Corporate Governance of ArcelorMittal: A Case Study

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Corporate Governance

Table of Contents
Q. 1.............................................................................................................................................................3
Q. 2.............................................................................................................................................................5
Q. 3.............................................................................................................................................................7
References................................................................................................................................................10

Q. 1
Board Structure of the firm after the Merger
The union of the firm Mittal Steel (MSC) and Arcelor was formed in the year 2006.Mittal Steel
attainedthe steel giant Arcelor after a bid of $32.7 bn. The original offer was valuedat $ 22.7 bn.
The offer was bifurcated into two portions- certain fragment of the payment was done in cash
and the remaining was paid through stock- 75% of the imbursement was made through Mittal
Shares and the outstanding 25% was accomplished through cash. Through this proposal, the
stakeholders of Arcelor were liable to obtain 4 Mittal Steel Shares and would also get 35 Euros
for every 5 of Arcelor Shares they owned (Lehmann and Eric, 2018). But, Arcelor was not
convinced to merge with Mittal Steel as the diversification of its board of directors was more
towards its Family.
Mr. Lakshmi Narayan Mittal held an overall stake of 78% in the Mittal SteelCompany. All the
major decisions required his approval. His son, Mr. Aditya Mittal was assigned to lead the
department of the Mergers and Acquisitions in 1999. It was under his supervision that the
company’s expansion in the countries like Central Europe, Africa and United States took
place.He was responsible for various important positions in the Company and is the successor of
Mr. L.N. Mittal for the current ArcelorMittal.
Subsequentlyto the unification, The Company gained the position of the top steel maker in the
world, with the revenue touching to $ 105.2 bn a year. The presence of the company is in
Europe, Asia, America and Africa. But it was not easy for the firms to merge.
The Corporate Governance of Mittal Steel was not acceptable by Arcelor Company. It was said
that the voting structure of the Board of Directors of the Mittal Steel Company was two-tier. Mr.
Mittal owned 67.2 % of the Class A shares which made him and his family the primary holders
of the company. For the merger, L. N. Mittal agreed to change this proportion, as this would
minimize the contribution of individual and other investors and stakeholders in the firm. To
assure Arcelor about the Voting structure, he stated that the voting ratio will be amended and it
will be changed to the ratio of 2:1 from 10:1 (Won-Yong, et.al, 2018). This was a big step as this

would reduce the hold of the family in the company’s wealth. After the Merger, the investors of
Arcelor received 50.5% of the ownership and the investors of Mittal Steel received ownership of
49.5%.
As per the Board of Governance, the participants of board of directors are appointed and
removed by the general meeting of the shareholder. The Board of Directors of Arcelor after the
merger consists of 17 “non-executive” directors and 1 “Executive’ Director. Mr. L.N. Mittal is
the President of the BOD and the CEO of Arcelor and Mr. Joseph J. Kinsch is the Chairman of
the Board of Directors of the Company. The share of the Mittal Family has reduced in the
company due to Merger. All of these changes have been amended keeping in mind the rules of
NYSE.
The Engagements, Compensation and Corporate Governance Team is incorporated with 4
independent Directors that are not associated with the Mittal Family in a non-professional
manner. This committee is responsible for taking and implementing decisions by simple majority
and not involving a voting process.
Positive and Negative Aspects of the Board Structure
It has been said that the company’s Board Structure was changed after the merger. Earlier the
voting structure of Mittal Steel was dominant by Mr. L. N. Mittal.There was less scope of growth
for the independent Directors. These thoughts were welcomed with positive as well as negative
responses, which are mentioned as below:
Pros of the Board Structure
 There is a diversified portfolio of Directors.
 There is no special privileged provided to any of the members of the Board.
 Key Decisions are made with voting of the shareholders (Aguilera, et.al, 2018).
 Active Participation and involvement of the Investors in the Company.
 Equal Opportunities for growth for directors and other members.

Cons of the Board Structure
 Chances of conflicts of interest in the Board.
 Results in issues in Key Decision Making.
 Unsatisfactory distribution of profits and retained earnings.
Q. 2
With the settlement of Mittal family holdinga total of 43.5% of the voting parity in the company,
doors have opened for other institutional investors and shareholders to participate and contribute
in the governance of the company. Decrease in the stake has resulted in less power in terms of
wealth, decisions to the Mittal Family. Through the inclusion of investors in the firm, majority of
decisions will be taken by voting. This reflects that the decisions will be taken by the public
interest and not private interest of the family.
Institutional investors are financial institutions that have the right to accept capital or treasuries
from third parties for the purpose of speculation in the name of the company, but interestingly on
the behalf of such parties. The funds that are accepted in such cases are generally capital
received as pension after retirement, mutual funds and firms offering insurance services..
Through the intrusion of institutional investors, the companies can invite large investments that
are directed by the fund management industry directly under the name of the clients (Paniagua,
et.al, 2018). This would increase the revenue of the company. The goals of the investors is to
optimize the target levels of risks and diversify the large portfolios of the organization.
The governance of the company will see drastic changes after this step. Earlier, the key financial
decisions were taken by the sole ownership of the CFO. The decision taken by the CFO was
subject to approval of the board of directors which was ideally Mr. L.N. Mittal. This situation
changed after the merger as the stake of the Mittal Family reduced after the merger.
The main benefit that is received by the institutional investors is that they monitor the
distribution of profits and this is beneficial to all the Shareholders of the firm (Feils, et.al, 2018).
They monitor the decisions of the Board and directs them in building effective corporate

