops a closure plan along with the financial evaluation to minimise the risk of closure related to the life of the assets.
Building trust through transparency: The business model of BHP Billiton is based on trust and to reduce those risks the company prioritises in corporate transparency and public disclosure (Sadgrove 2016). BHP Billiton implements the operational risk management approach to recognize the disastrous operational risks and applies the critical contracts and performance requirements to implement control effectiveness. BHP Billiton implements the business continuity plans to mitigate the relevant audit and business risks that are consistent with the portfolio risk management approach.
The report conclusively provides that BHP Billiton has applied the ASX Corporate Governance Principles and has assured that the endorsements of the corporate governance principles are complied with. The report evidently provides that BHP Billiton board is held responsible for presenting and serving the interest of the shareholders. The report evidently provides that the business is exposed to several risks. The risks are though considered as the inherent part of the business however with appropriate risk mitigation strategies in place the company has the potential of reducing and eliminating the risks.
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