Accounting Theory and Analysis

Accounting theory

Section A

Section B

Introduction

The fluctuating oil prices affected various stakeholders especially the employees of the company and the shareholders. The increased supply of the oil from many countries have been resulting in decreased demand hence decline in the prices. This has been affecting the oil producing countries due to the increased costs of obtaining oil from beneath the ground. The costs can surpass the returns have been a big challenge to oil producers. In the process of responding to the changes in the market, the Santos has been using employees and shareholders. The main purpose is to manage the costs of operating due to the decreased oil prices.

Strengths

The interests of the shareholders were not considered as required. The management of the company is expected to ensure that the wealth of the shareholders is maximized. However, the external environment of the can could not allow the management to maximize the revenues; this was due to the changes in prices affecting the revenues realized. The countries producing oil were said to supply oil without control making the oil supply surpass the demand. As a result, the customers in the market could buy the oil at low prices. Besides, OPEC did no control prices of oil hence the producers could sell to the customers at the prices they want. The companies that were the production of oil at high costs suffered high losses hence had to look for ways that could maintain them in the market1. The only strategy was control of the operating costs where the profits given to the shareholders were reduced. The shareholders could allow the company management to retain high cash with around $4.8 billion cash. The move was geared towards strengthening the balance sheet of the company accommodate the changing prices. The company could venture on the low risks ventures due to the increased prices fluctuations. Also, the shareholders cooperated in the process of managing the costs of the operations. For instance, the company dividend was reduced, and the shareholders were in a position to understand.

The shareholders of the company supported the management in changing the culture of the organization. Besides, various operations that could help in managing the situation of the company were also supported by the shareholders. These changes were all geared towards ensuring that the company could be successful in the industry despite the decreasing oil prices. The management had excellent communications that assisted in managing change in the organization. Excellent communication skills of the management play a significant role in the management of change as the shareholders, and the employees could be kept aware of the changes taking place in the organization. Proper communication of the management kept the employees and shareholders updated on the strategies taken by the company to manage the change taking place.

Communicating the changes assisted the shareholders to understand the reasons for change and the benefits the shareholders could realize from the change. As a result, the shareholders were kept informed hence avoiding any possible resistance in the implementation of the change in the company2. Communicating the change to the employees assisted in making the employees committed to ensuring that the right strategies geared towards enhancing change were implemented the employees were properly informed of the need for change and the reasons forcing the company to implement the change. The leadership offered in the company motivated the employees despite the changes in the oil prices that affected their benefits and working conditions. The transformational leadership style was exercised by the management that play a crucial role in making the strategies geared towards implementing change in an organization successful.

Weaknesses

The employee expected the company to consider their interest in the decision-making process. The company is expected to ensure that the employees are paid well and given the right environment that can guarantee their commitment to ensuring organizational success. However, due to the increasing costs of producing oil, the company could not ensure that the employees’ interests are properly considered. For instance, the benefits that the senior executives were expected to receive declined. Besides, the senior executives were deferred from receiving equity for two years. This was because the declining oil prices were affecting the employees as the revenues realized after selling the oil could not pay the employees well. The company had to look for strategies that could ensure that the costs of producing oil could be managed. The employees were resisting to the option of being forced to leave their employment due to the reduce returns of the company.

Also, the company decided to lower the benefits of the employees in the process of reducing the costs associated with labor in the company. The management wanted to have a small number of employees who they could be in a position to pay with constraints. The decrease in the benefits of the senior executives and other employees of the company could affect their motivation negatively. As a result, the employees could fail to work towards achieving the set goals of the company as they expected the company to maintain their remuneration. Besides, the company was at risk of facing resistance from the employees because the employees’ remuneration was reduced3. The employees of the company could leave the company to search for greener pastures hence affecting the productivity of the company. This could affect the company negatively as it can lose talented and productive employees.

Conclusion

Staff and shareholders are the most important stakeholders who need to be involved in the process of managing change. This is because of the role they play in an organization, as they are the key stakeholders that determine the success of organizations4. The challenges that Santos was undergoing cold are best handled by the employees and the shareholders. This is because of the contributions of the employees and the shareholders in the implementation of change.

Section C

Question 1.

Santos Company addressed issues of the shareholders and the employees. This affected the relationship between the company and the employees and the relationship between the firm and the stakeholders the employees and the shareholders as some of the stakeholders had different expectations from the management.

