Anglo American Dissatation Essay Example
Anglo American Dissatation Essay Example

Anglo American Dissatation Essay Example

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  • Pages: 16 (4253 words)
  • Published: July 31, 2018
  • Type: Case Study
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Introduction

Anglo American Plc is a mining conglomerate and is among the mining industry's largest companies.

Anglo American Corp, which was originally founded in 1917, started as a gold mining company. It had an initial starting capital of ? 1 million from both the U.K. and U.S.

According to Forbes in 2006, Anglo American merged with Minorco in 1999 to form Anglo American Plc. The company's main headquarters and primary stock exchange listing are located in London. It also has secondary listings in Johannesburg, Switzerland, Botswana, and Namibia (Anglo American 2012d). Operating globally across Africa, Europe, South and North America, Australia, and Asia, Anglo American is a leading mining company for platinum and diamonds (Anglo American 2012c). With about 100,000 employees worldwide, the majority of them are based in South Africa (A

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nglo American 2011).

According to the 2011 report by Anglo American, they have a workforce of 10,000 individuals in South America, which is their second largest employee base. They also employ 11,000 people in other countries worldwide. In terms of revenue, South Africa generated the highest amount in 2011 with $17,855 million, accounting for 49% of the total revenue for the group. On the other hand, all other nations had revenues equal to or less than $5,058 million. This highlights South Africa's significant role in production within Anglo American. The company is proud of its diverse mining portfolio that includes various metals and minerals.

In 2011, Anglo American acquired an additional 85% of De Beers, the world's leading diamond company (Anglo American 2012a). This acquisition contributed to 6% of Anglo American's operating profit in 2011 (Anglo American 2012c). The

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diamond division of the company, which employs a total of 16,000 people in North America and Africa, has the second highest number of employees within Anglo American (Anglo American 2011). Another subsidiary of Anglo American is Anglo American Platinum Ltd. (AAP), where they hold an 80% ownership and employ 55,000 people. This subsidiary has the largest percentage of employees across the company, accounting for 55% (Anglo American 2011). AAP is the leading producer of platinum globally, responsible for supplying 40% of the global demand (Anglo American 2012c). Anglo American's most profitable operating activity in 2011 was in iron ore, generating $4520 million and representing 41% of the group's profit (Anglo American 2011).

The second highest area of operating profit, copper, accounted for $2461Million, 22% of the operating profit, which is significant when compared to other materials produced by Anglo American such as metallurgical and thermal coal, nickel, and others. However, these materials are less significant in terms of the company's profits compared to its major operations in diamond, copper, iron ore, and platinum. Anglo American's main corporate aim is to become the industry's largest employer, partner, and investment of choice. They believe that a sound strategy, sustainable development, and good corporate governance are crucial in achieving this goal. In terms of methodology, the group decided to allocate two days a week to work on the company study and created a table to efficiently manage time and meet the deadline. The table included a "plan" and "achieved" column for each date leading up to the deadline of December 14th (see Appendix A).

Following the first meeting, the group collectively decided to conduct individual research on Anglo American in

order to build a strong foundation of knowledge. This preparation enabled a more extensive conversation during the subsequent meeting. To ensure effectiveness, responsibilities were distributed among group members to thoroughly investigate each main section for a comprehensive report. The group adhered to the suggested time allocation of dedicating one-third of the time for research, another third for writing the report, and the final third for editing and finalizing it. Once research was completed for all sections, different members of the group commenced writing various parts of the report using the accumulated information.

The group collaborated to ensure that all sections contained necessary information, were free of grammar and spelling errors, and had enough references. This was crucial for each member's comprehensive understanding. Anglo American's website and annual reports served as the primary sources for the company study. Numerous relevant news articles were available regarding issues surrounding Anglo American in the past year, which could be easily included in the financial management section. Once the report was completed, the group scheduled weekly sessions in Techno booths with printed copies of the report to become familiar with its contents. They also developed a presentation and incorporated key points into a PowerPoint, allowing them to practice leading up to the deadline over several weeks.

To ensure the presentation met the required time allocation and flowed smoothly, multiple rehearsals were conducted. However, as the deadline approached, the group faced challenges with the methodology due to limited spare time caused by other assignments. As a global organization, Anglo American recognizes the importance of adhering to the highest standards of corporate governance to minimize agency problems and ensure effective management. Anglo American's goal

is to transparently and responsibly direct and oversee its operations. (Anglo American 2012f).

