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Governance Statement

Orica’s directors and management are committed to conducting the Company’s business ethically and in accordance with highest standards of corporate governance. This statement describes Orica’s approach to corporate governance.

 

The Board believes that Orica’s policies and practices comply with the Australian Securities Exchange (ASX) Corporate Governance Council Principles and Recommendations. The Company’s corporate governance policies can be viewed by clicking here.

 

Integrity of Reporting

The Company has controls in place that are designed to safeguard the Company’s interests and integrity of its reporting. These include accounting, financial reporting, safety, health and environment and other internal control policies and procedures. These controls and procedures are also directed at monitoring whether the Company complies with regulatory requirements and community standards.

 

At each reporting period, both the Managing Director and Executive Director Finance are required to state in writing to the Board that:

·         the Company’s financial statements and associated notes give a true and fair view of the Group’s financial position and performance and are in accordance with relevant accounting standards; and

·         these statements are founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

 

These assurances are based on a financial letter of assurance that cascades down through management and includes sign-off by business chief executive officers and business chief financial officers.

 

Comprehensive practices have been adopted to monitor:

·         that capital expenditure, revenue and expense commitments above a certain limit obtain prior Board approval;

·         financial exposures including the use of derivatives;

·         safety, health and environment standards and management systems to achieve high standards of performance and compliance; and

·         that business transactions are properly authorised and executed.

 

Internal audit has a mandate for reviewing and recommending improvements to controls, processes and procedures used by the Company across its corporate and business activities. The Company’s internal audit is managed by the Chief Risk Officer and supported by an independent external firm of accountants.

 

The Company’s financial statements are subject to an annual audit by an independent, professional auditor who also reviews the Company’s half year financial statements. The Board Audit and Risk Committee oversee this process on behalf of the Board.


Risk Identification and Management

Orica recognises the importance of risk management practices across all businesses and operations. Effective risk management highlights for management’s attention the risks of loss of value, reputation or opportunity and provides a framework to achieve and deliver the Company’s strategy.

 

Orica aims to maintain a consistent and effective organisation-wide approach to the management of risks by:

·         maintaining a Risk Management Framework that provides a transparent approach to managing risk across Orica;

·         understanding the environment that the Company is operating in;

·         clear communication and consultation across the business;

·         using a structured, systematic and explicit risk assessment process. The process requires four core components:

·         a comprehensive structured risk identification and assessment process that identifies material financial and non-financial business risks and develops an understanding of the risks;

·         a decision making process, based on the outcomes of the risk analysis, about the risks needing treatment and treatment priorities;

·         a risk register which records risks identified across businesses, operations, functions and projects; and

·         planned management actions to mitigate or eliminate the risk through the establishment of mitigation plans.

·         reviewing the risk profile and treatment plans on an ongoing basis to ensure that the risks reflect the prevailing circumstances; and

·         regular reporting to management and the Board of risks for the Company.

 

 

The Board establishes the policies for the oversight and management of material business risks and internal controls.  The design and implementation of the risk management and internal control systems to manage the Company’s material business risks is the responsibility of management.

 

The Board, through the Board Audit and Risk Committee, satisfies itself that management has developed and implemented a sound system of risk management and internal control.

 

The Managing Director and Executive Director Finance have provided a report to the Board that the risk management and internal control systems have been designed and implemented to manage the Company’s material business risks, and management has reported to the Board as to the effectiveness of the Company’s and consolidated entity’s management of its material business risks.

 

A separate role of Chief Risk Officer exists, reporting to the Executive Director Finance and with direct access to the Board Audit and Risk Committee, to manage the Company’s risk management and internal audit program.

 

One or more independent external firm of accountants assists the Chief Risk Officer in ensuring compliance with internal controls and risk management programs by reviewing the effectiveness of the risk management and internal control systems, and periodically provides assistance and input when undertaking risk assessments.

 

Orica recognises that events do not always turn out as planned and when this happens seeks to learn from these and continuously improve its performance.

