Corporate Administration: Precedence and Drawbacks of the Board Structure after the Arcelor-Mittal Merger

An in-depth study of the board structure after the Arcelor-Mittal merger, highlighting the advantages and disadvantages. Discusses the role of the Mittal family, voting rights, and impact on institutional investors. Provides insights into the largest steel manufacturing industry in the world.

Running Head: LAW
CORPORATE ADMINISTRATION
Name of the Student
Name of the University
Author’s Note

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Answer 1:
According to Zarin and Yang, 2011, the documentation deals with the subject subject
matter of amalgamation of the two organizations Arcelor and Mittal in the year 2006. Arcelor
Mittal is the descendent of Mittal Steel, a trading agency that was established in the year 1976 by
Mr. Lakshmi N Mittal. The Arcelor Mittal was assimilated and acknowledged in the year 2006
by the virtue of amalgamation of the two separate organizations called the Arcelor and Mittal. It
was a pugnacious assimilation by the Mittals, which however, developed into the world's biggest
steel plant. Mittal earlier composed a unitary form of Board of Directors. Unitary form of Board
of Directors means that the absolute presidency of the organization is carried out by a single
frame (O'Boyle and Shilbury 2016). There is no emergence of disparate administration board.
Unitary Board is made of following types: a board of directors, a board formed with
predominance of non-executive directors. On the contrary, Arcelor was formed in Luxembourg
with two tier board frame. The two-tier board frame is the kind of frame, which has two ancillary
boards called the management board and the supervisory board. It is formed by the two directors
of the board each on the ancillary board. This type of framework is called the dual board
structure. The two ancillary in a two-tier board toil singly of each other (Block and Gerstner
2016).
After the assimilation of Arcelor and Mittal, the new organization named as the
ArcelorMittal is formed of a new team of Board of Directors with 18 members, with all the
eighteen being non-executive. Out of such Board of Directors, predominance of them are solo
and singly. In the newly formed organization, the Mittal family however reserved 43% of the
total voting rights. It is formed as the Public Limited Responsibility and accountability
Corporation administered by its board of directors as the judgment making chief. The board of

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Directors are working in corcordant with the provisions professed in the articles of association of
the organization (McLaughlin 2018). The new team of directors of the Board comprised of six
directors from Arcelor, six from Mittal and three spokesperson of existing Arcelor share-holders
and three employee spokesperson. Predominance of the board of directors is non-executive.
From the above study, it can be interpreted that the newly designed board of directors is a
sample of unitary board of directors, comprising predominance of non-executive directors. This
group of Board is unconventional originating in the public organizations, which are listed, but
are predominantly shine in the excellence of non-commercial association counting those trading
with sports, trusts, charity, health sectors and others. The frame of the Board details the
predominance of Mittals in the judgment-making processes in the organization’s administration.
The unitary board of directors has only single administration or judgment-making body.
Thus, such disposition has its possess convenience as juxtaposed to the replica of the two-tier
body. Firstly, since the replica has a unitary body, it possesss certain convenience of solo
potency of the administrative system without any juxtapose of outlooks. Therefore, the judgment
can be taken effortlessly and in the flow of speedy judgment making. Also, that the judgment
would be single minded liberal from ambiguity. Secondly, the flow of transmission of
information would be constructive and one way. Therefore, no assent is required from one board
to the other (Saeed and Saeed 2018). Better transmission of information techniques lead to better
working environment and constructive among the people. Thirdly, the benefit of the replica
broadens its support to the directors who are absolutely elaborated in the process of judgment
making and its connected conversations. The directors who are non-executive also accord their
propositions to the ones who are executives. Fourthly, as a unitary form of judgment making

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replica, the members commune with the executive directors with ease which amplifies the
individual alliance along with the better study of the trading and its necessities.
However, such unitary model of board of directors also faces certain dpossesssides as
elucidated by (Malkawi 2018). The CEO of the firm ensures a chief designation in the board. If
any affiliation exists between the CEO and the other members of the board, the profits of the
firm would be pretentiously bad.
Furthermore, the intrusion of the non-executive directors lead to an increased risk of
responsibility and accountability. And finally, the personal association can impact the
management of the firm including the subject matters of management, appointment and
monitoring of the firm. Favoritism based on personal views and associations are a predominance
concern in such unitary model of judgment making.
Answer 2:
In the given scenario, it can be interpreted that the voting rights as reserved by the Mittal
family is 43.5%. It means that the predominance of the voting rights is reserved by the family.
Voting rights means such rights available to the shareholders depending upon the class of shares
being held by them. Such voting includes judgments of Board of Directors relating to the
changes in the operation of the firm. This voting rights is generally ensured to the shareholders.
The granting of votes is suitable on various subject matters of the firm. However, each
shareholder has only one voting right irrespective of the quantity of shares being reserved by him
or her. Such rights are agitated only at the general meetings of the firm. However, the right to
vote also extends to the subject matters of special operations. The granting of vote may be
personally done by the person or by the means of the proxy depending upon the quorum of the

