CORPORATE GOVERNANCE

CASE STUDY OF
NEW BRITAIN PALM OIL
PAPUA NEW GUINEA

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Table of Contents Page

Introduction ......................................................................................................................................... 3
NBPOL ORGANISATIONAL STRUCTURE AND PROCESSES ....................................... 4
Corporate Governance ................................................................................................... 4
Board of Directors.......................................................................................................... 4
Board Governance and Structure ................................................................................... 5
Processes for making appointments to the Board ......................................................... 5
Accountability for public money ................................................................................... 6
Communication with Stakeholders ................................................................................ 6
ROLES AND RESPONSIBILITIES ...................................................................................... 7
Principle responsibilities of the Board ................................................................................. 7
Role of the Board Chairman .................................................................................................. 7
Role of the Individual Directors ............................................................................................ 7
Role of the Senior Non-Independent Executive Directors ................................................ 8
Role of the Executive Deputy Chairman & Managing Director ....................................... 8
Board Review Processes ........................................................................................................ 8
FINANCIAL REPORTING AND INTERNAL CONTROLS ............................................ 8
Annual Reporting .................................................................................................................... 8
Annual General Meeting ........................................................................................................ 8
Audit Committees ................................................................................................................... 8
Other Committees ................................................................................................................... 9
STANDARDS OF BEHAVIOUR ........................................................................................... 9
Code of Conduct ...................................................................................................................... 9
Responsibilities and Compliance with the COBC .............................................................. 9
Ethical Business Practices ...................................................................................................... 9
CORPORATE SOCIAL RESPONSIBILITIES ....................................................................... 10
Focus Areas ............................................................................................................................ 10
Funding and Expenditure ..................................................................................................... 11
RECOMMENDATIONS ................................................................................................................ 11
References ............................................................................................................................... 12
Appendix ................................................................................................................................. 13

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Introduction

This essay discusses the business environment and the functions of the board of directors for
New Britain Palm Oil Limited (NBPOL), a large agriculture company operating in Papua New
Guinea, Solomon Islands and the United Kingdom. It further aims to provide ratings for each
element of functions of the organizational structure and processes by comparing it using the
IIA1 UK Check List for Good Corporate Governance and recommends how the organization
could improve its corporate governance and social responsibility in the environment and
countries it operates in.

NBPOL is a the leading producer of sustainable palm oil in Papua New Guinea with over
83,000 hectares of palm oil and 5,600 hectares of sugar cane. It has operations are in Papua
New Guinea (PNG) and in the Solomon Islands, where they have bulking terminals in Kimbe
and a refinery in United Kingdom – New Britain Oils that delivers segregated, traceable and
certified sustainable food ingredients to customers worldwide. In March 2015 NBPOL was
acquired by Sime Darby Berhad group of companies of Malaysia.
They are also the largest domestic sugar and beef producer in Papua New Guinea (PNG) and a
global leader in high-quality oil palm seed production and research.

Figure 1: Locations of NBPOL projects in PNG, Solomon Islands and UK

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The Institute of Internal Auditors UK and Ireland Online
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NBPOL ORGANISATIONAL STRUCTURES AND PROCESSES

Corporate Governance

The Board of NBPOL is responsible for the overall direction and performance of the company.
It is the Board’s responsibility to formulate and monitor the company’s business strategies and
to oversee the company’s budgets and financial position. The Board is also responsible for
approving major transactions including capital expenditure, disposals and acquisitions.

The Board consists of eight Directors, and the composition of the Board reflects the
international nature of our business and includes nationals of Papua New Guinea, the UK and
Malaysia.

