Corporate Governance Question Answer 2022

Running Head: CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Name Of the Student
Name Of the University
Author’s Note

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ANSWER 1:
The case study discusses the acquisition and merging of two corporations under the title head
Arcelor and the Mittal in the year of 2006 according to Zarin and Yang 2011. Arcelor Mittal is
the title heir of the Mittal Steel corporation, a business company which was incorporated in the
year 1976 by its owner, Mr. Lakshmi Mittal. The ArcelorMittal was constituted and formed in
the year 2006 due to merging of the two companies called the Arcelor, as a separate legal entity
and the Mittal as another legal business separate entity. It was a hostile merging by the Mittals
due to various factors but it turned out as the world’s largest steel industry. Mittal previously
constituted a unitary form of the Board of Directors. Such constitution of Board of Directors
means that the entire governance and management of the company affairs is under the control of
a single body (O’Boyle and Shilbury 2016). There no separate governing body formed for the
purpose of governance department to the Board of Directors. Hence, such unitary form of Board
constitutes of four various kinds called; a board of directors, such board constitutes majority of
non-executive directors. On the other hand, Arcelor constituted two tier Board located in
Luxembourg. Such two-tier Board of Directors is the structure in which the two subsidiaries are
formed as decision making board and the supervisory board where the two subsidiaries are
constituted on either side of the Board, functioning as independent entities (Block and Gerstner
2016).
After the merging of Arcelor and Mittal as a separate unitary entity, a new company was
formulated names as the ArcelorMittal with a revised set of Board of Directors with appointment
of 18 members and all the eighteen members being a part of non-executive team. In such kind of
board of directors, majority of the directors are independent. In the newly formulated entity, the

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Mittal corporation retained its supremacy with the voting rights in the company by holding of the
majority of shares amounting to 43.5% shares equivalent to the similar percentage of voting
rights in the affairs of the company. The company is incorporated as the Public Limited Liability
Corporation which is managed by its board of directors as the decision making authority. The
Board of Directors are incorporated and allowed to work as per the provisions under the articles
of association of the company (McLaughlin 2018). The revised directors of the Board formulated
six members from the Arcelor and six from the Mittal and three representatives from the existing
Arcelor shareholders and three representatives of the employees. Therefore, it has already been
stated that most of the members formulating the board are the non-executive members of the
company.
It can be discussed inferring the above analysis, that the newly constituted board of
directors is an example of the unitary form of board of directors, constituting majority of non-
executive directors. This kind of Board of Directors is not commonly found in the corporations
which are listed and the members are mostly excelled in the organizations which are non-
profitable, including those dealing with sports, health sectors, trust and so on. The structure of
the board deals with the recognition of Mittals monarch in the process of decision making in the
governance and management of the company.
The unitary board of directors is known for emphasizing a single body for the governance
or the decision making process of the company. Therefore, such arrangements has its advantages
as compared to two-tier body of governance. Firstly, the model has a single governing unit, it
owns certain advantages related to the independency of the system of governance without any
opinion being conflicted by any other body within the similar capacity. Thus, the decision could
be taken easily and in the essence of fast flowing decision. In addition, the decision of the body

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would be single headed, which would be free from all kinds of ambiguity. Secondly, the sharing
of data would be one way flowing and in its emphasis lies in one way. Thus, approval is not
required from one body to the other (Saeed and Saeed 2018). Better communication ways and
technologies result in better working atmosphere and effective learning productivity of the
people. Thirdly, the benefit of the unitary form extends its essence to the directors as a single
authority for the making of decisions in the entire procedure of decision making. The non-
executive directors also gives their suggestions to the directors who are executives. Fourthly, as a
unitary model of decision making process, the members interact with the directors who are
executive which improves their relationship with the directors and hence the implementation of
their ideas and plans.
However, such unitary form of decision making process by the directors suffers from
certain disadvantages as explained by Malkawi 2018. The CEO of the organization holds a very
important position in the Board panel for the directors. If any dispute exists between the CEO
and the board members, the interest of the company would be affected in an adverse situation.
Furthermore, the interference of the non-executive directors in the decision making
process lead to an increased risk of liability imposed upon the company. And finally, the
personal relationship can affect the managerial relationship of the company including the
managerial matters, appointment and monitoring of the company. Biasness and unfair personal
views and relationships are a significant concern in such a unitary form of decision making
model.

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ANSWER 2:
In the given scenario, it can be explained that the voting rights as retained by the Mittal is
43.5% which is the majority of the voting rights of the newly constituted company. Voting rights
means the rights available to the shareholders depending upon the class of shares being held by
them. Such majority voting rights includes the decision making procedure of the directors in the
matters related to the operations of the corporation. The voting rights are held by the virtue of
shares held by the shareholders of the company. The votes is applicable on the various matters of
company relating to its operations. However, each shareholder is entitled to only one voting right
disregarding of the quantity of shares being held by him or her. But the percent of shares held
defines the percent of vote being casted by that one vote given by such shareholder. The voting
rights are casted only at the general meetings of the company. However, the rights to vote is also
extendable to the matters relating to the special operations of the company. The vote may be
casted by the person holding the shares or by the proxy appointed by such person on account of
the quorum being maintained in the meeting. Shareholders are the owners of the company by
virtue of holding shares. Thus, the Mittal family are the virtual owners of the company by the
virtue of the ownership of the majority of the shares amounting to 43.5%.
Institutional Investor, as the name suggests , do not include a specific single investor but
six types of methods of investing in a company by the means of financial institutions. They are
commercial banks, mutual funds, pension funds, pension funds, insurance companies, hedge
funds, and endowments funds (Rutterford and Hannah 2016). These are a non-financial
organisation which pools in money to buy and sell the securities and the properties owned by the
companies and other processes of investment methodologies. Such institutional investors play a
vital role in the recognition of financial zones of the market as explained by Bai, Phillipon, and

