The Management of Santos Ltd - Case Study Example

nаlysis Final Таkе-Ноmе Аssеssmеnt Name Institution Course Tutor Date Section A: Multiple Questions Question one Ernst and Young charged $1, 688,000 total audit service fees Question Two Asia Pacific Region Question Three Papua New Guinea Question Four $2.34 Question Five 54.96% Question Six Mr DJW Knox Question Seven None of the above Question Eight All of the Above Question Nine 2.8% Question Ten None of the above Part B: Essay From the point of view of the shareholder, and employees, discuss the strengths and weaknesses of Santos Ltd’s performance in relation to Corporate Governance practices disclosed in their 2015 annual report. Introduction Corporate governance is the aspect of making all the needs and interests of the stakeholders of a company equal according to Wintoki, Linck, and Netter. Companies need to practice good corporate governance to enhance their positive relationship with the stakeholders and the employees1. In the corporate governance of an organization, it is vital to concentrate at the business ethics, the reporting method, and arrangement of the business goals, strategic organization, and the configuration of the company. The shareholders and the employees are very essential stakeholders in every company’s performance. Employees are also vital in the corporate governance of the company since they enhance its productivity2. According to the corporate governance, the operations, mechanisms, and connections of the company are supposed to meet the requirements of the International Financial Reporting Standards (IFRS). Santos Ltd operates through good corporate governance. This essay seeks to explore the strengths and weaknesses of the Santos Ltd’s performance in relation to Corporate Governance practices disclosed in their 2015 annual report. In the corporate governance statement of Santos, the duties and rights of the stakeholders and employees are well stated. Moreover, the company supervises its policies, actions, stakeholders’ interests, agents, decisions, and practices. Shareholders’ perspectives Strengths According to the shareholders, the company’s shares are fully paid for. The shareholders of Santos include; Allen, Coates, Dean, Franklin, Galahger, Goh, Hemstritch, Martin, and Sheffield. The company’s sale of oil, gas, and other assets enhance its continued operations. The shares of Santos continue loosing value because of its poor handling of the environmental matters. The company has a board of directors who follow up the issue associated with shares of Santos Ltd. However, the leadership of Santos is poorly conducted in relation to its operations. The board of directors works towards the protection of the shareholders’ interests as it continues focusing on the achievement of the required strategic plans3. In the company, there is proper communication of the company’s performance in the share market and involvement of all the shareholders in the decision-making process. Santos efficiently looks at the interests and needs of its shareholders to enhance their continued support. The constitution of Santos is well structured in a manner that it demonstrates how its policies and practices enable the success of its operations in the oil and gas market and its financial management. The communication practice is conducted electronically and this helps in efficient access to the company’s information and response from the shareholders. Weaknesses The corporate governance of Santos performs poorly according to the shareholders because of lack of maintenance of the quality of its shares in the market. Santos Ltd does not operate through proper management of the environment, which reflects to the sale of its shares in the market, thus the violation of its corporate governance4. The oil and gas business is influenced by some major issues, which affect the achievement of the interests of the shareholders and enhancing its improved standard. The earnings per share in 2016 were 0.043, which was a very poor figure. There is poor management of the company’s finances and this greatly affects its performance in the market5. Additionally, the management of the company’s revenue is characterized with the operation of inefficient accounting practices. The exchange rate also affected the share prices in the broader market, which resulted to the assumption that the oil value is minimal. The share prices of the Santos’ shares were at risk in 2015 because of the changes in the production and exploration of the oil. The employees’ perspectives Strengths The employees of Santos Ltd on the other hand have their interests as they continue serving the company. The workers of the company are well paid for their services especially those working in the high levels. There is provision of training to workers in the company whereby they learn how to play their duties for the production of quality commodities6. Weaknesses The management of Santos Ltd. is self-centered and does not focus on efficient conduct of the directors’ responsibilities. The rights of the employees are not well observed since the company treats them unequal. There is poor communication to Santo’s employees concerning the company’s operations. Promotion of workers is not conducted as per their merit but it is based with discrimination of some worker, thus lack of motivation of workers to be productive7. Conclusion The corporate governance of Santos is associated with some strengths and weaknesses especially on the side of the shareholders and the employee. Santos leadership and management of the company’s operations are affected by the issue of poor management of the waste and communication to the employees. The shares lost their value in 2015 because of the lowering of the share price. According to the shareholders’ perspectives, the shares were worthless because of the poor price of the oil and gas, as well as other assets. Santos’ workers complain of discrimination at the workplace on the basis of promotion of worker. Bibliography Jo, Hoje, and Maretno A. Harjoto. "Corporate governance and firm value: The impact of corporate social responsibility." Journal of business ethics 103, no. 3 (2011): 351-383 Santos, 2016. Santos Annual Report 2015. Retrieved from; https://www.santos.com/media/3310/2015_annual_report.pdf Wintoki, M. Babajide, James S. Linck, and Jeffry M. Netter. "Endogeneity and the dynamics of internal corporate governance." Journal of Financial Economics 105, no. 3 (2012): 581-606. Part C: Short question Question 1 Using disclosures made in the Santos Ltd 2015 Annual Report identify and provide 2 examples where Santos Ltd is addressing attributes related to “Agency Theory”. Agency theory establishes that the agents operate on the behalf of the principals in the agency relationship. This theory identifies managers as agents to the companies and they are left alone to operate on the behalf of the company’s set goals. In Santos Ltd, the managers are left on their own to manage the company’s revenue and wealth. There are trusted to be the highly accountable stewards of the company’s assets8. The directors of Santos are the agents to the shareholders of the company. There is the issue of conflict of interest since the Santos’ directors wish to benefit from the finances of the company. The directors