The Board Role

The Board of Orica Limited sees its primary role as the protection and enhancement of long-term shareholder value. The Board is accountable to shareholders for the performance of the Company. It oversees and monitors the business and affairs of the Company on behalf of shareholders and is responsible for the Company’s overall corporate governance.

 

The Board responsibilities include appointing the Managing Director; succession planning; approving major strategic plans; monitoring the integrity and consistency of management’s control of risk; agreeing business plans and budgets; approving major capital expenditure, acquisitions and divestments; approving funding plans, capital raisings and setting dividends; agreeing corporate goals and reviewing performance against approved plans; and taking all reasonable steps to ensure that reporting to shareholders and other stakeholders is true and fair.

 

Responsibility for managing, directing and promoting the profitable operation and development of the Company, consistent with the primary objective of enhancing long-term shareholder value, is delegated to the Managing Director, who is accountable to the Board.

 

The Board recognises the respective roles and responsibilities of the Board and management in the charters prepared for the Board, Managing Director and Chairman and in the Company’s reserved authorities approved by the Board.

 

Composition

The Board considers that its structure, size, focus, experience and use of committees enables it to operate effectively and add value to the Company.

 

Orica maintains a majority of non-executive directors on its Board and separates the role of Chairman and Managing Director.

 

The Board currently comprises ten directors: eight independent nonexecutive directors, including the

Chairman and two executive directors, being the Managing Director and the Executive Director Finance. Details of the directors as at the date of this report, including their qualifications and experience, are set out on page 12 of the 2011 Annual Report.

 

The composition of the Board seeks to achieve the necessary competences as well as a diversity of perspective through a range of experience, skills, knowledge and backgrounds. In reviewing the Board’s composition and in assessing nominations for appointment as non-executive directors, the Board uses external professional advice as well as its own resources to identify candidates for appointment as directors.

 

The two most recently appointed non-executive directors have extensive international business experience and are domiciled outside Australia. The Board has had continued female representation since 1998. The Board is committed to an ongoing program of Board renewal to ensure refreshed and diverse views continue to be brought to bear on the affairs of the Company.

 

Independence

The Board recognises the special responsibility of non-executive directors for monitoring executive management and the importance of independent views. The Chairman and all non-executive directors are independent of executive management and free of any business or other relationship that could materially interfere with the exercise of unfettered and independent judgment or compromise their ability to act in the best interests of the Company. The independence of each director is considered on a case by case basis from the perspective of both the Company and the director. Materiality is assessed by reference to each director’s individual circumstances, rather than by applying general materiality thresholds. Each director is obliged to immediately inform the Company of any fact or circumstance, which may affect the director’s independence.

 

If a significant conflict of interest arises, the director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. Directors must keep the Board advised, on an ongoing basis, of any interests that could potentially conflict with those of the Company.

 

Selection and Appointment of Directors

The directors are conscious of the need for members to possess the skill and experience required to fulfil the obligations of the Board. In considering membership of the Board, directors take into account the appropriate characteristics needed to maximise effectiveness and the blend of skills, knowledge and experience necessary for the present and future needs of the Company.

 

Nominations for appointment to the Board are considered by the Corporate Governance and Nominations Committee and approved by the Board as a whole. Non-executive directors are subject to shareholder re-election by rotation at least every three years, and normally do not serve more than 10 years.

 

All directors must obtain the Chairman’s prior approval before accepting directorships or other significant appointments. An orientation program is offered to new directors including a program of site visits and briefings on Orica’s businesses and operations and key policies and controls.


Board Meetings

The Board has seven scheduled meetings per year, of which four are two days duration and one is three days. Additional meetings are held as the business of the Company may require. Directors receive comprehensive Board papers in advance of the Board meetings. Regular Board meetings are held to review business plans, performance and strategic issues, in addition to a dedicated meeting to comprehensively review Company strategy. Directors receive regular exposure to Orica’s businesses and the major regulatory controls relevant to the Company. In addition directors undertake site visits to a range of Orica operations to meet with employees, customers and other stakeholders.

