Corporate Governance Answer 2022

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

1
CORPORATE GOVERNANCE
ANSWER 1:
The thesis deals with the merging of the two companies called the Arcelor and the Mittal.
Lakshmi Mittal is the Indian billionaire who emerged as the biggest tycoon of the steel company
with a five month combatting merger with the Arcelor, a company located in Luxembourg. The
merging was happened in 2006 and the new entity was constituted called the ArcelorMittal
which emerged as the biggest manufacturer of steel with annual production of approximately
92.5 million metric tonnes ("Annual Report 2018 on Form 20-F ArcelorMittal". ArcelorMittal).
It was designated as the 123rd position in the Fortune Globe ranking of 500 biggest corporations
in 2017 ("91. ArcelorMittal", GLOBAL 500 - Our annual ranking of the world's largest
corporations, CNN).
The Arcelor and the Mittal have ever followed two different types of governance system
for the foundation of BoDs. While one lays the foundation for the unitary form of Board whereas
the other forms the two-tier form of BoDs. The two-tier BoD (Waweru 2017) are recognized
where the governance of the company is divided into two categories. One dealing with the
managerial head and the other dealing with the supervision head. Both the heads being
independent of each other and their governance (Belot et al. 2014). However, in the unitary form
of BoDs, it has been explained that there has been a single entity or body of governance acting as
the major directive authority for the same.
In the given scenario, Mittal retained the 43.5% of the shares inclusive of the voting
rights and hence, it led to the constitution of the unitary form of BoD in the Company. They are
majority shareholders of the company inclusive of the majority of the voting rights of the

2
CORPORATE GOVERNANCE
company. It ensures that the supreme authority of the majority share-holders is retained and that
of the directive is authorized to the supreme shareholders.
In the newly constituted company called the ArcelorMittal, the BoD comprised of the
eighteen members and all of whom were the non-executive members of the Board. The majority
of the Board members are a part of non-executive team of directors while three are chosen from
the representatives of Arcelor and remaining three from the representatives of employees.
However, the majority of such directors are non-executive by nature. However, the nature of
rights and duties inclusive of the corporate obligations of such directors are all laid down in the
Articles of Association of the Company (Jeżak and Bohdanowicz). Thus, the structure of Board
ensures that the Mittal and family are the supreme Monarchs in the procedure of directive with
respect to the affairs of the company.
The unitary form of BoD is well known for its supreme head controlling the state of
organization of the company as a single directive authority. This kind of arrangement has its own
share of advantages and disadvantages. The first advantage enumerates that the unitary form
ensures that independency of the directive authority is maintained by the members of the Board
and the employees of the company. Such direction would be independent and free from all kinds
of ambivalence due to its source of recognition being a single source of directive authority. The
second advantage of the unitary form of Board is that the flow of direction is coming from a
single head and hence, there does not exist a single ground for dispute or ambiguity in any policy
being formulated and passed by the Board. Therefore, the approval for the enactment and the
passing or implementation of any policy is at the sole and sheer will of the major shareholder and
the same is not required from a number people depending upon the advises given to them.
Therefore, the mode of communication improves with the adoption of such model.

3
CORPORATE GOVERNANCE
However, the unitary form of BoD owes certain disadvantages to the scale. Th first
disadvantage of the unitary form of Government is that since CEO is responsible for all the
directive process of the company, thus, in case that any personal relationships are developed in
the due course of time between any member and the CEO, but any personal interest should not
be given more attention than the interest of the company. Further, the Board is constituted of all
the non-executive members. However, the opinion put forth by the members shall be considered
before taking any direction. However, in any circumstances, it is the development of personal
relationships which impose threat upon the interests of the company. Thus, in unitary form of
BoDs, the biasness and favourism are the most feared technique which may make the entire
direction ambiguous. To avoid such circumstances, the court may apply the rule of lifting up of
the corporate veil to ensure that the culprit does not camouflage behind the face of the company
(Stubbs and Rogers 2014). As it has been explained in Solomon vs. Solomon ([1896] UKHL 1),
the face of the company shall prove the matters related to the company. But if any director or
member tries to fulfil his or her personal needs behind the face of the company, then the veil of
corporate entity shall be lifted to assess the actual interest of the related and disputed matter as
per the profitability of such matter to the company. If the profitability of the company is ignored,
then such member shall be charged with criminal grounds and such offence shall amount to
criminal offence.
In spite of such differences, the two parent companies Arcelor and Mittal decided to
merge together, with the outcome being three times larger than the immediate competitor of the
Arcelor in Luxembourg. Hence, it is recognized as one of the most powerful merging of all times
in the history of business and market.
ANSWER 2:

4
CORPORATE GOVERNANCE
The voting rights of a person is determined by the type of shares being held by the
person. However, the number of shares being held does not affect the position of the party. The
voting rights are casted in the general meeting of the company. However, the meetings can also
extend to the matters special matters and the voting rights shall be exercisable on such matters.
The votes casted by the directors have legal effect and such casting may be exercisable in two
forms. Firstly the casting of vote could be exercised in person and secondly by the means of a
proxy provided that the requirements by law to present a proxy has been met. In the given
scenario, Mittal being the majority shareholder, vitually owns the company by the way of
complete control over the governance and the administration of the company. Being such a
majority control over the matters of the company, every direction made in the affairs of the
company shall be subject to the confidante of the Mittal.
Institution Investors play a very significant role in regulation of rights in the company
Board (McCaharey 2016). They are appointed by the Company to the Board to ensure that the
legal compliances with respect to the investments of the company has been taken care of by the
skilled experts in that area of finance. To ensure that the affairs of the company are well attended
by the institution investors, a small share of interest is granted to them from the profits of the
company in the form of governance shares granted to them although in significantly small
amounts. However, the institutional investors are of various kinds like the commercial banks,
insurance, hedge funds, endowment funds and insurances and pensions. Each of this type of
institutional investment play a regulating role with respect to the investment and banking related
affairs of the company.
In the given scenario, Mittal held 43.5% shares which is the majority of the shares of the
company including the voting rights. All other shareholders constitute the minority shareholding

