Research Analysis - Sustainability Report (Management) Essay Writing Assessment Answers

Sustainability Report - Essay Writing Assignment Help

SECTION A – Multiple Choice

Question

1 The Santos annual report shows in the year ended 2015, the auditors

1. c) Ernst and Young charged $1,688,000 total audit service fees

2 The Santos Ltd annual report shows in the year ended 2015, the most profitable segment measured by Earnings before Interest and tax (EBIT) was in the

1. c) Asia Pacific Region

3 The Santos Ltd annual report shows in 2015 financial period, the most revenue was earned in which of the following Regions

1. b) Papua New Guinea

4 The Santos Ltd annual report shows in year ended December 2015, the basic earnings per share was

2. c) $2.34

5 The Santos Ltd annual report shows that the largest 20 shareholders hold _______percent of the issued shares at the end Of February 2015.

51. d) 51.39%

6 The CEO of Santos Ltd for the financial year ended 31 December 2015 was

1. d) Mr K Gallagher

7 The Audit and Risk Committee of Santos Ltd is responsible for

1. d) None of the above

8 Santos show in their 2015 annual report that their remuneration short term incentives (STI) included a number of Measures that related to

1. d) All of the above

9 Injury frequency measured by total recordable case frequency for Santos Ltd in the year ended 2015 was

2. a) 2.8%

10 Santos show in their 2015 annual report that they have a provision for restoration costs for

1. d) None of the above

SECTION B – (essay)

Introduction

The essay purports to discuss the highlights of Santos Ltd’s performance related to its Corporate Governance practices as disclosed in the 2015 annual report from the perspective of the employees and the shareholders of the company. The company has been ranked among the top 10% in Corporate Governance on the Dow Jones Sustainability Index, Oil and Gas industry sector implying excellent corporate governance, direction and management from the perspective of the stakeholders of the company. Corporate governance is normally regarded as a responsibility of the board of Directors and the committees appointed in this behalf. ("Corporate Governance - Definition, Scope And Benefits" 2016)

Discussion

The most important strength of corporate governance practice in a company is the intended balance between the economic individual and the societal social goals. The interaction between the shareholders and company’s management ought to be healthy and devoid of conflict. The stakeholders must clearly be able to reflect between the expected and actual performance. Santos Board Charter mentions shareholding at the stipulated percentage for the non-executive Directors for the interest alignment of the management with the stakeholders. Also, the Audit Committee was handed over more responsibilities and renamed the Audit & Risk Committee. ("Santos - We Have The Energy - Company Reporting" 2016)

Corporate Governance in Santos is aimed at transparency so as to protect the interest of the employees and shareholders so that shareholders exercise their rights and that the company recognizes their rights. The company initiated a superannuation ‘top up’ during the year enabling the guarantee payment during the tenure of the unpaid leave complimenting the existing program to reduce the gender inequality as well as the superannuation gap on unpaid parental leave. Santos won the 2015 Australian Women in Resources Alliance (“AWRA”) Award for the devising and adoption of this strategy. The company took the initiative to promote flexible working arrangements as well as recruitment of the Aboriginal and Torres Strait Islander participation by creating 740 opportunities across the sector and 6 recruitments as full time employees during the year. The Company also focuses on improving gender balance and pay equity with serious accountability to the CEO on progress as well as an annual and quarterly review by the board. The company was awarded with the Will Spenser Memorial Award for Innovation for its graduate program aiming to enhance the organisational capability, through three years of career rotations. ("Santos - We Have The Energy - Company Reporting" 2016)

Other important strengths of the corporate governance from the perspective of employees included the introduction of the Bias awareness tools into the leadership development programs which ensured a high return rate. The governance also ensured and took another step forward towards equal representation of men and women for in-house development programs. The annual pay equity review took a step forward during the year. The company was involved in 2015 as well with the Gender Equity Project (GEP), in alliance with the Melbourne Business School so as to promote awareness for gender balance. Santos also supported other industry initiatives during the year. During 2015, the Excellence in Diversity award from the South Australian Chamber of Mines and Energy was awarded in this respect. ("Santos - We Have The Energy - Company Reporting" 2016)

The company had already commenced the adoption of the 3rd edition of the ASX Principles in 2014 and reported accordingly for the 2015 financial year. In 2015, the Board consisted of 8 independent non executive and one executive director with diverse experience and skills. The Board review was conducted on an individual as well as group basis and was focused on Board succession, based on skills and experience as currently represented on the Board and the expected desirable composition of the board. ("Santos - We Have The Energy - Company Reporting" 2016)