 

In those months that Board meetings are not scheduled, directors receive financial and safety, health and environment reports and an update from the Managing Director on the performance of the Company and any issues that have arisen since the last Board meeting. In conjunction with or in addition to scheduled Board meetings, the non-executive directors meet together without the presence of management and the executive directors to discuss Company matters.

 

To aid the effectiveness of Board meetings each scheduled Board meeting is subject to a critical review evaluating the standard of information and material presented to the Board and the quality of the contribution made by directors to the consideration of issues on the agenda.

 

Board and Executive Performance

Orica has in place a range of formal processes to evaluate the performance of the Board, Board Committees and executives. These processes can be viewed by clicking here.

 

At the conclusion of the year, the Board carries out a review of its performance. Directors standing for re-election are subject to a performance review conducted by the Board. In addition, each Board Committee reviews its effectiveness. An independent review of Board, Committee and director performance is undertaken periodically. During the year the annual Board and committee reviews were conducted in respect of the previous financial year in accordance with the process set out above. The non-executive directors are responsible for regularly evaluating the performance of the Managing Director. The evaluation is based on specific criteria, including the Company’s business performance, short- and long-term strategic objectives and the achievement of personal objectives agreed annually with the Managing Director.

 

All Orica executives are subject to an annual performance review. The review involves an executive being evaluated by their immediate superior by reference to their specific performance agreement for the year, including the completion of key performance indicators and contributions to specific business and Company plans. All Orica executives, including the Managing Director, have had their performance evaluated during the year in accordance with the process set out above.

 

Access to Information and Independent Advice

Each director has the right of access to all relevant Company information and to the Company’s executives and, subject to prior consultation with the Chairman or with the approval of a majority of the Board, may seek independent professional advice at the Company’s expense.

 

Pursuant to a deed executed by the Company and each director, a director also has the right to have access to all documents which have been presented to meetings or made available whilst in office, or made available in relation to their position as director for a term of ten years after ceasing to be a director or such longer period as is necessary to determine relevant legal proceedings that commenced during this term.


Shareholdings of Directors and Employees

The Board has approved guidelines for dealing in securities. Directors and employees must not, directly or indirectly, buy or sell the shares or other securities of Orica when in possession of price sensitive information which is not publicly available, which could materially affect the value of those securities. Subject to this restriction, directors and employees may buy or sell Orica shares during the following trading windows:

·         in the 28 day period commencing one day after the announcement of the Orica half-year results; and

·         in the period commencing one day after the announcement of the full-year results and ending 31 January.

 

Directors and employees must receive clearance from the Chairman or Company Secretary for any proposed dealing in Orica shares outside of a trading window.

 

In addition to observing the procedures set out above, directors and group executive members are prohibited from trading in Orica securities during the following periods:

·         between 1 April and the opening of the next “window” (which will be one day after announcement of Orica’s half-yearly results); and

·         between 1 October and the opening of the next “window” (which will be one day after announcement of Orica’s annual results).

Clearance will not be granted during these blackout periods.

 

Directors and employees must not deal in Orica securities on a short-term basis or enter into short-term derivative arrangements in any circumstances.

 

Directors and employees may deal in securities via a margin loan arrangement in relation to their Orica securities where:

·         the Orica securities are not held subject to restrictions under an Orica employee, executive or director plan;

·         the margin lending arrangement does not, of itself, trigger a transfer in the legal or beneficial ownership of the underlying securities;

·         the arrangement is entered into during a trading window; and

·         the Company Secretary is notified prior to the margin lending arrangement being entered into.

 

Directors and employees may create or enter into a derivative arrangement in relation to Orica securities where:

·         the Orica securities are not held subject to restrictions under an Orica employee, executive or director plan;

·         the derivative arrangement would not be considered a short-term derivative arrangement; and

·         the Company Secretary is notified prior to the derivative arrangement being entered into.

 

Any transaction conducted by directors in Orica securities is notified to the ASX. Each director has entered into an agreement with the Company to provide information to allow the Company to notify the ASX of any transaction within five business days. The current shareholdings are shown in Note 37 of the 2011 Annual Report.

