Corporate Finance - Policies of Corporate Governance Implemented by Anglo American - Case Study Example

Corporate Finance Table of Contents Table of Contents 2 0.Introduction 3 2.0.Anglo American plc Boards of Directors Complies to Board EffectivenessPrinciples 3 3.0.The Implications of Board Characteristics on Anglo American PLC 5 a.Board Diversity 5 b.Board Skills 7 c.Board Knowledge and Independence 9 4.0.Conclusion 10 References 11 1.0. Introduction Anglo American plc (Anglo American) is a British mining company operating worldwide. The company is associated with mining natural resources along with assets that include manganese, thermal coal, nickel, metallurgical coal and copper. It is also the leading producer of diamonds and platinum. Notably, the business principles of the company are based on business ethics along with integrity. The company adopts every possible measure for seeking that business operations are conducted in accordance with the needs of its stakeholders, rather than providing priority on to its shareholders’ interests (Anglo American plc, n.d.). The company’s set corporate governance system plays an important role in managing the business operations of Anglo American effectively. In the UK, the Financial Reporting Council (FRC) has devised and implemented the ‘UK Corporate Governance Code’, which is required to be adopted by all the listed companies in the UK, including Anglo American and thus, impose strong effects on the organisational efficiency features (FRC, 2012). Contextually, the essay emphasizes the practices along with the policies of corporate governance implemented by Anglo American as prescribed in the FRC. 2.0. Anglo American plc Boards of Directors Complies to Board Effectiveness Principles The board of Anglo American has formulated governance policies in accordance with the principles introduced by FRC. The corporate governance policies devised as well as implied the Governance Codes followed in the business practices with the aim of ensuring that business operations are performed in a sustainable manner. In this regard, the board adopted the principles with the intention of ensuring that auditing and reporting operations are conducted successfully. The board in Anglo American thus follows a principle-based approach in order to ascertain that the Code is applied in an updated manner for better relevancy. In this context, the board emphasised appointing external facilitators for evaluating board operations annually. Subsequently, the board, with the assistance of the principles of the Code and external facilitator, has been able to enhance its strategic discussion process to a substantial extent. The board members of the company comprise different committees that include ‘executive committee’, ‘remuneration committee’, ‘audit committee’ and ‘safety and sustainable development committee’, which adds on to its diversity and efficiency to perform in a transparent and accountable manner (Anglo American plc, 2012). The Code of the FRC provides guidelines on the basis of which, the board members of a listed company along with its committee members are required to be experienced, skilful, knowledgeable and independent in a balanced manner to help them perform their responsibilities as well as duties successfully and accountably. In this respect, the Code requires the board of a company to be composed of different committees having members with balanced competencies, knowledge and experiences (FRC, 2012). Paying due attention to these facts, during the year 2012 the company reformulated it governance policies in accordance with the principles in the FRC Governance Code. Since then, the company has been able to develop its business operations in the field of diversity, skills, independency and experience. The company has also developed a unified culture with the intention of managing diverse ethnic employees in an appropriate manner. The board is composed of directors representing both genders. Additionally, the board composition is based on a mixture of experiences and competencies that include banking, construction, engineering, mining, automotive sector and telecoms with the aim of performing desired business operations successfully. Respectively, employees representing diverse cultures and competencies ascertain in making effective business decisions. The board of directors are therefore required to conduct their operations in an independent manner. In this respect, the board comprise the chairman, two executive directors along with eight Non-Executive Directors (NEDs). Diversity is also regarded as one of the key attributes of the board construction in Anglo American, which is apparent in terms of its member configuration (Anglo American plc, 2012). 