Board of Directors

Director Position Nationality

1
Non-Executive United
Dato’ Henry Sackville Barlow Chairman Kingdom

2
Non-Executive Malaysia
Tan Sri Dato’ Seri Mohd Bakke Saleh Director

3
Dato’ Che Abdullah Rashidi Che Omar Non-Executive Malaysia
Director

4
Rosely Kusip Non-Executive Malaysia
Director

5
Datuk Franki Anthony Dass Non-Executive Malaysia
Director

6
Sir Joseph Tauvasa Independent Papua New
Non -Executive Guinea
Director
7 Independent Papua New
Non -Executive Guinea
Sir Brown Bai, KBE, CSM, CBE Director

8 Independent Papua New

Ernie Gangloff Non -Executive Guinea
Director

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Board Governance and Structure

Figure 2: Source: www.simedarby.com

Processes for making appointment to the Board

The constitution of SD Plantation provides for a minimum of two (2) Directors and a maximum of
fifteen (15) Directors, so these literally means that there a are at least two (2) or half of the board
numbers, whichever is higher shall be independent Non-Executive Directors.

The tenure of an independent Non-Executive Director should not exceed a cumulative term of nine
(9) years. Upon completion of his/her term as an independent Non-Executive Director may
continue to serve on the board as a Non-Independent Non-Executive Director should the Board
intend to retain their services. If the Board continues to retain their services after the twelfth (12)
year then it must seek annual shareholder approval. Under the two-tier voting process, shareholder
votes will be cast in the following manner at the same shareholders’ meeting:

▪ Tier 1: Only the Large Shareholder(s) of the company votes.

▪ Tier 2: Shareholders other than Large Shareholder(s) votes.

Large shareholders mean a person who:

▪ Is entitled to exercise or control of, not less than 33% of the voting shares in the company,
▪ Is the largest shareholder of voting shares in the company or
▪ Has the power to appoint or cause to be appointed a majority of the directors of the company
▪ Has the power to make or cause to be made, decisions in respect of the business or
administration of the company and give effect to such decisions or cause them to be given
effect to.

The decision for the resolution is determined based on the vote of Tier 1 and simple majority of
Tier 2. If there is more than one Large Shareholder, a simple majority of votes determine the
outcome of the Tier 1 vote.

The resolution is deemed successful if both Tier 1 and Tier 2 votes support the resolution. However
the, resolution is deemed to be defeated where the vote between the two tiers differ or where Tier
1 voter(s) abstain from voting.
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Members of the board should possess the relevant knowledge skills, competencies, functional and
management experience, characteristics and mind-set to contribute effectively to the Board. The
Board shall also regularly review its membership to ensure the Board remains and should formalize
its succession plan practices.

Finally the Directors may relinquish their membership with prior written notice to the Group
Secretary, subject to compliance of the Companies Act MMLR2 and the Company’s constitution.

Accountability for Public Money

The board is authorised to the following at the expense of the group which includes:

▪ Provide resources in order to perform its duties

▪ Have direct access to the senior management team and the external auditors
▪ Have direct communications channels and access to the Group Secretary with unrestricted
access to information, records, properties and personnel of the group in performing their
duties
▪ Obtain external, legal or independent professional advice as deemed necessary
▪ Convene meetings with the external auditors without attendance of any executive and
where appropriate, the Group Secretary as deemed necessary
▪ Have immediate access to reports on fraud or irregularities from the Group Corporate
Assurance Department (“GCAD), Group Compliance Office (“GCO”) or Group Risk
Management (“GRM”) and to reports on Class 1 accidents/incidents from Group
Sustainability & Quality Management (“GSQM”)
▪ Authorise investigations into fraud, illegal acts or suspected violations of Group policies
involving Management of Directors

Communication with Stakeholders

The Board shall ensure effective, transport and regular communications with its stakeholders to
facilitate mutual understanding of each other’s objectives and expectations.

All Directors and the Chairs of Board Committees must attend General Meetings to allow
shareholders to raise questions and receive meaningful responses to questions raised by them.

In addition, the Charter and Terms of Reference of each committee established by the Board shall
be periodically reviewed and updated by the Board taking into consideration the needs of the Group
as well as any development in rules and regulations that may have an impact on the discharge of
the Boards duties and responsibilities.

