A case of Orocobre’s Limited

Introduction

The report presents complete analysis of corporate governance and ethical outlook of Orocobre
limited. It summarizes the voluntary disclosures of an Orocobre limited, analysis of corporate
governance, and application of theory in the board orientation. It includes brief summary of the
company, summary on corporate governance in order to comprehend the knowledge on the
composition of the board, report from the CEO and Chairman and remuneration process of the
directors and executives. The report also explains implementation of Agency theory for Board
orientation and implementation of legitimacy theory in order to address communication of
Orocobre limited.

Summary of the company:

Orocobre limited is one of the ASX listed company of Australia related to mining industry. The
company is located in Brisbane and is mainly focused on Lithium Carbonate and Boron. It
supplies high quality lithium and high grade for global battery and technical markets. It is also
the established producer of boron. The 1company has continuously focused on lowering cost and
maximizing lithium chemical operations through strategic implementation in the company. The
company its business scattered in Australia and in Argentina. The mining industry of Australia
has been regarded as the well-established sectors. It contribute 7% annually to the total GDP of
the country. The country’s mining industry was strengthen after the contribution of significant
investment in the construction purpose in between the year 2005 to 2013.

In the year 2007, Orocobre has been registered as an ASX listed company. It has been involved
in many projects throughout the years like Salar de Olaroz, Borax Argentina, Cauchari, Salinas
garndes, etc. Salar de Olaroz is a salt lake situated in jujuy, Argentina. Olaroz project has a large
potential of 6.5 million tonnes of lithium. The total design capacity of olaroz project is 17,500
tonnes per annum. Borax Argentina has been regarded as the important deposits globally.

(Write about company mission and vision connecting in the same

paragraph without making separate heading).Mission and Vision of the
company: To become the leading sustainable supplier of high value, high grade lithium all over
the world. Along with lithium, company has its mission to be the supplier of boron and other
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https://www.orocobre.com/news/mdocs-posts/annual-report-2018/?mdocs-file=4693&mdocs-url=false

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mineral and chemical products at minimized cost throughout the world. It has its mission to be
the leading supplier in relation to the mining resources around the world.

Code of Ethics:

Company applies ethical principles and values through implication of code of professional
practice. Orocobres second year sustainability report explains that company has contributed in
maintaining environmental sustainability, growth of the local development, social responsibility,
etc. It has emphasized in minimizing unethical practices and has contributed in the development
of ethical practices. Company maintains its employees and team members to comply with the
laws and subject to the adopted corporate ethical policy.

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Code of conduct:

Company is responsible to each employee, society, individuals, customers, etc. It has to maintain
high standard ethical values and integrity, to act for the best interest of the company. esponsible
to maintain confidential information, protect assets of the company, deal fairly and honestly,
discloses any conflicts, etc. The code of conduct has motivated and encouraged other employees,
board and management team to comply with the laws and regulation.

The whole paragraph in red colour must be made into one complete
paragraph mentioning about what industry it belong and what rules and
compliance need to be followed as being mining industry. And what are
the efforts being made by Ocrobore limited for surviving in the mining
industry.
file:///C:/Users/Visitor/Downloads/Documents/
Corporate_Governance_Corporate_Ethics_Policy.pdf

file:///C:/Users/Visitor/Downloads/Documents/
Corporate_Governance_Corporate_Code_Conduct.pdf
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https://www.orocobre.com/news/mdocs-posts/corporate-code-of-conduct/?mdocs-file=513&mdocs-
url=false

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Recent History

After that write about the recent happened event of this company talking about
their increase and decrease in share price , new project if any they planning to do
or doing and anything released in media by the company senior or any investment
planning to do.

Summary of Corporate governance at Orocobre Limited

1. Composition of the Board:

file:///C:/Users/Visitor/Downloads/Documents/ORE%202018%20Corporate
%20Governance%20Statement_web.pdf Write about the board composition and
corporate governance of this company from this link

According to Fiscal year 2018, the Board comprises of seven Non-executive directors and three
non-independent directors. Orocobre Limited’s chairman of the Board is also an independent
director as according to the presented annual report. The report explains that the majority of the
members to be independent non-executive directors. It has been regarded as benefit to the
company as it reduces the annual agency cost that arises from conflicts of interest in between the
shareholders and managers. The table shows the list of both independent and non-independent
director of Orocobre Limited.

