What is meant by the term Corporate Governance?
Corporate governance is a framework in which there are set of rules that define the relationship between the management, board of directors, and stakeholders of a company and influence the operations of the company. Primarily, corporate governance entails issues which result from the separation of control and ownership (Adler & APEA Seminar, 2009).The founding tenets of corporate governance go far beyond the establishment of a clear relationship between managers and shareholders of an organization or a company.
The Australian Security Exchange (ASX)sets out specific principles and recommendations to regulate the aspects of corporate governance practices for the various listed entities on its chart.The council gives lots of recognition to the fact that the different entities could legitimately adopt various governance practices, based on a number of factors; corporate culture, history, complexity and size. Therefore, the Principles and Recommendations are not regarded as mandatory and do not pursue prescribing the corporate governance practices that a listed entity should adopt (Australian Securities Exchange, 2010).
Every entity listed in ASX are obliged to provide to ASX alongside its annual report a completed Appendix 4G, which stipulates the key to where the different disclosures suggested in the recommendations or as required under Listing Rule 4. 10.3.
An entity which has not included its corporate governance statement in its annual report is obliged to give a copy of its corporate governance statement to ASX at the same time when submitting the annual report. The corporate governance statement should be current as per the effective date indicated in that statement for the purpose of Listing Rule 4. 10.3. All these requirements apply to all the ASX listed entities irrespective their structure of legal form, whether they have their establishment in Australia or anywhere else, or whether they are managed externally or internally.
The Council encourages that the listed entities do not take a legalistic or pedantic approach to their corporate governance disclosures, whether it is their corporate governance statement under the Listing Rule 4. 10.3 or in their different disclosures under these Principles and Recommendations but rather to give an informative and holistic explanation of their respective corporate governance framework (Adler & APEA Seminar, 2009).
Santos’ Corporate Governance Framework
Santos exercises a good corporate governance from various perspectives of the company’s operations. First, the company conducts its appraisal and exploration program in the Gunnedah Basin to provide additional geological and reservoir data. The program was conducted on a sustainability grounds by ensuring engineering and geological re-evaluation to remap the CO2 and methane content, and net gas pay. The company has ensured that the contingent resource estimates are also adjusted to provide for the incorporation of such re-evaluation (Australian Securities Exchange, 2010).
Secondly, Santos has a highly structured leadership team who are tasked with the responsibility of running the affairs of the company at all levels. The team includes the lead Chief Executive Officer, Chief Financial Officer, Technical Engineering and Innovations Personnel, Group Executive Investor Relations all through to the least ranked individuals like supervisors who also perform a little bit of the management operations at the lowest ranks of the company. The company’s leadership provides a rational division of control and leadership within the context of the organization management’s platform.
Strengths of Corporate Governance at Santos Ltd
The Santos Corporation enjoys a great level of independence especially within its management. For instance, the company exercise high levels of its Directors’ Independence (South Australia, 2011). The Board undertakes the assessment of the independence of each Director of this corporation, putting into consideration the definition and aspects of independence as set out in the ASX Principles (Australian Securities Exchange, 2010). The company’s corporate governance provides a highly structured framework on which the Board assesses each Director’s Independence on an individual basis with respect the stipulated materiality guidelines and give focus on the assessment of the capacity of every Director’s to bring independence of judgment on the decisions of Board.
Secondly, Santos Limited’s framework for the Nomination Committee’s consideration on the Board composition, as stipulated in the Board Charter provides that the Directors should be chiefly on the basis of their capacity to contribute to the company’s development. This strongly heightens the company’s corporate governance as it ensures that the Board includes at least a given number of members with experience in the resources industries.
Weaknesses of Corporate Governance at Santos Ltd
Santos has faced technical challenges that have prompted the management team to opt for an outsourcing solution. This has posed a great challenge to the company as it strives to fully operationalize its business activities internally (South Australia, 2011). This has encompassed sourcing technologies to handle the complex technical and engineering challenges of unconventional and conventional drilling.
Additionally, the company has failed to meet satisfactory standards of socially and environmentally responsible energy company. The aspects of promoting sustainable future has inflicted critical debates in the operations of the company and thus it needs to understand the genuine needs and concerns of its key stakeholders and social communities.