3.0. The Implications of Board Characteristics on Anglo American PLC a. Board Diversity The board of Anglo American is formed on the basis of the provisions that are mentioned in the FRC. In this regard, the board of directors of the company represent different ethnic backgrounds and gender. The women representation percentage in the board composition is identified to be around 27%. The directors comprise gender diversity with the aim of developing a unified culture in the workplace as depicted in the figure below. Additionally, the board members constitute different competencies along with experiences in the field of mining, engineering, banking, telecoms and banking among others, so that business operations are performed successfully (Anglo American plc, 2012). Gender Diversity Source: (Anglo American plc, 2012) Additionally, emphasising the benefits of diversity, the directors of the company are observed to mostly belong from the age group of 40 years to 70 years. Subsequently, the directors comprising of this age range is expected to possess adequate knowledge and experiences. In this respect, the directors, with the assistance of their different skill sets along with experiences, are facilitated with the opportunity of making effective decisions for better growth along with development of the company overall (Anglo American plc, 2012). In this regard, Bernardi & Toni (2009) stated that in the present globalised business scenario, workforce diversity relating to culture and gender plays an effective role towards enhancing business creativity, decision making and problem solving. According to the report published by SHRM (2008), workforce is an important factor accountable for acquiring competent employees for sustainable and competitive business performances (SHRM, 2008). Respectively, the mixture of skills along with experiences has facilitated the directors of Anglo American in reviewing and critically monitoring strategic objectives, so that business operations can be performed in the most transparent and desirable manner (Anglo American plc, 2012). b. Board Skills The board of Anglo American comprise directors from different educational backgrounds along with competencies. In this regard, the company has been adopting the principles of the Code to update its competencies along with workforce knowledge on a regular basis. Additionally, the board members are also required to balance their competencies and experiences in association of the determined organisational goals. Accordingly, the company is required to provide appropriate business resources and adopt strategies with the aim of developing the skills of the employees. The board members are thus provided with adequate training services in various courses including corporate governance, compliance, inter alia, strategy and audit information among others. The directors, on appointment, are provided with the requisite board materials along with reference materials that include their legal obligations and governance guidelines to help them organise their job roles and perform in the most responsible manner (Anglo American plc, 2012). The company has developed a business model, which is based on four elements, viz. investing, organising, employing and operating. In this respect, the management of the company is observably focused on recruiting potential individuals with the intention of accomplishing its organisational objectives in an effective manner. The objective of the company is accordingly identified as to attract, retain as well as develop competent employees for strategic and sustainable performance (Anglo American plc, 2012). The board of directors of the company is recognised to possess diverse set of qualifications from different backgrounds including mining, automotive sector, engineering, construction and telecoms. The success of the company is based on the development of the leadership abilities of the board members along with managerial capabilities of employees for effective accomplishment of business goals. In this regard, the board members represent different skill-sets educational backgrounds, so that business operations of the company are performed in a competitive manner. The average number of educational degree held by the board members is two. Moreover, the directors in Anglo American possess different professional degrees that include ‘Bachelor of Science’, ‘Master of Business Administration’ (MBA) and ‘Doctor of Philosophy’ (Phd) among others. In this context, the professionals from different academic backgrounds and experiences are perceived to have ability to manage as well as conduct business operations of the company profitability along with governance (Anglo American plc, 2012). According to Fullbrook (2011) and Anderson (2008), board representatives are required to possess adequate skills, knowledge and experiences, so that risk can be managed effectively. Additionally, competent board members will be able to perform their operations with better leadership skills and responsibilities (Fullbrook, 2011; Dobbin & Jung, 2010; Anderson, 2008). Similarly, the article published by Deloitte LLP (2013) signified that the board of directors are required to be competent and strategic in their approaches for managing as well as directing business operations successfully (Deloitte LLP, 2013; Ferreira, 2010). Contextually, the company board including directors with different managerial along with leadership competencies are facilitated with the opportunity of making effective decisions and formulating appropriate strategies (Anglo American plc, 2012). c. Board Knowledge and Independence According to FRC and in Anglo American, the board members are required to perform independently in their approaches, so that business operations can be conducted with better control along with risk management perspectives. In this regard, independent directors are required to be appointed with the intention of making autonomous decisions, which would affect the decisions of other directors in a positive manner (FRC, 2012). The board members of the company have segregated its business operations based on the competencies along with experiences. The board comprises chairman, finance director, chief executive, ‘senior independent director’ and non-executive directors. In this regard, the