Relationship between the Santos Company and shareholders

The shareholders of the company expect their wealth to be maximized. The shareholders act as the principal while the management as the agent. The management of the company is expected by the shareholders to work towards ensuring that the value of their wealth is increased. The management practices of the company are expected to be in the interests of the shareholders. The failure of the management to consider the interests of the shareholders can result in conflict as the shareholders do expect the managers to act in good faith, as they trust them to maximize their wealth. The shareholders do expect the management to ensure that the dividends are increased5. Besides, they expect the company management to adapt the venture that can maximize the benefits but not to venture in the low risks ventures that do not challenge the managers. In the case of Santos, the dividends of the shareholders are reduced due to the decreased profits realized from the operations. Besides, the management is shown taking low risks ventures due to the price fluctuations of the oil in the industry.

Relationship between Santos Company and employees

The employees have interests that they expect the employer to provide. Failing to meet their interests can result in conflicts. The employees of the company do expect the management to provide good remunerations6. Control the company reduces the remuneration of the employees in response to the changes that needed to be implemented. The company was aiming at reducing the costs of operating the company hence reducing the costs associated with the remuneration was one of the strategies of ensuring that the company could survive in the industry.

Question 2

Introduction

I do not agree because the company has been actively participating in various ways of ensuring that the operations of the company are sustainable. Sustainability refers to the methods used by companies to manage their finances, environmental risks and other social and cultural factors related to the business. Santos Company has been committed to ensuring that its operations are guided by the corporate values that guarantee good business conduct. It has been working towards ensuring that it contributes to the community in various ways. The sustainability of the company has been playing a crucial role in enhancing its relationship with the different stakeholders.

Discussions

Santos management has been adopting various strategies geared towards achieving sustainability of its operations. The operations of the company have been keen to ensure that there is the sustainability of is operations. The management has ensured that the environment is protected from any aspects of pollution by controlling the emission of the toxic gasses. For instance, the company has assured that the environment has not been polluted by treating the greenhouse gasses before releasing then into the environment. Treating the gasses has been eliminating their negative effects on the environment hence making them harmless to the environment. As a result, it has ensured that it relaxes low carbon to guarantee the sustainability of its operations. In the Santos Company, one member among the four board members is given the task of monitoring and reviewing the company’s environment and sustainability performance and often submits the report to the other members of the council.

Santos Company uses integrated approach to achieving sustainability goals. This approach takes into account five broad elements which include sustainability scorecard, annual materiality assessment, independent review, annual reporting, and individual responsibility and accountability which mainly targets the employees7. The five elements have been working towards ensuring that the necessary policies that can guarantee sustainability are adopted in the company. The company has put the necessary strategies that can ensure that energy is delivered to the customers without causing environmental pollution. This has been possible through making the operations of the company efficient in the use of fossil fuels that result in the emission of toxic gasses. In the process of delivering energy to the customers, the company uses operations which are safe and thus giving the customers clean energy which does not cause pollution of the environment. To achieve this, the company uses extensive engineering and geological skills which take care of the communities and environment around the company’s operations. The company has invested in ways which ensure that this is achieved. These include the strategic portfolio of assets, investing in a culture of sustainability across all the operations, having a strong team with necessary skills and knowledge, educating the communities to encourage environmental conservation.

Besides, the drilling activities of the company have been working towards minimizing the pollution of the environment. This has been involving environmental assessment with the aim of ensuring that the activities of the company cannot be in a position to affect the environment negatively. Santos Company minimizes the impacts of drilling activities in their areas of operation by conducting environmental and social impact assessments, undertaking cultural assessments in areas where culture is of great significance, routing seismic surveys around significant vegetation and by using newer compact drillings which minimizes the area where the land is disturbed because of drilling operations8.

There are policies put in place by the international organizations such as UN. These organizations have set the required standards that have to be followed in ensuring sustainability of the operations of companies. The companies are expected to put the necessary measures that can ensure that the pollution of the environment has been minimized. For instance, Santos Company has been consistent with the United Nations sustainable development goals adopted in September 2015. Santos Company undertakes annual materiality assessment test which enables them to prioritize issues which are of great relevance to the stakeholders such as community, water, climate change, safety, and economic performance. The company also achieves this by offering cleaner energy through the natural gas portfolio and by investing in LNG production, promoting the beneficial of natural gas as a cleaner energy fuel since it does not emit toxic gasses to the atmosphere which may cause global warming and also by delivering low carbon strategies.