Names Position Independent non-

executive director
and non-independent
director
Robert Hubbard Chairman Independent Non-
executive director
Richard P. Seville CEO & Managing Non-independent

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 Director director
Federico Nicholson Non-Executive Independent Non-
director executive director
Fernando Oris de Roa Non-Executive Independent Non-
Director executive director
Courtney pratt Non-Executive Independent Non-
Director executive director
John W. Gibson Non-Executive Independent Non-
Director executive director
Leanne Heywood Non-Executive Independent Non-
Director executive director
Masaharu katayama Non-Executive Independent Non-
Director executive director
Neil Kaplan CEO & Joint Non-independent
company secretary director
Rick Anthon Company secretary Non-independent
director
No need to show the table like this . just mentioned number of independent amd non-independent
director. Can write the name of CEO and Chairman.

The annual report 2018 has provided complete information that is required to the investors and
the internal ort external stakeholders. The financial statement has specified the detailed
information about company’s performance and the factors that needs to be considered by the
company like cost and capital management.

2. The reports from the Chairperson and the CEO

Report from the Chairperson:

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 The chairman of the company explains that company has been able to earn strong
financial, operational and strategic position in the fiscal year 2018 and has become the
most sustainable global supplier of the company. Company’s sales has been increased by
24% through sale of Jujuy S.A. which is the operator of Olaroz lithium. Company’s
annual net profit after tax is US $1.9 million in FY 2017 which was impacted by non-
cash foreign currency losses, additional deferred tax expense, etc. Balance sheet of the
company shows strong financial position with available cash for US $316.7 million. In
the year, Toyota Tsusho Corporation has been considered as a registered 15%
shareholder of the company. Expansion of Olaroz project and collection of 25,000 tons
per annum for early work shows that company is progressing throughout the years. Other
Borax project, SDJ has continued to strengthen the growth of the company. Company has
been able to provide appropriate support to the environmental, governance and social
sector of integral performance. The company has employed around 285 people from local
communities. Company’s sustainability report has explained about company’s
performance in maintaining transparency, empowerment, education, health, production,
etc. Chairman lastly said that Orocobres will continue to grow and expand its business
with strategic application of low-cost, high margin lithium operations.

Report from the CEO:

CEO’s report explains about the remuneration arrangements, responsibilities and
arrangements, termination, etc. CEO has taken overall responsibility to manage the
company’s performance.

3. Remuneration report

file:///C:/Users/Visitor/Downloads/Documents/Corporate_Governance_Remuneration_
Committee_Charter.pdf

Orocobre Limited remuneration framework for the FY 2018 shows detailed report on the forms
of remuneration paid to the directors. The executive remuneration consist of fixed remuneration
and other incentives. The company has facilitated with the short-term and long-term incentives
along with discretionary bonus in order to satisfy its KMPs. Fixed remuneration that is provided

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to the employees includes base salary, contribution, and other fringe benefits like motor vehicle
allowances, insurance, and other rewards. According to KMP remuneration, the CEO, CFO,
CDM and COO has received increased fixed remuneration of 7%, 6%, 9% and 12% respectively.

3 Board orientation ( Identify which theories of corporate governance best explain the
governance of a particular corporation by examining relevant aspects of a boards
communications.)

Answering step

First give the short definition of corporate governance, then talk about the Orocobre
limited board composition and few about how the board members performance are
evaluated from the given link .
file:///C:/Users/Visitor/Downloads/Documents/10.%20Process%20for%20Performance
%20Evaluation.pdf

Then write like this ; After analyzing the board composition of Orocobre limited from the
annual report 2018, among the various theory of corporate governance Agency theory will
best explain the Orocobre limited. Board composition refers to the expected reliance on
independent (external) directors vs. the proportion of non-independent (internal) directors.
A board that follows an agency theory approach will have a majority of the board as
independent directors appointed by powerful shareholders (Paraphrase the para in orange
colour)

Then paraphrase whole under given to define agency theory

Psaros (2009) concludes his chapter with a summary of several theoretical corporate
governance frameworks. Possibly, the most predominant theoretical perspective adopted
within the corporate governance literature is agency theory. This theory refers to the
separation of ownership and management and the assignment of management of the firm
from the owners (principals) to managers (agents). This separation leads to what are
referred to as agency costs—those costs that arise due to the agency relationship. Managers

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(agents) are assumed to be self-interested wealth maximisers which can lead to managers
undertaking activities in their own, rather than the shareholders (principals) interests. It is
said that having corporate governance requirements in place can help reduce these agency
costs through increased transparency, accountability and further controlling or limiting
the actions of the agents. An “agency board” can be identified by the emphasis its annual
report makes on senior executive remuneration schemes within the Remuneration Report.
The board is strongly aware of the what is important for their shareholders . .