The company also publishes on its website, stakeholder information for easy access. Some of the
information include:

▪ Policies and positions

▪ Sustainability structure
▪ Sustainability reports
▪ Certifications and indices

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Bursa Malaysia Main Market Listing Requirements (MMLR)
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As part of its stakeholder Continuous Engagement program, it also publishes information such as:
▪ Grievances Procedures
▪ Social Impact Assessment for its various locations in the country
▪ Plantings procedures
▪ NBPOL Annual Grievances Procedure Policy
▪ Procedures for handling landowner grievances

ROLES AND RESPONSIBILITIES

Principle responsibilities of the Board

The board is principally responsible for:

▪ Promoting together with senior management good corporate governance culture within the
group which reinforces, prudent and professional behavior;
▪ Review and adopt a strategic plans for the NBPOL Group;
▪ Overseeing the conduct of the Group’s business;
▪ Identifying principal risks and ensuring the implementation of appropriate internal controls
and mitigation measures;
▪ Succession Planning;
▪ Overseeing the development and implementation of a stakeholder communications policy
and;
▪ Reviewing the adequacy and integrity of the management information and internal controls
of the Group

Role of the Board Chairman

The Board Chairman of NBPOL presides over the meetings of Directors and is responsible for
instilling good corporate governance practices, leadership and the effectiveness of the board. The
duties of the Board Chairman include:

▪ Managing the Board meeting to ensure robust decision-making by:

▪ Building a high performance board
▪ Managing Board Management interface by:
▪ Being the public face by:
▪ Ensuring that appropriate steps are taken to provide effective communication with
stakeholders and their views are communicated to the board as a whole.

Role of the Individual Directors

▪ Board Directors are expected to comply with their legal, statutory and equitable duties and
obligations when discharging their responsibilities as Directors. These include:

o Every Director shall devote sufficient time to prepare for and attend Board and
Committee meetings, training programs and briefings.
o Every Director must attend at least fifty (50) percent of the Board meetings held each
year.
o Every Director must keep abreast of his responsibilities and conduct business activities
for the development of the Group.
o Every Board member should ensure minutes of meetings accurately reflect the
deliberations and decisions of the Board, including any abstained decision of voting
and matters.

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Role of the Senior Non-Independent Executive Directors

▪ The duties of the Senior Independent Non-Executive Director shall include acting as a
sounding board for the Chairman when deemed necessary for other Directors as the point
of contact for Shareholders and concerns which have failed to be resolved or not
appropriately communicated to the Chairman and/or DCMD

Role of the Executive Deputy Chairman & Managing Director

The DCMD assumes overall responsibilities for the execution of the Group’s strategies in line with
Board directions and overseas the operations of the Flagship Subsidiary companies and drives the
Group’s businesses and performance towards achieving its visions and goals.

Board Review Processes

The effectiveness of the Board, its Committees and each individual Director is reviewed annually
and disclosed in the annual report as prescribed under MMLR and the MCCG. The Board engages
experienced and independent parties periodically to facilitate objectives and candid board
evaluations.

The Board via the Nominations and Remuneration Committee establishes a set of criteria for the
assessment of all Directors with attention is given to values, principles and skills required for the
Group. These criteria serves as a source of reference for prospective and incumbent Directors
during the assessment and is reviewed regularly which also cover the performance of the Board.

FINANCIAL REPORTING AND INTERNAL CONTROLS

Annual Reporting

NBPOL publishes its annual reports on their corporate website www.nbpol.com.pg for stakeholder
public information and access as endorsed by the Board at the end of each financial year. However
at the time of this writing only the 2013 Annual Financial Report is published on the company
website.

The company holds a general meeting in every calendar year, which is within six (6) months of the
company’s financial year end and not more than fifteen (15) months after the last preceding Annual
General Meeting, at such a time and place determined by the Directors to transact the following:

▪ Laying of audited financial statements and reports of Directors and auditors

▪ Election of Directors in place of those that are retiring
▪ Any resolution or other business of which notice is given in accordance with the Act or
Constitution

Annual General Meeting

Annual General Meeting is held every year, while any other meeting of members are deemed as
Extraordinary General Meetings.