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meeting has been fulfilled. Shareholders are also the persons who can virtually possess the firm
by the means of possessing the shares. Therefore, the Mittal family virtually possesss the firm by
possessing the predominance of shares up to 43.5%.
Institutional investor, as the name of the term suggests does not include a particular
individual but six types of investors which are commercial banks, mutual funds, pension funds,
insurance companies, hedge funds, and endowment funds (Rutterford and Hannah 2016). It is a
non-financial firm, which administers money to transact securities and real estate properties and
other processes of speculation methodologies. Such institutional investors play a crucial role in
the conventional financial markets (Bai, Phillipon and Savov 2016). They are largest driving in
the security trading market. The six categories have been further interpreted below.
Mutual Funds are the most common types of the institutional investment (Kacpercyzk,
Van and Veldkamp 2016). It is a class of flexible investment that draws money from people into
a fund operated by the manager. Such investments comprises of bonds, stocks, currencies, and
other kinds of digital mode of stock security. Hedge funds are those which involve utilization of
funds in order to encourage predominant market returns (Cao et al. 2016). Pension Funds are
those funds, which are rewarded to the employees after their retirement from the services
contributed to the firm. These funds are calculated from the deduction of a part of the employees
salary into a fund along with the contributions made by the employer to such fund (Anzia and
Moe 2016). There are two types of pension funds where one is the type of benefit fund and the
other is the fund contributed. Endowment funds are those that are used by the organizations
involved in institutes of religious studies, educational universities, and other non-profit
organization. Such funds are composed by the way of gratuity or offering. An insurance
corporation, is one where a third party indemnifies the insured party from the losses foreseen as a

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part of danger like fire, death, marine injuries or injuries suffered during travelling and so on.
Commercial banks are those which extend financial assistance to public at large (Alalaya and Al
Khattab 2015).
It is a very controversial topic that whether the institutional investors play any role in the
governing system of the firm. While few scholars consider that the institutional investors must
interfere in the administration of the firm whereas the others consider that the intrusion is not
required because every investor has a different aspect of functioning.
In the given scenario, Mittal reserved 43.5% of the voting rights. Hence, the institutional
shareholders are the minority shareholders. They impose impacts on the administration of the
firm. Furthermore, when the members of a family constitute a board of directors of a firm, they
can create affiliation in the interest of the institutional investors. It further curbs the influence of
the voting rights of the institutional investors. The prepositions submitted by the shareholders
usually uplift the support of the predominance of the shareholders and therefore, their proposals
get executed and implemented easily in the organization. Such benefit is not availed by the
institutional investors.
Thus, in order to let the institutional investors to signify the administration in the
presence of predominance shareholders, there shall be an enactment and implementation of
legislation according to which it would ensure voting benefit rights to the minority shareholders.
A firm's efficiency gets affected if there exists a conflict between the shareholders and the
investors. Thus, to avoid such circumstances, the balance between their numbers is important to
work harmoniously.
Answer 3:

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An in-depth study of the article published in Financial Times published in April 26,
2006 (Lipton 2006) explains a very transparent overview of a recently constituted frame of the
board after the assimilation of the organizations in 2006. The precedence and drawbacks of the
board structure are elaborated in the following discussions.
The precedence of the newly formed board structure are firstly, the assimilation
culminates into better administration of the management and administration of the firm. Before
the completion of such assimilation, Mittal was already a predominance shareholder of the firm
shares. After the assimilation, Mittal continues to reserve the predominance shareholding
position of the firm. Since, the Mittals have history of predominance power ensures better
administration. Secondly, Mittal reserved 98.3% of the votes, owing to which, there will be little
or lax disagreement in the judgment making capacity of the firm. Thirdly, the work of the firm
could be carried out more efficiently by the way of spontaneous judgments. Unnecessary delay
in the process of judgment making. Fourthly, transmission of information among the members
will be smooth. There will be clarity among the members with respect to the transmission of
information and judgment making.
However, other than the affirmative aspects, there are certain downside to the system.
Firstly being the assimilation of the two singly firms, Mittal had reserved the predominance of
control in his possession. they own 99.3% of the voting rights which means the predominance
voting rights is in the control of the Mittal. This may satisfy the other non-family members as
their opinions being given certain vitality. Secondly, the assimilation causes the investors to
worry about the vitiation of their interest in the firm. Thirdly, the administration of the firm will
be done in concordance to the judgment made by the Mittals. there can however be a coalition
between the CEO and the outsider shareholders which can be analyzed that if the shareholders

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maintain a close association with the Mittals, the latter can influence the judgment by imposition
of ideas in the formers. Fourthly, the prepositions if not liked or affirmed by the Mittals, they can
be rejected by a single vote granted by them. Hence, the minorities can never override the
judgments of the predominance shareholders. Fifthly, the shareholders of Arcelor are
unconfident because the Mittals possess the most vital role in the administration. Sixthly, the
issue lied whether there is any safeguard available to the non-member shareholders of the board
of the holding firm. Mittals had three groups of directors, A, B, and C. No one is constituting as
the last Chief Operating Officer in Group B which was lapsed a year back. Hence, the only scope
of confidante information for the non-executive directors from the origin of non-family was not
available. On the contrary, however, the group A directors satisfied most of the powers as the
group constituted of Mittal , and his children. The group C has non-executive directors with
more restrictive rights contrasting to the other shareholders of the firm. Such directors are elected
for only the period of one year while the Group A directors are elected for 4 years. Therefore,
Group C directors follow the judgments as passed by the Mittals. According to Makhlouf et al.
2018, independent directors are those who do not have any monetary interest in the corporation
and in the given scenario, such directors hold five out of six positions in the Board. They actually
only assist with the administration of the firm.
Therefore, the Board formed after the merging of Arcelor-Mittal had both advantageous
and disadvantageous aspects. However, this amalgamation has led to the outcome of the
constitution of the largest steel manufacturing industry in the world.

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