Corporate Governance Statement

1.1

Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions

Board Charter
The Board Charter sets out the functions and responsibilities of the Caltex Board in order to facilitate Board and management accountability for Caltex’s performance and strategic direction.

The Board Charter notes that management of Caltex’s day-to-day operations is undertaken by the Managing Director & CEO, subject to specific delegations of authority approved by the Board. Any matters or transactions outside the delegations of authority must be referred to the appropriate Caltex Australia Group company board for approval.

The Managing Director & CEO has approved delegations of authority (subject to the limits referred to in the Board Charter) that apply across the Caltex business.

Letter of appointment for new directors
On appointment, a new director is provided with a formal letter of appointment.

The Board’s Nomination Committee has approved a standard letter for new directors, which sets out the key terms of a director’s appointment and the Board’s expectations of the director. The standard letter covers the matters referred to in the guidance and commentary for Recommendation 1.1.

Companies should disclose the process for evaluating the performance of senior executives

Managing Director & CEO
Mr Desmond King (Managing Director & CEO) is seconded to Caltex Australia from Chevron. The secondment ends on 30 June 2009.

The performance of the Managing Director & CEO is assessed annually against Caltex Australia’s performance benchmarks, as set out in a performance agreement, including a company scorecard. The results of the assessments are reported to Chevron.

For the 2008 performance year, the following process was followed in reviewing the performance of the Managing Director & CEO:

• the Chairman carried out an initial assessment of performance
• the Board’s Human Resources Committee took this into account, along with the Managing Director & CEO’s self assessment, and agreed a rating and assessment to recommend to the Board, and
• the Board approved a rating and assessment to be passed onto Chevron.

Caltex Leadership Team
The executive leadership team at Caltex (the Caltex Leadership Team) comprises the Managing Director & CEO and senior executives who report directly to the Managing Director & CEO.

At the beginning of each year, Caltex Leadership Team members agree performance objectives with the Managing Director & CEO. The objectives are based on Caltex’s annual business plan and strategic direction, and are documented in a performance agreement. Where applicable, a scorecard setting out performance targets, success measures and weightings is also agreed. The performance agreement, scorecard and senior leadership behavioural expectations all form part of the executive’s performance objectives for the year. Performance is formally reviewed mid-year and at the end of the year. This process was followed in 2008.

Companies should provide the information indicated in the Guide to reporting on Principle 1

Caltex complies with Recommendations 1.1, 1.2 and 1.3.

The following information is available from the Caltex website (www.caltex.com.au):

• Board Charter
• Performance Evaluation Process

2.1

A majority of the board should be independent directors

Caltex Board
The Caltex Board comprised a majority of independent directors at all times throughout 2008.

The Board, at the date of this report (20 February 2009), comprises:

• Ms Elizabeth Bryan (Chairman; Non-Executive Director/Independent)
  Appointed: 18 July 2002. Appointed as Chairman: 1 October 2007
• Mr Desmond King (Managing Director & CEO)
  Appointed: 1 May 2006
• Mr Trevor Bourne (Non-Executive Director/Independent)
  Appointed: 2 March 2006
• Mr Brant Fish (Non-Executive Director)
  Appointed: 27 July 2006
• Mr Greig Gailey (Non-Executive Director/Independent)
  Appointed: 11 December 2007
• Ms Colleen Jones-Cervantes (Non-Executive Director)
  Appointed: 1 June 2008; previously an alternate director from 27 July 2006 to 31 May 2008
• Mr John Thorn (Non-Executive Director/Independent)
  Appointed: 2 June 2004
  (Mr Peter Wissel serves as an alternate director for each of Mr Fish and Ms Jones-Cervantes)

Details of the skills, experience and expertise of each director are provided at pages 42 and 43 of this 2008 Annual Report. [click here]

Previous directors in 2008
As noted previously, Mr Peter Wissel serves as an alternate director for each of Mr Fish and Ms Jones-Cervantes. He was appointed as an alternate director from 1 June 2008. In 2008, Mr Wissel also served as a non-executive director until 31 May 2008; he had been appointed as a director on 23 August 2005. He was not considered to be an independent director because of his executive position with Chevron.

Mr Richard (Dick) Warburton served as a director until the end of the Annual General Meeting on 24 April 2008. He was appointed as a director on 29 July 1999 and served as Chairman from 26 April 2001 to 30 September 2007. Mr Warburton was an independent director.