 

Directors’ Fees and Executive Remuneration

The remuneration report on page 28 of the 2011 Annual Report sets out details regarding the Company’s remuneration policy, fees paid to directors for the past financial year, and specific details of executive remuneration.

 

Board Committees

The Board has charters for each of its committees. Charters are reviewed annually and objectives set for each committee. The committees report back to the Board and do not have formal delegation of decision making authority. The Committee Chairmen report on the committees as a standing item of the Board agenda. Additionally any director is welcome to attend any committee, and minutes of the committees are circulated to the Board. The charters may be viewed by clicking here.

 

Board Audit and Risk Committee

The Board Audit and Risk Committee comprises three independent non-executive directors with relevant experience and financial literacy. The Chairman of the Board Audit and Risk Committee is separate from the Chairman of the Board. Nora Scheinkestel is the current Chairman of the Board Audit and Risk Committee and the other members are Garry Hounsell and Michael Tilley. The Chairman, Managing Director and Executive Director Finance attend ex officio.

 

The committee is charged with assessing the adequacy of the Company’s financial and operating controls, oversight of risk management systems and compliance with legal requirements and the Code of Conduct affecting the Company. The committee meets at least four times per year.

 

Details of directors’ attendance at meetings of the Board Audit and Risk Committee are set out in the Directors’ Report on  page 25 of the 2011 Annual Report.

 

The committee assesses and reviews external and internal audits, risk reviews and any material issues arising from these audits or reviews. It assesses and reviews the accounting policies and practices of the group as an integral part of reviewing the half year and full year accounts for recommendation to the Board. It also makes recommendations to the Board regarding the appointment of external auditors and the level of their fees and provides a facility, if necessary, to convey any concerns raised by the internal and external auditors independent of management influence. The external and internal auditors attend committee meetings and meet privately with the committee at least twice per year.

 

The Board Audit and Risk Committee monitors the level of any other services provided by the external auditor to ensure auditor independence is maintained. Restrictions are placed on other services performed by the external auditor and projects outside the scope of the approved audit program require the approval of the Chairman of the Board Audit and Risk committee. Any other services with a value of greater than $20,000 must be submitted to the committee for approval in advance of the work being undertaken. The committee is asked to ratify any other services less than $20,000 in value. The fees paid to the Company’s external auditors for audit and other services are set out in Note 31 of the 2011 Annual Report.

 

Human Resources and Compensation Committee

The Human Resources and Compensation Committee comprises Russell Caplan (Chairman), Garry Hounsell and Nora Scheinkestel. The Board Chairman attends ex officio and the Managing Director and Executive Director Finance attend by invitation. Details of directors’ attendance at meetings of the Human Resources and Compensation Committee are set out in the Directors’ Report on page 25 of the 2011 Annual Report.

 

The committee assists the Board in the effective discharge of its responsibilities for the oversight of management process and performance in the provision of human resources necessary to effectively execute the Company’s strategy over the long term. The committee recommends to the Board on the Company’s recruitment, organisational and people development, retention, employee relations, diversity strategy and workplace capability, including the capability and diversity of candidates considered for succession to Managing Director and group executive positions. Remuneration arrangements and termination payments for the Managing Director, executive directors and executives reporting to the Managing Director, including short-term incentive payments, performance targets and bonus payments, remain matters for all non-executive directors.

 

Remuneration is set by reference to independent data, external professional advice, the Company’s circumstances and the requirement to attract and retain high calibre management.

 

Corporate Governance and Nominations Committee

The Corporate Governance and Nominations Committee comprises all directors. The committee monitors developments in corporate governance practices and evaluates the Company’s policies and practices in response to changing external and internal factors and the ethical guidelines affecting the Company. This committee also deals with the nomination of directors and considers the most appropriate processes for review of the Board’s composition and performance.