Audit Committee
According to the Chartered Institute of Auditors. (2017) Audit Committees are the eyes and ears
of the board and its committees. They work independently to provide assurance to the board in
pursuing objectives of the company.

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NBPOL has a Governance and Audit Committee (“GAC”) established with Directors from both
(“SDP) and NBPOL Board: Their objectives are to:

▪ Assist in fulfilling its statutory and fiduciary responsibilities of monitoring the SDP and
NBPOL Group of companies (“Group”) management of financial risk processes and
accounting and financial reporting practices.
▪ Review the Group’s business processes, the quality of the accounting functions, reporting
and the system of internal controls.
▪ Enhance the Independence of both the external and internal audit functions by providing
direction and oversight of these functions on behalf of the Board.
▪ Assist the Board in ensuring an effective ethics program is implemented across the Group
and monitor compliance with policies and practices established.

Other committees include:

▪ Nomination and Remuneration committee

▪ Risk Management Committee
▪ Sustainability Committee
▪ Tenders Committee

STANDARDS OF BEHAVIOUR

Code of Conduct

A Code of Business Conduct (COBC) provides guidance on the standards of behaviour expected
of Directors and all Employees of SD Plantations which include NBPOL and where applicable,
Counterparts and Business Partners. These standards of behaviour form the core of its values and
principle.

The COBC applies to all Directors and Employees of SD Plantations, including NBPOL, those on
secondment to Joint Ventures, affiliates, or associates. Counterparts are also expected to comply
with the CBOC when representing the company while Business Partners are likewise encouraged
to uphold these principles and standards of behaviour. The COBC applies to all businesses and
countries the Sime Darby Plantations operate.

Responsibilities and Compliance with the COBC

Apart from understanding and complying with the COBC, as a Director or an Employee, everyone
is responsible to ensuring that those reporting to you understand and comply with the COBC;
Promote compliance and good ethical standards via leadership by example and provide guidance
to others who have raised concerns or questions regarding the COBC

All Directors and Employees of the Group must read and declare compliance with the appointment
to or joining the Group and are subject to disciplinary actions, up to and including termination of
employment or dismissal, for violating the COBC. Violation of the COBC which is related to
criminal acts may result in legal prosecution after referral to appropriate authorities.

Ethical Business Practices

All operations of SD Plantations and NBPOL subscribe to the Ethical Business Practices (See
NBPOL Business Ethics Policy - Appendix 1), which outlines the standards of behaviour and
conduct for all its businesses. These include:

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 ▪ Health, Safety and Environment
▪ Compliance
▪ Working with Local Communities
▪ Fair Business Practices

CORPORATE SOCIAL RESPONSIBILITIES

According to Caramela (2018) a company that has a robust Corporate Social Responsibilities
(CSR) program, demonstrates good corporate citizenship hence protecting itself from outsized risks
of social and environmental spheres that surrounds the company. She further states that, according
to Jen Boynton of 3BL Media, “Corporate responsibility is simply a way companies take responsibility
for both the social and environmental impacts of their business operations”.

As part of its Corporate Social Responsibilities (CSR), NBPOL assists local communities where
they operate through its NBPOL Foundation. The foundation was established in 1997 as a
registered charity in Papua New Guinea to support improvement of health, education and the relief
of poverty for the people of PNG.

Focus areas

The main focus of the Foundation are health and education, which it seeks to influence community
prosperity. A Community Base Assessment (CBA) is being carried out to establish existing
infrastructure services and social well-being affecting these areas. The CBA includes an extensive
field based study with local stakeholders.