From the 2010 board effectiveness review, an action plan was implemented to improve the board-management relationship, aiming to reduce conflicts of interests and the agency problem. The plan included increasing contact between directors and management outside of board meetings and introducing more informal discussions. In 2011, Anglo American reviewed and made changes to this action plan. They enhanced the flow of management information to the board and improved the frequency of dissemination. Additionally, structured board dinners were held during the year for discussions on topics like strategy.

Anglo American is exhibiting good corporate governance by acknowledging and addressing areas of the business that need improvement. The company is actively working on enhancing effectiveness and control. The board of Anglo American, chaired by Sir John Parker, comprises two executive and eight non-executive directors. However, there is a lack of diversity as none of the board members are women. This absence highlights the necessity for increased representation to improve governance, which has become more important due to pressure from regulators, politicians, and shareholders (Robertson 2012). To meet this demand for diversity on boards, the Lord Davies Women on Boards report aims to achieve a minimum of 25% female representation among board members by 2015.

Anglo American's annual report stated their intention to increase female representation on the Board from 20% to approximately 30% by 2013, which is two years earlier than the national expectation (Anglo American 2011). This demonstrates good corporate governance by adhering to voluntary policies and targets, and also disclosing future plans for boardroom diversity. In addition, Anglo American has a nomination committee with the

aim of identifying and nominating qualified candidates who enhance board diversity (Anglo American 2011). This approach is considered good corporate governance as it ensures that directors are suitable for their roles and the best candidate is selected. The UK Bribery Act 2010 was passed by the Government, which requires companies to have adequate procedures in place to prevent bribery in order to defend against liability (Wilkinson 2010).

Anglo American has implemented necessary procedures to comply with the act, ensuring effective operation of its business integrity policy and minimizing the risk of bribery as much as possible (Anglo American 2011). Enhancements to guidelines on acceptance and provisions for gifts and entertainment were developed during the year, along with specific guidance on procedures for higher risk situations. This demonstrates good corporate governance, positively reflecting on shareholders and potential investors who see adherence to new laws. Anglo American follows the UK Corporate Governance Code by proposing annual re-election of all directors, ensuring the highest quality directors are always maintained (Anglo American 2011). The Audit Committee within Anglo American plays a crucial role in maintaining high corporate governance standards and providing assurance to the Board in its reports to shareholders (Anglo American 2011).

The audit committee of Anglo American consists of four independent non-executive directors. They are responsible for reviewing the company's key risk management process and being involved in its risk management procedures. To enhance governance in this area, Anglo American could disclose the primary risks to the company and its strategy for addressing these risks. Additionally, the audit committee oversees the group's whistleblowing program, which allows stakeholders to confidentially report concerns about conduct contrary to the company's values. This

demonstrates good corporate governance by providing a mechanism for stakeholders to report issues to independent non-executive directors.

Anglo American has the obligation to disclose the processes for handling reported issues. The board of Anglo American assigns specific responsibilities to several committees, including the Remuneration committee, Nomination committee, and Audit committee. According to the UK combined code of corporate governance, it is mandatory to have a transparent and formal procedure for setting executive remuneration policies and determining individual director's remuneration packages. Directors should not be involved in deciding their own remuneration (FRC 2012). Anglo American's remuneration committee seeks guidance from external advisors like Pricewaterhouse Coopers LLP, Linklaters LLP, Mercer Limited, and Deloitte LLP to aid in determining director's remuneration packages.

According to Anglo American (2011), their policy aims to attract and retain talented executives and motivate them to implement the company's business strategy for long-term shareholder value creation. The remuneration mix is crucial for good corporate governance, ensuring an appropriate balance of basic and performance-based pay that the remuneration committee deems suitable. This approach encourages directors to prioritize increasing shareholder wealth. Currently, director's remuneration at Anglo American is determined based on the mining sector's median and adjusted for performance and experience. Improving corporate governance could involve aligning director's remuneration packages solely with industry averages.

Within Anglo American, the total remuneration for each executive director includes basic salary, annual bonus, long-term incentives, and benefits. This helps maintain a balance between fixed and performance-related pay (Anglo American 2011). However, the high value of some bonus packages could impact shareholder wealth and potential investor interest. According to an article from the Telegraph, Anglo American's CEO received a 38% pay increase last year,

with a total package valued at ?2.17m. Additionally, her cash annual performance bonus increased by 134% to ?962,000. Nevertheless, during 2011, shares in Anglo American dropped by 14% (White 2012).