directors representing their respective segments should perform their activities independently. As observed in Anglo American, the board members possess adequate knowledge as well as experiences in different professional fields and corporate sectors. In this regard, the board members, with their knowledge and skills are able to identify as well as interpret problems in an effective manner. Additionally, the board members, based on their knowledge relating to macroeconomic policies, monetary policies and government policies are able to formulate appropriate strategies and business decisions for sustainable business performances maintaining adequate criticality and diversity in their strategic progress. Illustratively, in the absence of these characteristics, the performance of the company was adversely affected during 2012 due the changes in the macroeconomic policy, but the directors focusing on the business towards emerging economies have assisted in enhancing business performances (Anglo American plc, 2012). In this regard, Galo (2005) noted that board of directors are required to be independent and knowledgeable with the intention of ensuring appropriate governance and successful mitigation of problems. Similarly, Dionne & Triki (2005) stated that independent board members are able to perform their operations with better risk management and governance perspectives (Ayuso & Argandona, 2007; Dionne & Triki, 2005). The independent directors possessing knowledge as well as experiences are further considered as adequately capable to ensure that business operations of Anglo American are performed in accordance with the principles of corporate governance laid by the FRC (Anglo American plc, 2012). 4.0. Conclusion Anglo American’s global fame has been possible with the credibility of its corporate governance system. As the management of the company seeks that the business operations are conducted in accordance with the principles along with guidelines that are formulated by FRC, it has been able to align its corporate strategies in a transparent and all-inclusive manner to gain better sustainability. The company, with the assistance of the Codes asserted by FRC, has been able to manage, direct and control its business operations in an effective manner. The Code assisted the company in building diversity, experience, skills and independence of the board members. In this regard, the board of directors of the company were able to gain adequate efficiencies in performing their operations in compliance with the Code, which further contributed to their ability to manage and direct the business operations successfully. References Anderson, R., 2008. Risk Management & Corporate Governance. Corporate Governance Principles. [Online] Available at: http://www.oecd.org/daf/ca/corporategovernanceprinciples/42670210.pdf [Accessed March 15, 2014]. Anglo American plc, No date. Anglo American plc. About Us. [Online] Available at: http://angloamerican.ca/aboutus/angloamericanplc.html [Accessed March 15, 2014]. Anglo American plc, 2012. A Balanced Portfolio. Annual Report 2012. [Online] Available at: http://www.angloamerican.com/~/media/Files/A/Anglo-American-Plc/reports/annual-report2012.pdf [Accessed March 15, 2014]. Ayuso, S. & Argandona, A., 2007. Responsible Corporate Governance: Towards a Stakeholders Board of Directors? Working Paper. [Online] Available at: http://www.iese.edu/research/pdfs/di-0701-e.pdf [Accessed March 15, 2014]. Bernardi, E. & Toni, A. F. D., 2009. Managing Cultural Diversity: Integration Values and Management Skills. Conference Paper. [Online] Available at: http://www.pomsmeetings.org/confpapers/011/011-0559.pdf [Accessed March 15, 2014]. Deloitte LLP, 2013. The Effective Not-for-Profit Board. Documents. [Online] Available at: http://www.deloitte.com/assets/Dcom-Canada/Local%20Assets/Documents/Public%20Sector/ca_en_gov_Effective-NPO-Board_061113.pdf [Accessed March 15, 2014]. Dionne, G. & Triki, T., 2005. Risk Management and Corporate Governance: The Importance of Independence and Financial Knowledge for the Board and the Audit Committee. SSRN, pp. 1-50. Dobbin, F. & Jung, J., 2010. Corporate Board Gender Diversity and Stock Performance: The Competence Gap or Institutional Investor Bias? Working Paper. [Online] Available at: http://www.wjh.harvard.edu/~dobbin/cv/workingpapers/Board_Diversity_and_Performance_07_01_10.pdf [Accessed March 15, 2014]. Ferreira, D., 2010. Board Diversity. Chapter 12. [Online] Available at: http://personal.lse.ac.uk/FERREIRD/Board%20Diversity%20version%201.pdf [Accessed March 15, 2014]. Fullbrook, M., 2011. Optimizing Board Skills and Meeting Effectiveness. Media. [Online] Available at: http://www.rotman.utoronto.ca/-/media/Files/Programs-and-Areas/Institutes/Clarkson/CCBE%20SME%20tookit%201%20Optimizing%20Board%20Skills%20and%20Meeting%20Effectiveness.pdf [Accessed March 15, 2014]. FRC, 2012. The UK Corporate Governance Code. Corporate Governance. [Online] Available at: https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-September-2012.pdf [Accessed March 15, 2014]. Galo, M. A., 2005. Independent Board Directors: How to Improve their Contribution to the Family Business. Working Paper. [Online] Available at: http://www.iese.edu/research/pdfs/DI-0589-E.pdf [Accessed March 15, 2014]. SHRM, 2008. Global Diversity and Inclusion: Perceptions, Practices and Attitudes. Research. [Online] Available at: http://www.shrm.org/research/surveyfindings/articles/documents/diversity_and_inclusion_report.pdf [Accessed March 15, 2014]. Read More