Santos Company has also identified potential sustainability aspects by international sustainability guidelines and uses them in sustainability materiality assessment. These sustainability aspects cover social investment, product responsibility, indigenous rights, cultural heritage, air, biodiversity, climate change, water and waste management, risk management, supply chain and financial performance, governance, health and safety and human resources. The company also engages various stakeholders to respond to their concerns and listen to their ideas concerning sustainability. It does this through face to face meetings, town hall meetings, newsletters and briefings, formal reports and submissions, formal agreements, the internet and social media platforms. This enables the company to estimate the impact these factors can have in the long-term performance of the company9.

Conclusion

Santos Company is practicing proper sustainability methods which take into consideration all the stakeholders involved in the company’s operations. Santos Company has also set plans to meet energy demands and attain sustainability. These plans include understanding greenhouse gas targets, actively engaging in climate change policies, using strategies which reduce or offset carbon emissions to the environment and by setting annual emission intensity targets. Through innovation, the company can use low carbon technology strategy. Through measuring of results the company can identify the areas. Santos employees and board of directors gather each year to identify areas which need improvement and encourage methods which enhance environment safety.

References

 p448ISBN 0-7619-4156-8Barker, Chris. 2005. Cultural Studies: Theory and Practice. London: Sage. 

Contu, A. and Willmott, H. (2005) You spin me round: the realist turn in organization and management studies, Journal of Management Studies, 42 (8): 1645-1662 Reed, M. (2005a)

 «Developing and Sustainable IT Capability: Lessons from Intel’s Journey,»Curry, B. Guyon, C. Sheridan, and B. Donnellan, MIS Quarterly Executive, vol. 11, no. 2, pp. 61–74, 2012.

Dreier, Ole., 2008. Chapter 2. In: Psychotherapy in Everyday Life. Cambridge University Press.

Dočekalová, M. P.; Kocmanová, A. (2016). «Composite indicator for measuring corporate sustainability». Ecological Indicators 61: 612–623. 

Jensen, M. C.; Murphy, K. J. «Performance Pay and Top-Management Incentives».

The Impact of Real Options in Agency Problems; Real Options, Agency Conflicts, and Financial PolicyMauer and S. Sarkar (2001). 

Mole K.F. and Mole M.C (2010) Entrepreneurship as the structuration of individual and opportunity: A response using a critical realist perspective. Journal of Business Venturing Vol 25, no. 2 pp. 230-237

Schnackenberg, A.; Tomlinson, E. (2014). «Organizational Transparency: A New Perspective on Managing Trust in Organization-Stakeholder Relationships». Journal of Management.

1
Contu, A. and Willmott, H. (2005) You spin me round: the realist turn in organization and management studies, Journal of Management Studies, 42 (8): 1645-1662 Reed, M. (2005a)

2
Mole K.F. and Mole M.C (2010) Entrepreneurship as the structuration of individual and opportunity: A response using a critical realist perspective. Journal of Business Venturing Vol 25, no. 2 pp. 230-237

3
Barker, Chris. 2005. Cultural Studies: Theory and Practice. London: Sage. ISBN 0-7619-4156-8 p448

4
Dreier, Ole., 2008. Chapter 2. In: Psychotherapy in Everyday Life. Cambridge University Press.

5
Mauer and S. Sarkar (2001). The Impact of Real Options in Agency Problems; Real Options, Agency Conflicts, and Financial Policy

6Jensen, M. C.; Murphy, K. J. «Performance Pay and Top-Management Incentives».

7Dočekalová, M. P.; Kocmanová, A. (2016). «Composite indicator for measuring corporate sustainability». Ecological Indicators 61: 612–623. 

8
Curry, B. Guyon, C. Sheridan, and B. Donnellan, «Developing and Sustainable IT Capability: Lessons From Intel’s Journey,» MIS Quarterly Executive, vol. 11, no. 2, pp. 61–74, 2012.

9Schnackenberg, A.; Tomlinson, E. (2014). «Organizational Transparency: A New Perspective on Managing Trust in Organization-Stakeholder Relationships». Journal of Management.