Despite the decrease in the company's stock price, the CEO's salary increase can be seen as a violation of proper corporate management. In 2004, a Bonus Share Plan (BSP) was introduced by the remuneration committee to ensure directors have a vested interest in the company's performance. This plan requires executive directors to invest a large portion of their pay into shares. The implementation of this plan is considered good corporate management because it aligns directors' interests with shareholders', ultimately addressing the agency problem. However, it also diminishes directors' autonomy within the company by creating a personal stake in its success.

New directors at Anglo American receive training to gain a comprehensive understanding of the company. Additionally, directors have access to continuous training throughout their tenure. To enhance governance, it is suggested that the annual report should disclose the nature and schedule of the training so that stakeholders are aware of what is covered during the induction. The annual report for Anglo American also outlines the responsibilities of directors, specifying what is expected of them. It is crucial for the board to provide an impartial and accurate view of the company's position and future prospects. According to company law, directors must not approve the accounts unless they are confident that they truly and accurately represent Anglo American's affairs. This exemplifies good corporate governance as the annual report outlines directors' responsibilities. However, it would be beneficial to include specific details about each director's responsibilities for the users of the

annual reports.

The annual report of Anglo American could disclose both the breakdown of roles between the chairman and director and the skills and knowledge of all board members. This disclosure would prevent one person from having too much power, which could be risky for the company. It would also show good corporate governance by showcasing the board members' experience and knowledge. Overall, Anglo American complies with the UK combined code of corporate governance, but it could improve by disclosing its risk management strategies, whistleblowing policies, and training schemes. Additionally, stating the responsibilities of the chairman and chief executives would ensure that corporate governance is consistently followed. According to UK corporate law, companies are primarily accountable to their shareholders.

According to Anglo American (2011), it is believed that serving the best interests of shareholders is achieved by ensuring all appropriate stakeholders are satisfied, beyond just the shareholders. The company aims to thrive in the long run, which benefits all stakeholders. Thus, Anglo American strives to be the preferred partner for stakeholders by operating in a manner aligned with their preferences (The Times, 2012a). The support of stakeholders is crucial for Anglo American to achieve its objectives, such as treating employees well and respecting local communities, which facilitates the recruitment of new talent necessary for growth. Ultimately, this will generate more value for shareholders.

Anglo American acknowledges that employees are a crucial stakeholder group, with approximately 100,000 individuals employed worldwide (Anglo American 2012c). Nevertheless, working in the mining industry is considered one of the top ten most hazardous occupations (Korch 2012). In order to safeguard this stakeholder group, Anglo American has implemented stringent health and safety regulations, which are

outlined in the safety way. This framework ensures that employees' working conditions are optimally safe by delineating roles, responsibilities, principles, and mandatory standards (Anglo American 2012b). The safety strategy, based on a risk-based approach, focuses on ten key elements essential for effective safety management: leadership, risk management, culture, competence, assurance, monitoring, planning, standards, communications, and learning (Anglo American 2012b). Additionally, employees in management positions are regarded as stakeholders within Anglo American since they hold decision-making authority crucial to the company's operations. Without access to pertinent information, they cannot make reliable decisions.

Anglo American recognizes the importance of unions as an essential stakeholder. Their aim is to prioritize the safety and benefits of their employees while they are working for Anglo American. However, there have been instances where Anglo American has had conflicts with unions, resulting in negative media attention and damaging the company's reputation (The Telegraph, 2011; White, 2011). This not only affects Anglo American but also impacts all stakeholders involved. In recognition of their positive labor relations with trade unions and their commitment to implementing and enforcing occupational health and safety practices, Anglo American was awarded the "Employer incentive award for good performance" at the South African trade unions solidarity awards for 2010 (Anglo American, 2012k).

Anglo American recognises several trade unions, including The National Union of Metalworkers of South Africa, The National Union of Mineworkers, The United Association of South Africa, and The Togetherness Amalgamated Workers Union of South Africa. Activist groups, concerned about the long-term damage mining can cause to the environment, also act as stakeholders. These groups put pressure on Anglo American if they feel the company is not doing enough to protect

the environment. War on Want released an article on September 28, 2012, discussing the miner's strikes in South Africa and the poor working conditions of employees (War on Want 2012).

Anglo American has recently developed a Socio-Economic Assessment Toolbox (SEAT) in response to activist groups. This toolbox aims to improve the impact of the company's activities, such as setting up training programmes for local communities. The company recognizes that negative publicity and disruptions to operations can ultimately affect shareholder wealth (The Times 2012b).