Since its inception, the NBPOL Foundation has supported local communities through donations
and community based projects, as well as enhancement to education and health establishments in
the provinces initially in West New Britain. Our approach include:

▪ Engage with communities to establish their needs

▪ Identify the scope for improvement
▪ Target specific deliverables
▪ Align foundation and corporate initiatives to the community needs
▪ Work with existing government and non-government organizations to produce sustainable
results.
▪ Leverage and source funding

In 2011, the Foundation undertook a major overhaul of the governance structure hence a new blue
print was approved to cover all operations within their project sites in Papua New Guinea. The
Foundation now focuses on meeting the needs of communities, while seeking to address key
priority areas of concern set out in the UN Millennium development Goals and PNG Government
2050 Vision.

The Board of Trustees consists of two (2) Non-Independent Directors from the NBPOL Board
(Both PNG Nationals) and one external Independent Trustee, the NBPOL Group Sustainability
Manager and Company Secretary.

The Voluntary Service Organisation (VSO) was approved to partner with NBPOL Foundation to
implement its long term strategy. VSO is the world’ largest independent international development
organization that works through volunteers in 37 developing countries world-wide. VSO has been
in the country for over 50 years through recruitment and placing of international long term and
short term professional volunteers working in areas of Health, Education, Governance, Gender and
Disability.

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Funding and expenditure

The Foundation is financed through direct contributions for the NBPOL Group as well as dividends
from its 450,000 shares in the Group. As part of its strategy, the Foundation documents impact and
hence has become eligible for funds from other donor agencies and corporate foundations which
would like to develop these programs and enable end-users of NBPOL traceable palm oil to become
community investments and improve the quality of life.

RECOMMENDATIONS

While NBPOL is part of the Sime Darby Group of Companies, their ethics and business rules
seems to have being abused by certain senior executives of their operational locations in Papua
New Guinea. Some of these practices include:

Monitoring the executive management

Barlow (2017) states that corporations must emphasize integrity and ethics in all decision making
hence building a culture of respect and compliance for everyone including vendors and employees.

However several incidences from NBPOL sites could not be highlighted by the Board in
neutralizing bad working relationship with senior executive managers and employees. This
oversight has cost significant liabilities according to a Financial Controller of a particular site
because the Board has failed to deal with respective General Managers.

Another area is the age limit of senior expatriate manager are well over the documented age limit
of 55 years while national managers and staff are made redundant after reaching their maximum
age limits. There must be fair practices implemented by senior management and the Board.

Monitoring organizational performance is an essential part of the NBPOL Board of Directors and
legal compliance in ensuring Business Ethics and Practices are followed.

Succession Plan for PNG Nationals

NBPOL although a company operating in PNG for over 50 years still have failed to train national
senior managers to achieve seniority within the organization. At the time of this writing there is
only one national General Manager in one of the sites across the entire NBPOL Group hence does
not paint an effective action of the NBPOL Board having a succession plan for PNG nationals.

Failure to publish Yearly Annual Reports on their website

With the takeover of NBPOL by Sime Darby Berhad of Malaysia, the last report is for 2013 hence
the Board has failed to effectively publish yearly annual reports at the close of financial policies
set by the Board. It is in the best interest of the Group where the corporate website is the face of
NBPOL hence stakeholders, shareholders and potential investors must have this information
portrayed for business ethics and reporting.

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REFERENCES

Barlow, J (2016). Board Effect. Corporate Governance Best Practices. Retrieved from
https://www.boardeffect.com/blog/corporate-governance-best-practices/

Caramela, S (2018). What is Corporate Social Responsibility? Retrieved from

https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html

Chartered Institute of Auditors. (2017). Audit Committees. Retrieved from

https://www.iia.org.uk/resources/audit-committees/

New Britain Palm Oil Ltd, (2016). New Britain Palm Oil Limited. Retrieved from
http://www.nbpol.com.pg/

Sime Darby Plantation, (2018). Innovating for the future. Sustainability Report 2016. Retrieved
from
http://www.simedarbyplantation.com/sites/default/files/sustainability/SimeDarby%20Plan
tation_SR2017_dec2016.pdf

Sime Darby Plantations (2018). Sustainability Report 2016. Retrieved from

http://www.simedarbyplantation.com/sustainability/sustainability-report

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APPENDIX

NBPOL Business Ethics Policy

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