5
CORPORATE GOVERNANCE
team hence, it can be interpreted that the institutional investors hold significantly small amount
of voting rights in the company. Although their share is small, their responsibility plays a
breaking point in the legal compliances and market investments. Thus, their opinion is of utmost
consideration by the management of the company which is the Mittal.
Moreover, to maintain the harmonious relationship between the management and such
small shareholding parties, a legislative enactment and its implement is important to ensure that
no party is being dominated. Every shareholder is the virtual owner of the company. Hence, each
of them has the right of opinion in the matters of the company. To ensure the rights are not
infringed, related legislations are necessary to enacted and implemented in an effective way.
ANSWER 3:
The detailed study of the Financial Times survey 2006 (Lipton 2006), clearly expresses
that the ArcelorMittal is the newly constituted firm by the merging of the two parent firms
Arcelor and Mittal and emerging out to be the world’s largest steel manufacturing unit in the
world. The firm which is newly constituted has been based upon the Mittal’s former constitution
of the BoDwhich is the Unitary Form of BoDs. It has its own share of merits and demerits which
are as follows (Tumbul 2016):
The first merit of the merging ensures that the singly body governance results in the
smooth functioning of the company. Mittals with the majority of the shareholding capacity,
continues to be the monarch of the company and hence, it results in the smooth governing of the
company matters. Secondly, owing to the majority of the shares being held by the Mittals, there
will be only single governing party in the organization. Such party in the given scenario are the
Mittals. Thus, no other party have any directive authority in the governance of the affairs of the

6
CORPORATE GOVERNANCE
company. Rather, the minority shareholders shall have their own opinion to put forth and the
Mittal may consider the same while deciding the matters of the company. The third advantage of
such an arrangement is that the single governance body means there is no conflict between the
parties or the members with respect to the direction or opinion. Mittal is the ultimate directive
authority of the company. The fourth advantage to such a structure is that there is only one
governing head and all others form the advisory to the direction being taken. Therefore, the
confusion is avoided with respect to the directions and conflicts because of the delegation of
direction is coming from a single authority.
However, as every coin has two sides, the unitary form of BoDalso has its own
other side (Starbuck 2014). The first disadvantage is that the direction is made as per the
personal satisfaction of the members of the Mittal family. Thus, the interest of the company may
be ignored over the interest of the family bearings. Secondly, the credibility of the company is
entirely dependent upon the image of the Mittal hence, the investors may consider only the
viability of the owner and not that of the company. Thirdly and most importance, there is a high
scope of the personal relationships to interfere in the matters of corporate governance. This
means that if there is any affiliation or personal relationship existing between any member and
the Mittal, there may come a feeling of biasness and personal preference over any proposal may
proposed by such members versus the other members. In order to curb the overriding of the
company interest with the personal interest the court may at times apply the doctrine of lifting up
of corporate veil to ensure that the real culprit is not camouflaged behind the face of the
company (Nyombi 2014).
Therefore, it can be concluded that the merging of the two companies, Arcelor and Mittal has
been a combatting experience of negotiations and bargains and yet, the outcome ArcelorMittal

7
CORPORATE GOVERNANCE
has emerged to be the biggest and largest manufacturing unit in the field of steel manufacturing
in the world. In spite of such differences, the two parent companies Arcelor and Mittal decided to
merge together, with the outcome being three times larger than the immediate competitor of the
Arcelor in Luxembourg. Hence, it is recognized as one of the most powerful merging of all times
in the history of business and market.

8
CORPORATE GOVERNANCE
REFERENCE
Belot, F., Ginglinger, E., Slovin, M.B. and Sushka, M.E., 2014. Freedom of choice between
unitary and two-tier boards: An empirical analysis. Journal of Financial Economics, 112(3),
pp.364-385.
Lipton, M., 2006. Merger Waves in the 19th, 20th and 21st Centuries. The Davies Lecture,
Osgoode Hall Law School, York University, 14, p.21.
Jeżak, J. and Bohdanowicz, L., The Board Model as a Key Issue in the Polish System of
Corporate Governance. Management in the time of networks, cross-cultural activities and
flexible organizations, p.107.
Waweru, C.N., 2017. Corporate governance for state corporations: a case for the twotier board
structure (Doctoral dissertation, Strathmore University).
Nyombi, C., 2014. Lifting the veil of incorporation under common law and statute. International
Journal of Law and Management, 56(1), pp.66-81.
Stubbs, W. and Rogers, P., 2013. Lifting the veil on environment-social-governance rating
methods. Social Responsibility Journal, 9(4), pp.622-640.
Solomon vs. Solomon ([1896] UKHL 1)
Starbuck, W.H., 2014. Why corporate governance deserves serious and creative
thought. Academy of Management Perspectives, 28(1), pp.15-21.
Turnbull, S., 2016. Defining and achieving good governance. Corporate Behavior and
Sustainability: Doing Well by Being Good, pp.232-249.

9
CORPORATE GOVERNANCE
McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-2932.
"Annual Report 2018 on Form 20-F ArcelorMittal". ArcelorMitta
"91. ArcelorMittal", GLOBAL 500 - Our annual ranking of the world's largest corporations,
CNN