The contractors who work on various sites worldwide are considered stakeholders in Anglo American. They play a significant role in civil engineering projects like mine construction. As stakeholders, contractors have crucial responsibilities, and if not properly executed, problems can arise. If contractors become disillusioned and compromise quality standards, it could lead to future health and safety consequences. Managing contractors is important for Anglo American, especially as external stakeholders. Local communities may hold Anglo American accountable for the social performance of these contractors. To professionally handle the social impact on the local area, contractor management is prioritized. Although customers are essential stakeholders at Anglo American, the majority of its customers are countries. For instance, "China is a key customer of Anglo American's products" (Anglo American 2012m).

Anglo American has various key performance indicators (KPI) that are categorized into investing in top-notch assets in attractive commodities, ensuring safe and sustainable operations, employing the best workforce, and organizing operations efficiently (Anglo American 2011). One of the primary KPIs related to operations is the work-related fatal injury frequency rate (FIFR), which quantifies the number of fatal injuries among employees or contractors per 200,000 hours worked (Anglo American 2011). This

information is particularly relevant to Anglo American employees and the unions representing them, as they are directly impacted by the injuries suffered by their co-workers.

< p > The FIFR for 2011 indicates a slight increase in fatalities from 15 to 17. However, it is noteworthy that in 2009, there were over 50 fatalities, demonstrating Anglo American's successful implementation of strategies to minimize these incidents. Despite the declining trend, Anglo American maintains a goal of achieving zero fatalities, underscoring their strong commitment to employee well-being. Another important metric is the lost time injury frequency rate (LTIFR), which measures the number of lost time injuries (LTIs) per 200,000 hours worked (Anglo American 2011). LTIs are injuries that prevent employees from performing their regular duties for a certain period (Anglo American 2011). If Anglo-American's FIFR or LTIFR exceeds the industry average, it may discourage potential employees from applying and potentially hinder the company's ability to attract highly knowledgeable individuals, thus negatively impacting shareholder wealth. < /p >

Greenhouse gas emissions, measured in CO2 equivalent emissions, are an important operating KPI for Anglo American (2011). This key performance indicator is of interest to environmental activist groups, like Greenpeace, as greenhouse gases are harmful to the atmosphere and linked to global warming. Anglo American's 2011 annual report demonstrates a decrease in greenhouse gas emissions compared to 2010, indicating progress in reducing their carbon footprint. Another operating KPI is total water use, which includes water consumed in primary activities affecting the local communities surrounding the mine. In areas with limited water supplies, any use by the company may leave less water for the people living there. Managing and reducing this KPI is

crucial for Anglo American as it could deter potential employees from these communities and harm their reputation.

The final key operating KPI is Enterprise Development, which is the number of companies supported and number of jobs sustained by companies supported by Anglo American enterprise development initiatives (Anglo American 2011). The local community in which Anglo American operates is most closely linked to this key performance indicator. Results from this KPI indicate that Anglo American currently supports 38,681 businesses, surpassing their target of 3,500 businesses (Anglo American 2011). Another important KPI related to employing the best people is voluntary labour turnover, which measures the percentage of permanent employee resignations out of the total permanent employees (Anglo American 2011).

According to Anglo American's 2011 report, the resignation rate among employees was 3%, which represents a 2.3% decline compared to the previous year. This signifies the company's efforts to enhance both employee morale and working conditions. This key performance indicator (KPI) holds significance for the employees, as it reflects the number of individuals who may have been dissatisfied with their job.

An important employment KPI in recent times is gender diversity, which represents the percentage of women and female managers employed by Anglo American (Anglo American 2011). In 2011, the group managed to increase the percentage of female employees from 14% to 15% and the total number of female managers from 14% to 21%. This KPI can be linked to both the employees and unions of the company, as both want to ensure equal opportunities for both genders in order to create a harmonious working environment.
The first "organising efficiently and effectively" KPI is asset optimisation, which is defined as

the sustainable operating profit benefit from optimised performance of the asset base of the core businesses (Anglo American 2011). An asset optimisation strategy consists of asset management and asset monitoring. A well-organised strategy can reduce avoidable maintenance and interruption times. Managers of Anglo American will be interested in an effective asset optimisation strategy because it will enable them to make informed decisions regarding the best method of maintaining and utilizing the company’s assets.