Process for assessing independence
The Board makes an assessment of the independence of each director at the time of appointment and in February of each year. Directors are required, on an ongoing basis, to disclose relevant personal interests and conflicts of interest. A new interest or conflict of interest may trigger a review of the director’s independent status.

The matters and thresholds considered by the Board when determining whether a director is independent are set out in the Board’s Charter of Director Independence. The Board’s criteria for assessing independence reflect the guidance and commentary for Recommendation 2.1.

The independence criteria include:

• a relationship with a substantial shareholder
• previous employment in an executive capacity with Caltex
• service as a principal or an officer of a professional advisory firm, consultant, supplier or customer
• involvement in the external audit of Caltex or service as a partner, principal or director of the external auditor, and
• length of service.

The following materiality thresholds have been applied to:

• professional advisory firms and consultants:
  – 5% of total revenues (billings) of the professional adviser or consultant, or
  – 20% of Caltex’s total expenses for all services of the same, or a similar, nature, and
• suppliers and customers:
  – 5% of total supplies of the supplier or total purchases of the customer, or
  – 20% of Caltex’s total supplies or purchases of the same, or a similar, nature.

Under the Board’s Charter of Director Independence, Mr Brant Fish and Ms Colleen Jones-Cervantes, who are executives of Chevron, are not independent. Mr Desmond King (Managing Director & CEO) is not independent as he serves as an executive at Caltex; he is also an executive of Chevron but is seconded to Caltex.

The appointment of Chevron executives as directors allows Caltex to access the industry experience that these directors have gained from working at Chevron, one of the world’s leading global energy companies. These directors bring important knowledge and experience to the Board’s consideration of operational, strategic and business matters. This level and breadth of experience is generally not available from Australian based directors unless they are, or have been, involved in the petroleum industry. The potential pool of Australian based directors who would be available to Caltex is relatively small because many candidates have current or recent associations with Caltex’s competitors.

Meetings of non-executive directors
In 2008, it was the practice of the Board, at scheduled Board meetings, to hold preliminary meetings in the absence of Caltex management. Generally speaking, the non-executive directors met first, followed by a meeting of the non-executive directors and the Managing Director & CEO, with management then joining the Board meeting as required.

Access to independent professional advice
Directors may obtain independent professional advice at Caltex’s expense. Under a policy approved by the Board, a director who wishes to seek professional advice at Caltex’s expense must obtain the prior approval of the Chairman; in the case of the Chairman, the Chairman must obtain the prior approval of the Audit Committee Chairman.

2.2

The chair should be an independent director

The Chairman, Ms Elizabeth Bryan, is an independent director.

2.3

The roles of chair and chief executive officer should not be exercised by the same individual

The roles of Chairman and CEO at Caltex are not exercised by the same person. As noted previously, Ms Elizabeth Bryan serves as Chairman and Mr Desmond King serves as Managing Director & CEO.

2.4

The board should establish a nomination committee

The Nomination Committee is a standing committee of the Caltex Board. In 2008, the Nomination Committee comprised all Caltex directors. The Board Chairman, Ms Elizabeth Bryan, serves as Chairman of the Nomination Committee.

The responsibilities of the Nomination Committee are set out in the Committee Charter. The Committee Charter reflects the matters set out in the commentary and guidance for Recommendation 2.4.

The Nomination Committee met on two occasions in 2008. The number of meetings attended by each committee member is shown at page 66 of this 2008 Annual Report. [click here]

2.5

Companies should disclose the process for evaluating the performance of the board, its committees and individual directors

Directors and key executives participate in a review of Board performance every two to three years. The review is facilitated by an external consultant who conducts one-on-one interviews with directors and key executives based on a structured format agreed by the Board. The review includes directors providing feedback on other directors.

The external consultant prepares a report relating to Board performance as a whole, which is discussed by the Board. The actions agreed by the Board in response to the recommendations made in the consultant’s report are documented and completion of these items is monitored by the Board. The external consultant also meets with the Chairman to discuss the peer assessment of each director’s performance.

A Board performance review was carried out in late 2008 in accordance with this process. The results of the review were discussed by directors in February 2009.

2.6

Companies should provide the information indicated in the Guide to reporting on Principle 2

Caltex complies with Recommendations 2.1, 2.2, 2.3, 2.4, 2.5 and 2.6.