The company follows the International Standard (ISO31000:2009) for its Risk Management activities so that the Company is able to consistently identify, analyse and evaluate the relevant business risks and effectively plan , manage and control these risks. The committee took an initiative during the year to hold the Directors’ EHS Awards for rewarding excellent performance and conducted a field trip to Gladstone and Roma. The various committees formed for effective corporate governance like the audit and risk committee, remuneration committee, environment, health, safety and sustainability committee discharged their respective functions effectively. ("Santos - We Have The Energy - Company Reporting" 2016)

In terms of the effect of the various corporate governance initiatives undertaken by the company during the year, the financial results were mixed. The dividends on ordinary shares increased from 30 cents since 2011-2013 to 35 cents in 2014 back to 30 cents in 2015. However, the earning per share fell from 55.3 cents in 2013 to (95.6) cents in 2014 and further deteriorated to (234.2) cents in 2015. The debt also increased from 32.5 to 44.3 % back to 38.1 % in the last three years for the company. The number of shareholders also increased consistently over the last 10 years while the number of employees fell over last year. However, the market capitalization for the company (the market price of the company shares) has fallen drastically lower than the market capitalization of 2009 at $ 11,721 million to $14,222 million in 2013 to $ 8,116 million in 2014 to $ 6,500 million in 2015. The reason for this may also be attributed to the falling revenue and net profit after tax for the years 2014 and 2015. ("Santos - We Have The Energy - Company Reporting" 2016)

The weaknesses of the corporate governance of Santos rest on the fact that the disclosures made are adequate to report on the effectiveness of Santos approach to corporate governance. Even though the components may have been addressed in the corporate governance statements but disclosures may lack the ideal expected standards of transparency, and fairness. The management of information may include conflict regarding disclosures on the systems and processes behind the governance protocols and may not facilitate a proactive corporate governance environment. Stakeholder pressure is a key driver to better corporate governance. ("Santos - We Have The Energy - Company Reporting" 2016)

Conclusion

The corporate governance ensured smooth and sustainable business in the ordinary course for Santos ensuring implementation of the corporate strategies to ensure corporate success and economic growth. The corporate governance also helped maintain stakeholder’s confidence such that the company was able to raise capital efficiently and effectively. Though, there was no perceived positive impact on the share price in spite of the inducement to the management and employees to achieve objectives that are consistent with the goals of shareholders and the company and minimization of risks and mismanagement. This was so in spite of the fact that Santos has been meeting the requirements of the Corporations Act 2001 as well as the Listing Rules prescribed by the ASX and the best practice as per the 2nd edition of the ASX Corporate Governance Council’s Principles and Recommendations. The systems and processes behind the governance protocols may not facilitate a proactive corporate governance environment. Stakeholder pressure is a key driver to better corporate governance. ("Santos - We Have The Energy - Company Reporting" 2016)

SECTION C – Short Answer/Research and Analysis

Question 1

Santos Ltd has addressed the various attributes of the “Agency Theory” in its annual report adequately in the remuneration report section wherein the key elements of the remuneration payable to the directors is in agreement with the agency theory principles which consists of a fixed package comprising the basic salary component, superannuation, applicable fringe benefits and variable incentives both short and long term in nature. The principles of agency theory logically fit into these components such that in case of conflict between the individual and company goals; the long term variable incentive would act as a motivating force to the directors to undermine their personal goals. ("Santos - We Have The Energy - Company Reporting" 2016) In case of a conflict between the owners and the management due to difference in risk perceptions; the incentives of short term nature and fixed component of the package would ensure that there is goal congruence between the owners and the management. ("Agency Theory Definition | Investopedia" 2003) Santos is aptly inculcating the principles of the agency theory to converge the interests of the agents and the owners. (Moody 2011)

Secondly, by vesting the equity share to the CEO and the other board members as a part of these incentives, the company is Santos is aptly inculcating the principles of the agency theory to converge the interests of the agents and the owners. Also, the perusal of the Santos annual report 2015 clearly indicated that the long term incentives are designed so as to induce the directors to take sustainable decisions so as to motivate convergence of the goals. The reward strategy also favors incentives resulting in sustainable share value hike rather than superficial hikes. ("Santos - We Have The Energy - Company Reporting" 2016)

Question 2

Introduction

Santos Ltd may not have poor sustainability practices. An ideal sustainability report of Santos and other similar corporate will normally include indicators in the Economic criteria like profits, return , revenue and other financial and accounting measures which can be represented in money terms. The Social criteria may indicate the company contribution to society in terms of the labour and human resource management, degree of compliance with the labour law in Australia and other countries of operations and quality compliance in term of customer satisfaction. The Environmental performance indicators may give an idea of the greenhouse gas emissions, degree of usage of water and other scarce resources and disclosure of major risks involved in the manufacturing process followed by the company. ("Making Sustainability Measurable | Pré Sustainability" 2016)