 

The committee evaluates the composition of the Board and the annual program of matters considered by the Board to determine whether the appropriate mix of skills and experience exists to enable the Board to discharge its responsibilities to shareholders. Details of directors’ attendance at meetings of the Corporate Governance and Nominations Committee are set out in the Directors’ Report on page 25 of the 2011 Annual Report.

 

Safety, Health and Environment Committee

The Safety, Health and Environment (SH&E) Committee comprises Michael Tilley (Chairman), Michael Beckett, Ian Cockerill and Lim Chee Onn. The Board Chairman, Managing Director and Executive Director Finance attend ex officio. The committee assists the Board in the effective discharge of its responsibilities in relation to safety, health and environmental matters arising out of activities within the Company as they affect employees, contractors, customers, visitors and the communities in which it operates. The committee also reviews the Company’s compliance with environment policy and legislation and reviews safety, health and environmental objectives, targets and due diligence processes adopted by the Company.

 

A Letter of Assurance for SH&E is written by the Managing Director and presented to the SH&E Committee on an annual basis after a thorough process of assessment by each business.

 

Details of directors’ attendance at meetings of the SH&E Committee are set out in the Directors’ Report on page 25 of the 2011 Annual Report.

 

Executive and Special Committees

In addition, there is a standing Executive Committee comprising the Chairman, the Managing Director, the Executive Director Finance and any other non-executive director who is available (but at least one), which is convened as required, to deal with matters that need to be dealt with between Board meetings. From time to time special committees may be formed on an as-needs basis to deal with specific matters.


Continuous Disclosure and Keeping Shareholders Informed

The Company seeks to provide relevant and timely information to its shareholders and is committed to fulfilling its obligations to the broader market for continuous disclosure and enabling equal access to material information about the Company.

 

The Board has approved a continuous disclosure policy so that the procedures for identifying and disclosing material and price sensitive information in accordance with the Corporations Act and ASX Listing Rules are clearly articulated. This policy sets out the obligations of employees and guidelines relating to the type of information that must be disclosed and may be viewed by clicking here.

 

Information provided to and discussions with analysts are subject to the continuous disclosure policy. Material information must not be selectively disclosed prior to being announced to the ASX. The Company Secretary is the person responsible for communication with the ASX.

 

The www.orica.com website contains copies of the Annual Report and Business Overview, ASX announcements, investor relations publications, briefings and presentations given by executives, (including webcasts), plus links to information on the Company’s products and services. Shareholders may elect to receive electronic notification of releases of information by the Company and receive their notice of meeting and proxy form by email. Electronic submission of proxy appointments and power of attorney are also available to shareholders. Page 134 of the 2011 Annual Report contains details of how information provided to shareholders may be obtained.

 

The Board encourages full participation of shareholders at the Annual General Meeting. Important issues are presented to the shareholders as individual resolutions. The external auditor attends annual general meetings to answer any questions concerning the audit and the content of the auditor’s report.

 

Code of Conduct

Orica acknowledges the need for directors, executives, employees and contractors to observe the highest ethical standards of corporate and business behaviour. Orica has adopted a Code of Conduct (entitled: Your Guide To How We Do Business) which applies to all countries in which Orica operates. The Code of Conduct sets out the standards of business conduct required of all employees and contractors of the Company. It is aimed at ensuring the Company maintains its good reputation and that its business is conducted with integrity and in an environment of openness.

 

The Code of Conduct provides clear direction and guidance with regard to expected standards of behaviour and conduct with respect to (amongst other things):

·         safety, health and environment;

·         protection of information and the Company’s resources;

·         competition law and trade practices compliance;

·         privacy;

·         conflict of interest;

·         insider trading and dealing in securities;

·         equal employment opportunity and harassment;

·         gifts and benefits;

·         prevention of bribery and facilitation payments; and

·         prevention of, and dealing with, fraud.

 

The Code of Conduct is periodically reviewed and approved by the Corporate Governance and Nominations Committee and processes are in place to promote and communicate the Code of Conduct and relevant Company policies and procedures. An Integrity Hotline (the “Speak Up” line) and associated website and email facility have been established to enable employees to report (on an anonymous basis) breaches of the Code of Conduct. If a report is made, it is escalated as appropriate for investigation and action.