The following information is available from the Caltex website (www.caltex.com.au):

• Board Composition, Appointment, Induction & Election
• Committee Charter of the Nomination Committee
• Performance Evaluation Process

3.1

Companies should establish a code of conduct and disclose the code or a summary of the code as to:

• the practices necessary to maintain confidence in the company’s integrity
• the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders
• the responsibility and accountability of individuals for reporting and investigating reports of unethical practices

Caltex Code of Conduct
The Caltex Code of Conduct, as approved by the Board, sets out Caltex’s commitment to successfully conduct our business in accordance with all applicable laws while demonstrating and promoting the highest ethical standards. The code provides a framework for decision-making and business behaviour, which builds and sustains Caltex’s corporate integrity, reputation and success, and identifies responsibilities for reporting and investigating breaches. The code applies to directors and employees.

Each year, the Board reviews the Caltex Code of Conduct and receives a report from the Group Manager – Human Resources in relation to the administration of, and compliance with, the code.

The Caltex Code of Conduct reflects the matters set out in the commentary and guidance for Recommendation 3.1.

Relationship with Chevron
Chevron Corporation, through one of its subsidiaries, holds 50% of the ordinary shares in Caltex Australia Limited. Various subsidiaries of Chevron Corporation also enter into commercial arrangements with Caltex Australia from time to time.

Caltex benefits greatly from its relationship with Chevron. The Board is mindful of ensuring that Chevron is not favoured over other shareholders and that all arrangements with Chevron are appropriate. To this end, the Caltex Board has adopted a policy to govern all transactions with Chevron. Details of that policy, and other information concerning the relationship with Chevron, are set out in a document titled Relationship with Chevron on the Caltex website (www.caltex.com.au).

3.2

Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy

The Caltex Share Trading Policy, as approved by the Board, is designed to:

• minimise the potential for insider trading in contravention of the law by designated Caltex officers and other Caltex staff
• prohibit the hedging of unvested Caltex shares held by designated Caltex officers through incentive schemes, and
• set out clear rules for designated Caltex officers in relation to dealings in Caltex shares.

Directors and senior executives are nominated as designated Caltex officers under the policy.

In addition to the requirements of the insider trading laws, the policy requires that designated Caltex officers must not trade in Caltex shares in the following closed periods:

• for Caltex’s half year results (in August): from 1 July to (and including) the day of the announcement
• for Caltex’s full year results (in February): from 1 January to (and including) the day of the announcement, and
• any other periods designated and advised by the Board.

At any time other than a closed period, a designated Caltex officer may trade in Caltex shares but only if they are not in possession of inside information. All other Caltex staff may trade in Caltex shares at any time but only if they are not in possession of inside information.

Under the policy, designated Caltex officers who hold unvested Caltex shares must not enter into any transaction that is designed or intended to hedge the exposure to the unvested shares. The policy was revised from 1 November 2008 to require designated Caltex officers to include details of margin lending arrangements when giving notice of a proposed transaction in Caltex shares. The policy also requires that designated Caltex officers provide a certificate to the Company Secretary following the end of each year in which the officer confirms compliance with the policy.

The Caltex Share Trading Policy reflects the matters set out in the commentary and guidance for Recommendation 3.2.

3.3

Companies should provide the information indicated in the Guide to reporting on Principle 3

Caltex complies with Recommendations 3.1, 3.2 and 3.3.

The following information is available from the Caltex website (www.caltex.com.au):

• Caltex Code of Conduct
• Relationship with Chevron
• Caltex Share Trading Policy

4.1

The board should establish an audit committee

The Audit Committee is a standing committee of the Caltex Board. The committee’s role is to assist the Board to fulfil its responsibilities in relation to:

• the integrity of reporting to shareholders and the market on the financial performance and position of Caltex and its controlled entities, and
• overseeing the independence of the external auditor.

4.2

The audit committee should be structured so that it:

• consists only of non-executive directors
• consists of a majority of independent directors
• is chaired by an independent chair, who is not chair of the board
• has at least three members

The Audit Committee comprises Mr John Thorn (Committee Chairman), Mr Trevor Bourne and Mr Greig Gailey (appointed 1 May 2008). As noted previously, Mr Thorn, Mr Bourne and Mr Gailey are independent, non-executive directors.

In 2008, Mr Peter Wissel served as a member of the committee until 30 April 2008. Mr Wissel was not an independent director.

Details of the skills, experience and expertise of each committee member are provided at pages 42 and 43 of this 2008 Annual Report. [click here]

From 1 May 2008, the Audit Committee was comprised of only independent directors. The Committee Charter was formally amended with effect from 1 September 2008 to require all committee members to be independent directors. Previously, the charter required a majority of members to be independent.