of Santos Ltd govern the company’s engagement into a joint venture and ensure that all the arrangements are well conducted for the company’s future success. The joint venture is well governed in a manner that allows the company to improve its performance despite the issues affecting its oil price in the market. The directors of the Santos Ltd ensure meeting of the shareholders’ interests by working towards the promotion of the company’s for its increased sale of products and improved performance. Investment in the joint venture was well conducted in a way that the company gained high interest in its operations. The remuneration of the directors of Santos Ltd is characterized with the actual value of the company’s oil in the market, whereby the revenue received from the sale of oil is composed of the directors’ remunerations9. The board of directors makes decisions concerning the company’s remuneration practices and policies. The moral hazards of the company led to residual loss, bonding costs, and monitoring costs. Question 2 “Santos Ltd have poor sustainability practices” Discuss your agreement or disagreement with this statement. Provide examples where appropriate. The sustainability practices are the company’s practices towards the improvement of the nature of the environment, human resources, and financial handling. Santos Ltd has operated sustainably and safely for around 60 years, but since 2014, the company was involved in the oil spill issue, which led to great environmental and financial issues. In addition, according to the company’s sustainability statement, and as per the findings of Ameer and Othman, Santos is supposed to operate with transparency, product responsibility, and community wellbeing, observation of the indigenous rights, social infrastructure, and stakeholder engagement10. On the environmental part, the company is supposed to consider air quality, waste management, water handling, climate change issues, spills and incidents, and land and biodiversity. The company’s sustainability statement also identifies the need for security, financial performance, supply chain, business partnership, project development, and risk management. It is also supposed to ensure wellbeing and safety of the workers, benefits and remunerations, capability, culture, and composition, and policy and governance as per its sustainability report. According to Shen, Ochoa, Shah, and Zhang,, manufacturing companies should be responsible for their operations and ensure sustainability of the environment through proper management of the waste11. The company operates in the triple bottom line (TBL); whereby it is concerned about its economic, environmental, and social performance. The statement is true because the activities and operations of Santos are poorly handled since the company is not much concerned about the improvement of the surrounding environment. In addition, the company’s sustainability approach does not conform to its practices. There are spills of oil in the water sources leading to environmental pollution and destruction of the human health especially to the dwellers of the location of operation of the company. The eco-efficiency issue in Santos proves that the company poorly conducts its sustainability practices. The investment decisions of the company are not efficiently made, thus lack of improvement of the entity’s value and poor trading of Santos’ products. Additionally, Santos funds are not invested on the grounds of social responsibility. The reporting of the performance data and shareholders’ interests does not conform because it is not conducted in a transparent and open way. Sustainable leaders govern Santos, but they fail to implement their leadership skills efficiently for the sustainability of the company. The environmental management operations in the company are weak in that the company’s waste management resulted to environmental degradation. Choi and Ng articulate that poor handling of waste or release of harmful products to the environment leads to major environmental problems, which extend to the poor health of the people living in the area12. There is poor environmental reporting because the company does not meet the community’s expectations in its handling of the spilling issues. The company also fails to disclose its entire information to the stakeholders. The issue of oil spill led to issues concerning the community wellbeing because the health of the residents was highly affected. Santos do not as well focus to the product responsibility since it only manufactures the oil and gas products, but does not show concern to their effectiveness to the health of the users. Furthermore, the employees are not well empowered in the company and this makes their performance not to improve or change positively in any way13. Despite the effort of the company to get its oil and gas from the reservoirs safely, some incidences occur and lead to spilling of the oil in the water sources, thus failure of its effort. Santos does not communicate the emission information to the community and it is not much concerned about the heath and job creation issues related to the local community. The concerns of the stakeholders through the media are not taken seriously, because after the complaint concerning the oil spill, Santos did not provide the re commended compensation to the victims. The company knew the environmental impact of the oil spill incidence, but failed to consider its responsibility related to the clean up and improvement of the nature of its risk management practices. It is widely known that the company produces wider levels of oil and gas, but does not conduct extensive environmental disclosures. Moreover, it fails to meet the safety and health costs relating to the employees’ injuries and incidences in the workplace. According to the argument put forth by Shen, Ochoa, Shah, and Zhang,, companies are supposed to be responsible for the injuries suffered by the employees at the workplace14. Santos Ltd produces energy through a strategic portfolio of its assets and sustainability culture, but not in all its operations. Its environments fail to enhance shared beneficial results because of the environmental effects in the gas and oil fields15. Despite the production of natural gas, the company is faced with poor processing activities in some of the plants, thus influencing the customer reliability to the product supply. Bibliography Ameer, Rashid, and Radiah Othman. "Sustainability practices and corporate financial performance: A study based on the top global corporations." Journal of Business Ethics 108, no. 1 (2012): 61-79. Choi, Sungchul, and Alex Ng. "Environmental and economic dimensions of sustainability and price effects on consumer responses." Journal of business ethics 104, no. 2 (2011): 269-282. Elsig, Manfred. "Principal–agent theory and the World Trade Organization: Complex agency and ‘missing delegation’." European Journal of International Relations 17, no. 3 (2011): 495-517. Santos, 2016. Santos Annual Report 2015. Retrieved from; https://www.santos.com/media/3310/2015_annual_report.pdf Shen, Li-Yin, J. Jorge Ochoa, Mona N. Shah, and Xiaoling Zhang. "The application of urban sustainability indicators–A comparison between various practices." Habitat International 35, no. 1 (2011): 17-29. Read More