governance practices in the firm. Through this step, the financial decisions are not solely based
on one individual authority.
The coalition of various types of large investors have alleviated the concern that revolves around
the firm’s investor base. The investors will make a significance contribution in the growth of the
company. ArcelorMittal is the biggest manufacturer of steel in the world. The aim of the
organization is to produce the steel at the lowest rate possible and in the best quality available.
The company was formed after merger. There have been lot of changes witnessed in the
corporate authority of the business after the merger, as the Mittal Family had to reduce their
stake in the firm (Liedong, et.al, 2018). This meant that they would not be the sole authority on
various issues. Though Mr. L.N. Mittal is a businessman par excellence, but there are certain
benefits that have been associated with the family itself. This suggested that the private interests
of the family came above the interests of the firm. The top position of the firm were taken by the
Son and Daughter of Mr. Mittal and various managers at different locations and positions were
closely related to Mr. Mittal. This provides them complete and absolute hold on the company.
This situation has been rectified after the merger as they were limited with the rights they earlier
enjoyed. This is a good point as it reflects a fair corporate governance where the voice and
opinion of other directors is also mandatorily given importance to. They exercise their rights of
directors as much as the Mittal Family.

Q. 3
Progressive and Deleteriousinfluences on the business before the union
The firm Mittal Steel was formed in 2004 after the union of LNM Holding and ISPAT
International. The takeover was worth of $4.5bn. The firm was owned by Indian born
Entrepreneur Mr. Lakshmi Niwas Mittal, the chairman and the CEO of the company. A total of
88% of stakes were owned by him and his family in the firm. It was headquartered in Rotterdam
Netherland.
The company’s board of directors consisted of 9 members who were Lakshmi Mittal, Aditya
Mittal (Son), Lewis. B. Kaden, Rene Lopez, Vanisha Mittal Bhatia (Daughter), Muni Krishna
Reddy, Wilbur L. Ross, Ambassador Andres Rozental and Narayanan Vaghul.
The firm had a majority of autonomous directors. The criteria for the independence contribution
of the directors were in conformity of the NYSE Listing rules and the Dutch Corporation
Governance Code (Crifo, et.al, 2018). Apart from Mr. Aditya Mittal and Mrs. Vanisha Mittal
Bhatia, all the other directors of the respected board of the firm are included in the list of
independent directors. The company’s board of directors were segregated into three categories –
Class A, Class B and Class C.
The directors that were in the class A category were Mr. L.N Mittal, his heir Mr. Aditya Mittal
and his descendant Mrs. Vanisha Mittal Bhatia. Their terms were renewed after a period of 4
years, whereas the terms of other class B and C directors were subject to renewal for 1 year
(Patel, et.al, 2018). The rights of the directors are divided as per their grades. The directors of
Class A holds and enjoys most of the rights. The voting power of the company was distributed
in the ratio of 60:40. 60% being the voting rights of the class A directors that constitutes of the
family members of the Mittal Clan.
There are certain impacts that can be categorized as Optimistic and Undesirable in the efficiency
of the Board. Mentioned Below are both the impacts:
Positive Impacts

 Independent Directors will not face much loss in case of financial crisis.
 There will be less conflicts regarding important decisions as the final authority was of
Mr. L. N Mittal.
 As there are less members in the Board of Directors, the process of decision making was
quick.
 The distribution of profits amongst the directors was not an issue.
 As the renewal term was of 1 year for the Class B Directors, it is easier for them to leave
due to any reasons.
Negative Impacts
 The Class B and C Directors had very few rights.
 Majority of the profits earned buy the Company is going in the Mittal Family.
 The independent directors had very less role in making key decisions.
 Due to the bifurcation, there was less scope of growth for independent directors and
other managers at Top Positions.
Comparison
After the merger of both the firms, the value of the Mittal Steel’s Corporate Governance
Changed. The complete structure had to be modified as per stated by Mr. Joseph J. Kinsch, the
president of Arcelor Steel. Significant changes have been made in the effectiveness of the
internal control of the company. Earlier, Mr. Mittal would dismiss any resolution by a simple
majority of Class A directors. This changed after the merger.
With the inclusion of more independent director, the transparency of accounts, governance
arrangements and other financial aspects have increased. It is now much easier for the
shareholders, investors and other parties to participate in the activities.
It was earlier reported that Mr. Mittal had stated in his SEC filing that there is no difference in
the advised practices of the corporate governance and the ones that are being practiced in his
firm, but it seemed wrong (Garas, et.al., 2018). The accounts of the company were prepared
under the US accounting principles.

The audit committee for Arcelor has also changed and it is the one that has not audited the Mittal
Steel before. This step was taken in consideration of maintain transparency and authenticity of
the accounts.

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