The Audit Committee met on four occasions in 2008. The number of meetings attended by each committee member is shown at page 66 of this 2008 Annual Report. [click here]

4.3

The audit committee should have a formal charter

The responsibilities of the Audit Committee are set out in the Committee Charter. The Committee Charter reflects the matters set out in the commentary and guidance for Recommendation 4.3.

4.4

Companies should provide the information indicated in the Guide to reporting on Principle 4

Caltex complies with Recommendations 4.1, 4.2, 4.3 and 4.4.

The following information is available from the Caltex website (www.caltex.com.au):

• Committee Charter of the Audit Committee
• Caltex External Auditor Policy

5.1

Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies

The Caltex Continuous Disclosure Policy, as approved by the Board, sets out the key obligations of the Board and senior management to ensure that Caltex complies with its disclosure obligations under the ASX Listing Rules and the Corporations Act 2001.

As noted in the policy, the Board has appointed three disclosure officers (the Managing Director & CEO, the Chief Financial Officer and the Company Secretary/General Manager – Office of the CEO), who are responsible for compliance with Caltex’s continuous disclosure obligations. In addition, the Board has appointed the Company Secretary as the primary person responsible for communications with the ASX in relation to Listing Rule matters.

The Caltex Continuous Disclosure Policy reflects the matters set out in the commentary and guidance for Recommendation 5.1.

5.2

Companies should provide the information indicated in the Guide to reporting on Principle 5

Caltex complies with Recommendations 5.1 and 5.2.

The Caltex Continuous Disclosure Policy is available from the Caltex website (www.caltex.com.au).

6.1

Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy

The Caltex Shareholder Communications Policy, as approved by the Board, is designed to promote effective communication with shareholders and encourage participation at general meetings.

As noted in the policy, Caltex supports the use of electronic and other means of communicating with investors and utilises the means of communication best suited to the information and audience at the time and most relevant and effective for the shareholder base.

The Caltex website (www.caltex.com.au) contains links to our Board and committee charters, corporate governance policies and processes, investor presentations, full year and half year results announcements, ASX announcements, annual and half year reports, shareholder meetings and other corporate information. To go directly to the corporate governance section of the website, please visit www.caltex.com.au/about_gov.asp.

Shareholders can also write to the Caltex Secretariat (at Level 24, 2 Market Street, Sydney NSW 2000) to request a copy of corporate governance documents.

The Caltex Shareholder Communications Policy reflects the matters set out in the commentary and guidance for Recommendation 6.1.

6.2

Companies should provide the information indicated in the Guide to reporting on Principle 6

Caltex complies with Recommendations 6.1 and 6.2.

The Caltex Shareholder Communications Policy is available from the Caltex website (www.caltex.com.au) .

7.1

Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies

The Board has approved a risk management policy for the effective management of risk across the Caltex business. The policy sets out details of the proactive and systematic approach that Caltex takes to managing risks and identifies the roles and responsibilities of the Board, management and employees in the oversight and management of Caltex’s risks.

The Managing Director & CEO is responsible for implementing the policy across the Caltex Australia Group.

The Board has approved risk management policies in relation to crude, product and freight hedging, interest rate management, liquidity risk management, foreign exchange risk management, treasury controls, credit risk management and trade practices. The Board’s OHS & Environmental Risk Committee has approved policies in relation to occupational health and safety and the environment.

7.2

The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks

Caltex has adopted a risk management framework throughout its operations to proactively and systematically identify, assess and address events that could potentially impact upon business objectives. This framework integrates the consideration of risk into activities at Caltex so that the key risks in relation to the efficient and effective operation of functions and the successful execution of Caltex’s business strategy are identified, control measures are evaluated and, where required, improvements in these controls are scheduled.

Under Caltex’s risk management policy, which supports the risk management framework, every department must complete risk and control snapshots relating to key risks as part of the development of the annual business plan. In addition, a consistent project development and execution process has been adopted to manage risks for all of Caltex’s major initiatives and projects.

For each key business risk identified through the risk management framework, the control measures in relation to those risks must be identified and documented and their effectiveness regularly assessed. Where a control is assessed as ineffective, improvements in the control must be scheduled.