Board focus refers to the priorities of the board. An agency board will prioritise the
objectives given to them by their shareholders (usually growth, profits and dividends),

Key communications identify the forms of communications that different boards will
prioritise. An agency board will focus upon the financial statements and the remuneration
report to show how managers are bound to the shareholders’ objectives

Then connect the theory giving reason why the agency theory best explain the Orocobre
limited.

Orocobre limited comprises of majority of independent non-executive directors with seven

independent and three non-independent directors in the board. The majority of independent non-
executive directors shows that directors are not attract5ed to the material interest in the firm. .

It explains that board follows agency theory approach as there is separation in the owner and
managers of the firm. 3One of the article related to agency theory has explained that, the theory is
used to resolve the issue or problems arising between the managers and the shareholders. The
theory helps the company to identify the major problems that may arise in between the manager
and the shareholders of the company. Maximization of personal income by the managers from
the expense of the shareholders or owners, attitude difference seen between the manager and the
shareholders in relation to the risk faced by the company and the issue seen in the management

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https://journals.sagepub.com/doi/pdf/10.1177/0974686217701467

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tendency where managers focus on the short-term goals, etc. are some of the major issues
analyzed by the agency theory.

In case of Orocobre limited, company has dealt with such problems and issues. Company has
minimized agency cost arising due to agency relationship and to protect interest of the
stakeholders. Orocobre board has acted appropriately to provide adequate interest of the
company and of the shareholders. Company has continuously worked in maximizing the profit of
the company and generating higher return to its stakeholders. The benefits are enjoyed by the
company in the form of retained earnings, earning per share, net profit, etc. Company has
implemented strategic method of rewarding the employee, team and even board members in case
of making increased benefit to the company.

Orocobre limited has prepared its financial statements under Corporations Act 2001 by
addressing requirements prescribed under section 286. The accounts are prepared fairly and
transparently for the accounting year 2018. The accounting reports also presents notes to
accounts with complete discussion on the accounting matters, disclosures, detailed remuneration
report, directors’ report, etc. The remuneration report has also explained the targeted
remuneration of the directors. The managing directors have assumed annual fixed remuneration
of 41% for the fiscal year 2018. The Financial statement has shown the financial health of the
company which has provided support to the investors and shareholders. The investors have got
better knowledge while making financial decisions. Also financial statements has helped in
making comparisons between different companies. The shareholders have got better information
on the expected return from the company, current performance of the company, etc.

Along with agency theory, company can also implement the managerial branch of stakeholder
theory which also explains about board orientation. The application of both the theories will be
helpful to the investors in order to know the expectation of the stakeholders.

Orocobre’s Limited has a powerful internal and external stakeholders. The company has
managed its suppliers appropriately that it has many mining manufacturing projects like Salar de
Olaroz, Borax Argentina, Salinas Grandes, Cauchari, etc. The partnership with Toyota Tsusho
Corporation which has been considered as the largest Greenfield lithium project in the period of
20 years along with Salar de Olaroz with total projected production of 17,500 tons per annum,
the project has helped the company to produce low cost battery grade lithium carbonate with

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high margin. The factors that needs to be focused are decreasing the expenses of the company
and enlarging profit of the company. Government bodies is also the stakeholders of the company.
The company is working effectively in order to mitigate with the governmental laws and
regulations.

As company operates with large capital and expenditure, banks and financial institutions are
regarded as another stakeholders for the company. Company’s financial statement shows the
financial position clarifying on the ability of the company to repay debt.