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Savov 2016. They are the largest radical force in the trading of securities in the market. The six
categories of these financial institutions have been explained as below:
Mutual Funds are the most popular type of financial institutional investing medium
(Kacpercyzk, Van and Veldkamp 2016). It is an open-ended class of investment that pools in
money from people into a fund operated mode by the manager. Such investments mode consists
of bonds, stocks, currencies, and other kinds of virtual security stock. On the other hand, hedge
funds are those which involve complete use of funds in order to promote high market returns
(Cao et al. 2016). Pension funds are those that are paid to the employees after they have been
retired from the company. These funds are a fusion of employees contribution as well as the
contribution made by the employer towards the service rendered by the employee to the
organization and his or her rewards against the same (Anzia and Moe 2016). There are two types
of pension funds, where one is benefit fund and the other is the contribution fund. Endowment
contributions are such types of funds that are recognized by the organizations involved in
religious activities, institutes, educational universities, and other forms of non-profit
organizations. Such organizations collect funds by the way of donations. An insurance
corporation however, slightly differs from the entire arrangement of institutional investor. It
means that the health of a person including that of a corporate entity is insured against the risks
or harms averted or foreseen by the insurer indemnifying the party incurring the damages.
Commercial banks are those institutions which extends financial assistance to people at large
(Alalaya and Al Khattab 2015).
It is however a topic under consideration whether the institutional investor plays any role
in the governing system of the organization. While few scholars agree with the consideration of

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interference of the institutional investors, others however, argue against the same on the ground
of different requirements for the decision making of different aspects of functioning.
In the given scenario, Mittal had held 43.5% of the voting rights. Hence, the institutional
shareholders are significantly the minority shareholders. Such rights impose effects on the
management of the company. In addition to above, when the family members are co-existent in
the decision making process of the company, the dispute between the board and the company
members shall be created in the interest of the institutional investor. Such an arrangement
curtails the influence of voting rights of the institutional investors. The proposals submitted
usually gets the affirmation of the majority shareholders and their implementation is not
otherwise affected by the disapproval of the minority shareholders. Such benefit is not available
to the institutional investors owing to their minority voting rights.
Therefore, enactment and implementation of legislation signifies the governance of the
affairs of the company in the presence of majority shareholders in accordance to the benefits
availed by the majority shareholders and the similar benefits being ensured to the minority
shareholders. Therefore, to avoid such circumstances, the balance between the numbers is
important to continue the work harmoniously within the organization.
ANSWER 3:
A thorough detailed study has ensured us to refer to the article of Financial times being
published in April 26, 2006 as explained by Lipton 2006. It has been detailed in the survey about
the scenario of the newly constituted structure of the board of directors of the company upon the
merging and acquisition of the two parent companies namely Arcelor and Mittal in 2006. The
merits and demerits of such structure is discussed as follows.

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The merging of the board has several advantages to the company. First being the result of
better governance of the company. However, before the completion of the merging, the Mittals
owned the majority of shares and the same continued even after the merging of the company.
The Mittals continued to be the monarch owners of the company. Thus, in such a set-up, Mittal
ensures better management of the company by way of major retention of shares of the company
within the control of the name of the Mittals. Secondly, Mittal held 98.3% of the votes by virtue
of which, there will be little or no disagreement in the decision making capacity of the
organization. Thirdly, the task of the organization shall be carried out more efficiently by the
way of spontaneous decisions. Fourthly, the sharing of information would be easy as it is a
unitary form of board of directorship. All the matters relating to the company issues and the
related plans needs to be reported to one head in one place instead of numerous different heads.
Hence, the process of information sharing becomes easy and efficient.
However, on the contrary, the demerits of the system are discussed as follows. Firstly, the
merging of the companies, Mittal had kept 99.3% of the voting rights which means that the
majority of the voting rights is implied with the Mittals. This may satisfy the members of the
organization who are non-family executives as their opinions are given certain importance.
Secondly, the merging and the acquisition of the company caiuses the investors to worry about
the vitiation of the interest of their company. Thirdly, the governance and the management of the
company will be done in accordance with the decision being taken by the Mittals. There can
however, be a conflict of interest between the CEO and the outsider shareholders which can be
analysed and explained in accordance with the close relationship being maintained with the
Mittals. Such relationship can further influence the decision by the consideration and implication
of thoughts and ideas in the formers. Fourthly, the proposals submitted by other members, if are

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not liked by the Mittals, can be immediately denied by them without being in conflict with the
opinions of the minority shareholders and on the contrary if a proposal is being liked by the
Mittals, then such proposal is immediately accepted and executed by the company. Hence, the
relationship with the Mittals in such a unitary form of board is necessary for the acceptance and
implementation of the business proposals and its planning schemes in the company. Thus, it can
also be understood that the opinions of the minority shareholders would not override the
decisions of the majority shareholders. Thus, according to Makhlouf et al. 2018, independent
directors are those who do not have any direct interest involving money in the corporation and in
the given scenario, such directors hold five out of six designated positions in the Board. They
basically only help with the management and the governing matters of the company.
Therefore, the Board formed after the merging of the companies Arcelor and Mittal had
both advantagous and disadvantageous aspects. However, this contractual relationship has
resulted in the constitution of the biggest steel industry in the world.

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