Regular reports are provided (as appropriate) to the Board, the Audit Committee, the OHS & Environmental Risk Committee, the Compliance & Risk Committee (a management governance committee) and departmental leadership teams on key business risks, including the status and effectiveness of control measures in relation to each of those risks. The key business risks reported are determined having regard to “worst case” scenario planning (for people, environment, financial and reputation categories).

In 2008, reports on key risks were provided to the Board and the OHS & Environmental Risk Committee on four occasions. Internal audit reports were also provided to the Audit Committee and the OHS & Environmental Risk Committee during the year.

Risks involving progressively lower “worst case” impacts are reported to the Caltex Leadership Team, the Compliance & Risk Committee and departmental leadership teams.

7.3

The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks

In February 2009, the Board received a statement in relation to the 2008 full year results from the Managing Director & CEO and the Chief Financial Officer covering the matters set out in section 295A of the Corporations Act 2001 and in accordance with the terms stipulated in Recommendation 7.3.

The Board received a similar statement from the Managing Director & CEO and the Chief Financial Officer in August 2008 for the 2008 half year results.

7.4

Companies should provide the information indicated in the Guide to reporting on Principle 7

Caltex complies with Recommendations 7.1, 7.2, 7.3 and 7.4.

The Summary of Risk Oversight & Management Policies is available from the Caltex website (www.caltex.com.au).

8.1

The board should establish a remuneration committee

The Human Resources Committee is a standing committee of the Caltex Board. The committee’s role is to:

• assist the Board by reviewing remuneration policies and programs that create appropriate incentives for senior executives and employees to work in the best interests of Caltex and support the retention and development
  of those senior executives and employees
• advise the Board on remuneration arrangements for directors, and
• advise the Board on the disclosure of Caltex’s remuneration practices in the annual report to shareholders.

The Human Resources Committee comprises Mr Greig Gailey (Committee Chairman), Mr Brant Fish and Mr John Thorn (appointed 1 May 2008). As noted previously, Mr Gailey and Mr Thorn are independent directors.

Mr Richard (Dick) Warburton served as a member of the committee until 24 April 2008. Mr Warburton was an independent director.

The Human Resources Committee’s responsibilities are set out in its Committee Charter. The Committee Charter reflects the matters set out in the commentary and guidance for Recommendation 8.1.

The Human Resources Committee met on seven occasions in 2008. The number of meetings attended by each committee member is shown at page 66 of this 2008 Annual Report. [click here]

8.2

Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives

Non-executive directors
Remuneration for non-executive directors is fixed. Non-executive directors do not participate in any incentive plans. The Board operates a share plan which allows non-executive directors based in Australia to sacrifice fees to acquire Caltex shares. Non-executive directors do not receive any retirement benefits except superannuation.

In 2008, Mr Richard (Dick) Warburton received $330,629 as payment of an accrued retirement benefit under a previous scheme for non-executive directors (which was discontinued by the Board in December 2003). Mr Warburton’s accrued retirement benefit at 31 December 2003 was frozen and paid into a separate interest bearing account pending his retirement. No current directors are entitled to an accrued retirement benefit.

For information about Caltex’s remuneration practices for non-executive directors, please refer to the remuneration report at pages 45 to 65 of this 2008 Annual Report. [click here]

Managing Director & CEO
As noted previously, the Managing Director & CEO is seconded to Caltex from Chevron.

For information about Caltex’s remuneration practices for the Managing Director & CEO, please refer to the remuneration report at pages 45 to 65 of this 2008 Annual Report. [click here]

Caltex Leadership Team
Members of the Caltex Leadership Team have the following remuneration components:

• base salary
• statutory entitlements (including superannuation and long service leave, where applicable)
• a short-term incentive, and
• a long-term incentive

In 2008, two members of the Caltex Leadership Team, Mr Andrew Walz (General Manager – Marketing) (appointed: 1 April 2008) and Mr Brian Waywell (General Manager – Refining) (resigned: 30 November 2008), were seconded to Caltex from Chevron.

For information about Caltex’s remuneration practices for members of the Caltex Leadership Team and other senior managers, including Mr Walz and Mr Waywell, please refer to the remuneration report at pages 45 to 65 of this 2008 Annual Report. [click here]

8.3

Companies should provide the information indicated in the Guide to reporting on Principle 8

Caltex complies with Recommendations 8.1, 8.2 and 8.3.

The following information is available from the Caltex website (www.caltex.com.au):

• Committee Charter of the Human Resources Committee
• Caltex Share Trading Policy