The annual report 2018 has included company’s major projects and their impact throughout the
year. Olaroz has increased production with improving fundamentals of the company. Company
has also been able to make world class brine resources which helps in supporting multiple phases
of expansion. The analysis of income statement of the company shows, decreased net profit in
the fiscal year 2018 than the year 2017. Company’s net profit is $1,920 in 2018 and $19,416 in
the year 2017. Due to increased expenses in the year 2018, company’s net profit has been
decreased than the previous year. Total revenue of the company in 2018 is 17,199 and in 2017 is
17,199. Earnings per share in 2018 is 0.83 whereas in 2017, it was 9.19. In financial position of
the orocobre, it has been shown that the cash and cash equivalent of the company is $316,690 in
2018 and $51,632 in 2017. Company has an increased current ratio of $375,645 in the year
20148 than in the year 2017 of $91,570.

The overall analysis of the financial statement shows that the company has faced slight loss due
to incvtreased expenses and the increased investment in the new projects. Though it is a recent
loss for the company, the report shows future benefit to the stakeholders and positive interest of
the investors.

The agency theory has supported to the company in order to rectify the problems between
shareholder and managers and has helped in minimizing problems seen in the company.
As company has faced short-term Net loss in the fiscal year 2018, the agency theory
explains that the loss is due to investment in the new projects made by the company. The
theory has also helped in addressing incompatible levels of risk that arise due to
intolerance between the managers and shareholders. In terms of remuneration, the
company has reviewed at risk variable compensation of the KMPs by reducing STI and
has increased LTI in the same percentage. The objective of shifting higher value for LTI

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 is to enhance interest of the shareholders and provide staff retention. Hence, the
application of agency theory to the Orocobre limited has been regarded as the best suited
for the company.

4. Interpretation of company communications using Legitimacy Theory

Legitimacy theory explains that the company must have ensured its operation with application of
norms of the respective society. The generalized definition of legitimacy assumes application of
appropriate actions by the entity in order to fulfill the desires of the society. It explains
company’s liability to construct beliefs, norms and values of the society. In case society is
concerned with values and symbols of legitimacy, then the board needs to disclose about actions
taken in order to the society. The company’s public disclosure can be made through annual
report or through website and similar other social media platforms. Some companies applies
strategic disclosure where the board discloses further information then the mandatory
information. The theory is closely associated with the stakeholders theory where the company
makes some disclosure that would help the stakeholders predict about board’s decision. Society
deals with those companies who fo0llow legitimate theory that allows them to understand the
capital and resources flowing towards the company. 4The theory is very powerful and most
important for the board of directors to understand the society and the internal functioning of the
organization. 5The legitimacy theory is very important in order to measure sustainability of the
company. Here, media, articles helps the company to drive the legitimacy of the company and to
protect the image of the organization. The stakeholders of the company are also responsible to
protect the image of the company. 6The legitimacy theory is one of the most discussed theory
that explains about voluntary social and environmental disclosures in the corporate
communication. The theory has helped the company to repair, maintain and gain their legitimacy
through use of social and environmental reporting. Company has maintained its legitimate act in
order to manage social and environmental activities. Company has taken sustainability initiative
goals taken by the UN, SDGs, which has supported the company appropriately. Providing

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https://www.researchgate.net/publication/303928907_Legitimacy_Theory
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https://www.researchgate.net/publication/303928907_Legitimacy_Theory
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https://www.researchgate.net/publication/
289045509_Legitimacy_Theory_and_Environmental_Practices_Short_Notes

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education, equality, sanitation, good health, no poverty, etc. are some of the initiative taken by
the company. Employing local people and providing health related programs are some of the
major initiative taken by the company which has helped the society in terms of employment,
quality education, etc. Company has ensured to the society or community with long lasting
benefits like investing and delivering collective benefits to the community, improving quality
li8fe of the community, empowering community and integration and human rights. These
activities has supported the company to grow bigger and in larger scale. The company also
provide safety and security through continuous improvement of the safety performance and
through focus of workforce culture. Company works on maintaining culture as they analyze and
report the culture. In terms of environment also, company has worked on minimizing waste and
energy, biodiversity impact and has worked to aware community and society about
environmental consequences. Such kind of sustainable legitimate activities has supported the
company to reduce governmental intervention and any other kind of social and environmental
pressures. Local communities are satisfied and supportive towards the company.

Conclusion:

The whole report comprises information of corporate governance, application of theory in board
orientation and application of legitimacy theory while interacting communication of Orocobres
limited. The company has maintained its corporate governance independently avoiding conflict
of interest, attitude of risk by the managers and shareholders, issues in remuneration, etc. by
applying agency theory. Application of legitimacy theory has helped the company in balancing
its internal environment.

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