 

The Code of Conduct is overseen by the Orica Business Conduct Committee comprising the Executive Director Finance, General Manager Human Resources and Communications, the Group General Counsel and the Chief Risk Officer, who review compliance with the Code of Conduct over the relevant reporting period and make recommendations to the Corporate Governance and Nominations Committee to address any systemic issues.

 

The Code of Conduct has been translated into Orica’s family of languages and may be viewed by clicking here.

 

Diversity

The Orica Board approved a formal diversity strategy in 2009 as a critical component of the Company’s global growth strategy.

 

There are four key pillars underpinning the diversity strategy:

·         Gender – increasing the number of women in Orica at all levels and specifically at Board, executive and graduate level.

·         Internationalisation – increasing the cultural diversity of executives in management and leadership roles to reflect our growing global business.

·         Leadership – developing leaders with a global mindset and the ability to lead diverse teams.

·         Culture – fostering an inclusive culture that supports diversity of perspective.

 

Orica has an employee population of over 14,000 and approximately 18 percent of the population are women. The representation of women in senior roles has increased from a low of 5 percent in 2009 to 9 percent in 2010 and 12 percent in 2011. The Board has set improvement targets and the results to date reflect targets set by the Board. The Company has an aspiration to increase the percentage of women in senior management roles to greater than 20 percent.

 

At the graduate level Orica has close to one hundred graduates working as part of a development program on assignments globally. The percentage of female graduates has increased from 24 percent in 2010 to 29 percent in 2011. The Company’s aim is to maintain a 30 percent minimum number of female graduates. 

 

A range of partnerships and programs has been designed and implemented to ensure that Orica can attract, engage, develop and reward a diverse range of talented people from around the world. The percentage of international employees in management and leadership roles has increased from 40 percent in 2009 to 57 percent in 2011 meeting targets set by the Board.

 

Senior executives in Orica participate in a program to develop leadership capability including; global mindset, leading diverse teams and fostering diversity of perspective. In addition a series of complementary programs are run that ensure shared values across our global population.

 

Employee engagement and enablement is measured annually through an employee survey which goes to all our employees and is translated into 20 languages. The response rate has been very strong and reached 86 percent in 2011. Employee engagement has increased year on year and indicates positive progress towards creating a more inclusive and global culture. A particular area of focus this year has been the introduction of a series of targeted initiatives in several countries that form part of the Company’s three year Global Indigenous People strategy.

 

Through applying the same approach to achieving diversity outcomes as we would to any other business situation (i.e. plan, implement, measure, improve) we have made steady progress and achieved some positive results. The approach of tightly aligning the diversity strategy with the business strategy and seeking greater diversity of perspective will enable Orica to positively impact the quality of customer outcomes and long-term sustainability of the business.

 

Donations

The equivalent of dividends payable on a shareholding of approximately 0.5 percent of the Company’s ordinary issued capital is allocated for donation at the direction of the Corporate Governance and Nominations Committee. From the amount allocated for corporate donations, Orica matches employee “Dare to Share” contributions. The amount remaining is distributed to selected community and charitable organisations in accordance with published criteria. In addition, Orica’s operations contribute to their local communities with donations, sponsorship and practical support.

 

Orica does not make political donations.

 

Safety, Health & Environment

Orica considers the successful management of safety, health and environment issues as vital for its employees, customers, communities and business success. At each Board meeting the directors receive a report on current safety, health and environment issues and performance in the group.  The Board receives more detailed presentations on safety, health and environment every 6 months. A separate Board SH&E Committee reviews and monitors environmental issues at Board level.

 

For more in-depth information on the Company’s SH&E and Sustainability commitments in 2011, visit the Orica website: www.orica.com/sustainability.

 

The Sustainability section of this Annual Report details the actions being undertaken by the company to improve its environmental performance.

 

 

 

 
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