The other KPI that helps organize operations is the supply chain, which involves "the operating profit and capital spend benefits to Anglo American resulting from centralized procurement from core businesses" (Anglo American 2011). One effective way to manage the supply chain is through local procurement, which reduces transportation costs by supplying goods worldwide. This KPI is of interest to Anglo American managers because it allows the company to establish relationships with key contractors/suppliers that can lead to mutually beneficial outcomes. The results for the most recent financial year show a $472 million improvement in the supply chain compared to the previous year. In their annual report, Anglo American also includes investment KPIs such as return on capital employed and underlying earnings per share. The annual report reveals an increase in both KPIs from 2010 to 2011, totaling 24.

The increase in percentages for investments KPI's range from 8% to 26.5% and the increase in prices go from $4.13 to $5.06, respectively. It's important to note that investment KPI's are only relevant to shareholders.

It allows shareholders to assess Anglo American's profitability relative to the capital invested and compare it to the previous year. Although Anglo American has a comprehensive set of key performance indicators,

there are additional factors that should be considered for the benefit of the company's stakeholders. Antofagasta Plc., a mining company, utilizes operational KPIs to measure the quantities of major metals mined annually and compare them to previous years (Antofagasta 2011).

Anglo American may establish a Key Performance Indicator (KPI) to ensure an annual increase in production for the most critical materials. This would benefit the majority of stakeholders who can gauge the expansion in production over the year. Contractors can use this data to anticipate the growth in production for the upcoming year and allocate sufficient resources to support any future projects by Anglo American. London Mining Plc. employs a KPI for the number of trained employees, indicating the count of individuals who received professional training within a year (London Mining 2011).

One way Anglo American could demonstrate the effectiveness of their employee training programs is by using this as a key performance indicator (KPI). The primary beneficiaries of this KPI would be the customers, as a high number of professionally trained employees indicates that the company's staff are well-trained and equipped with the necessary knowledge to provide top-quality service. Additionally, employees can use this information to assess whether they may be eligible for professional training opportunities based on the number of individuals enrolled in training programs throughout the year. Figure 1 in the Financial Management section displays Anglo American Plc.

The performance of Anglo American's share price and the FTSE All Share performance between 1 January and 30 September 2012 have been analyzed. It is evident that both share price and average share price of the FTSE All Share demonstrate similar movements during this period, although

Anglo American's share price is more volatile. [pic] During the company's general meeting on 6 January, Anglo American shareholders approved the increase of their holding in De Beers from 45% to 85%. The chairman expressed optimism about the potential increase in shareholder value as a result of De Beers' expertise and leadership (Anglo American 2012a).

This shareholder approval was predicted to lead to a rise in demand for shares, as indicated by the increase in share price from 9 January to 23 January. This change in share price appears to be independent of the FTSE All Share, which helps us analyze this specific period as the event is internal to Anglo American. On 26 January, Anglo American published their production report for the fourth quarter of 2011. At first, the share price decreased from ?27.37 on 26 January to ?26.

On 30 January, the share price of Anglo American decreased by 35, which was possibly a result of a decline in diamond and platinum production. These are the company's main products, so a decrease in their production would naturally discourage investors and raise doubts among shareholders. However, between 30 January and 3 February, the share price increased by ? 2.5, indicating that shareholders had further investigated the reports and realized that production of other materials had actually increased. Notably, nickel production had risen by 125% compared to the previous year (Anglo American 2012). Figure 1 shows how this increase is mirrored in the movement of the FTSE 100, suggesting that there might be other external factors influencing Anglo American during this period.

Anglo American issued a ˆ750m 10-year euro bond on 23 March in order to address potential

funding needs within the company. This move was likely aimed at enhancing the company's value, particularly in the midst of the European Sovereign Debt Crisis. However, as depicted in figure 1, the share price experienced a significant decline between 23 and 29 March. This could be attributed to shareholders selling their Anglo American shares as they supported the Eurozone. On 1 June, Anglo American made a comeback in the euro bond market, with some bankers speculating that this decision was driven by caution. The share price then saw a rapid recovery, suggesting that investors were pleased to see Anglo American return.

Anglo American engaged in discussions with Peru on June 29th regarding a possible local sustainable development initiative to go hand in hand with a mining project in the area. They put forth a proposal to invest $118 million (Guerra 2012). Moreover, $36.9 million of this investment was allocated to the installation of a pumping system into two rivers within the country (Guerra 2012). The fact that Anglo American is providing assistance and aiding Peru demonstrates their commitment to being a responsible corporate entity.

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