Discussion

Santos has devised a sustainability framework that measures 24 sustainability indicators (selected with careful review from 51 potential indicators), six indicators each in the areas of community, environment, people and economic. The framework complies with the Global Reporting Initiative (GRI) and the International Petroleum Industry Environmental Consultation Association. The company has been rewarded for 4 consecutive years for its sustainability performance, and is in the top 10% of the leading 2,500 companies as per the Dow Jones Sustainability Index which is one of the world’s leading ratings for corporate performance. The index measures the performance of these companies based on a comprehensive assessment of long-term economic, social and environmental factors

Other key elements of the sustainability framework of the company include an Annual materiality assessment for the identification and resolution of issues material to company and the stakeholders, an independent review for the verification of the assessment and disclosures in the annual report for disclosure of the financial performance and financial position of the company in a transparent manner clearly identifying the responsibility and accountability where required.

In alliance with the United Nations’ top two goals for developed nations to ensure affordable, and sustainable energy for all and urgent measures to control the adverse climate change impact, Santos aims to offer clean energy for the expansion of the developing economies in the natural gas and LNG production areas, with a goal to achieve substantial emission savings in electricity generation. The company identifies important stakeholders to the four broad aspects of its sustainability reporting as employees, government, indigenous communities, shareholders, customers, suppliers etc. and considers the potential impact on Santos’ strategy using the risk assessment framework, considering the likelihood and severity of an impact, and its criticality on the long term growth of the company. The company also upgraded their data collection and management system for the facilitation of user-friendly access of environmental data sets and reused 20 giga litres of produced water during the year. Santos installed 600 nest boxes along Injune to Curtis Island, to make up for the displacement of trees during the GLNG pipeline construction.

In 2015, the company was fined $34,155 for three infringement notices for non-compliance with conditions in the eastern Queensland operations. However, an overall picture reveals above average sustainability compliance. The company paid $183 million in royalties and taxes during the year and supported 1.6 million people to enjoy festivals and community events in 2015. One cannot ignore the various poor sustainability practices like the Moomba explosions in 2001 and 2004, Port Bonython groundwater contamination in 2008, Pillage CSG wastewater spill in 2011, Jackson oil spill and Uranium contamination of Carrabin aquifer in 2013. The company may have too many metrics for measuring sustainability and the policies ought to link outcomes clearly to sustainability. Santos also needs to communicate better to avoid being perceived as poor sustainable so as to engage key stakeholders, like aboriginal communities better.

However, the company supports the Outback Godwin Foundation for dinosaur discovery; Botanic Gardens of South Australia; the Santos Museum of Economic Botany and the South Australian Seed Conservation Centre, Nature Foundation SA and Potharvest, Australia’s leading food rescue charity. Santos has adopted an ideal big-picture approach by making an attempt to examine each phase of its product lifecycle and thereby attempt an application of green supply chain management practices using creative ways. Environmental sustainability is an important criterion for Santos given the nature of the business it is into so as to ensure that the people, planet and profit of the company have a positive impact on the environmental and other key aspects of sustainability. For example, better working conditions and environment protection are admirable goals, as well as excellent business strategies. In addition, public trust may be forthcoming for a green eco-friendly businesses leading to even better profits. (Usanfronline , 2016) The company has identified that Sustainability is much more than managing the triple bottom line and encompasses resilience, generation of economic value, healthy ecosystems and strong communities. This will enable the company to survive external shocks because of its intimate connection to the economic, social and environmental systems.

("Santos - We Have The Energy - Company Reporting" 2016)

Conclusion

Santos Ltd may not have poor sustainability practices. The key elements of the sustainability framework of the company ensure for sustainable disclosure of the financial performance and financial position of the company in a transparent manner clearly identifying the responsibility and accountability where required. The company has been rewarded for 4 consecutive years for its sustainability in the recent past. One cannot undermine the importance of the company’s effort to performance, and the fact that it is in the top 10% of the leading 2,500 companies as per the Dow Jones Sustainability Index. The company has adopted an ideal big-picture approach by making an attempt to examine each phase of its product lifecycle and thereby attempt an application of green supply chain management practices using creative ways. Environmental sustainability is an important criterion for Santos given the nature of the business it is into so as to ensure that the people, planet and profit of the company have a positive impact on the environmental and other key aspects of sustainability One cannot ignore the various poor sustainability practices. However, an overall picture reveals above average sustainability compliance.