ArcelorMittal: Corporate Governance and Ethics Case Study Analysis

This case study provides a comprehensive analysis of the corporate governance and ethical practices of ArcelorMittal, examining its structure, principles, and stakeholder relationships. It delves into the Mittal Steel merger, exploring the dynamics of the acquisition bid, the roles of the board of directors, and the impact on shareholders and other stakeholders. The study investigates the challenges faced by ArcelorMittal in maintaining good corporate governance, including issues related to board architecture, risk-taking, and the balance between ownership and management. The case study also evaluates the ethical considerations surrounding the merger, including conflicts of interest and the influence of various stakeholders. Furthermore, the analysis covers the governance framework, including the company's adherence to the Luxembourg Stock Exchange's principles and the strategic decisions made by the board. It also examines the financial aspects of the merger, including the issuance of shares and the impact on revenue generation. Overall, the case study highlights the importance of corporate governance in the steel industry, with a focus on ArcelorMittal's efforts to balance profitability, ethical conduct, and stakeholder welfare in a complex business environment.

Running head: CORPORATE GOVERNANCE & ETHICS
CORPORATE GOVERNANCE & ETHICS
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Question 1
Corporate Governance is recognized as set of systems, procedures and principles, which
guarantee that organization is governed in most effective interests of all stakeholders (Ferrary
2019). Corporate governance offers well-organized structure, which functions for betterment of
every individual concerned by ensuring that the enterprise aligns with ethical and moral
standards laws and recognized practices. It further entails basic business ethics and principles,
which are essential to be adhered to in actions and spirits. Steel industries in recent times have
been placing utmost importance on proper governance of the company and specifically shed light
on executing prudent risk-taking actions, which attain balance between generations of rewards
for stakeholders who invest their capital. Along with the provision of effective employment for
staffs in an approach that will contribute to the benefit of community (Friedmanet al. 2016).
Mittal Steel Company, one of the world’s major steel manufacturers by volume as well as in
revenues has designed its corporate governance framework in order to address all of these issues,
which will elevate the input of the Board and management to the accomplishment of the
business. The following report will evaluate Corporate Social Governance and Ethics of Mittal
Steel (Currently owned by ArcelorMittal) and the way its actions and performances contribute to
welfare of the community.
ArcelorMittal places significant emphasis on good corporate governance by guaranteeing
cultural pattern of compliance along with sensible management of business threats along with
utmost integrity (Arcelormittal 2019). Furthermore, ArcelorMittal has been efficiently exhibiting
responsibility and respect for its employees along with all stakeholders. The company has been
actively listening and acting responsive to their concerns, which are considered core of the

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business. ArcelorMittal operating as public limited liability company incorporated in
Luxembourg is primarily governed by board of directors based on the requirements mentioned in
company’s article of association. Reports have revealed that board of directors are primarily in
responsibility of overall authority as well as direction of ArcelorMittal (González Begega,
Köhler and Aranea 2018). Role of independent directors and other directors lie on implementing
organizational strategy, overall management of the business in addition to all operative decisions
have been delegated to the CEO Office, which constitutes of chief executive officers, Mr.
Lakhsmi N. Mittal along with Chief Financial Officer (CFO), Mr. Aditya Mittal and supported
As per reports, ArcelorMittal obeys the 10 Principles of Corporate Governance of the
Luxembourg Stock Exchange in all dynamics. The board of directors have revealed that Mr.
Mittal’s tactical vision for the steel industry in common as well as for ArcelorMittal specifically
in his role as CEO has been identified as key asset to the company (Arcelormittal 2019).
Although, as per reports, he is completely affiliated with stakeholders’ welfare, Mr. Mittal has
been specifically positioned in order to direct the board of directors in his role as chairperson.
Moreover, the combination of these roles have been restructured by ArcelorMittal’s Annual
General Meeting of shareholders recently, when Mr. Lakshmi Mittal has been re-elected to the
panel of directors for next three year period by a robust preponderance (Arcelormittal 2019).
Separation of ownership and management in corporate governance involves positioning
the organizational management under the accountability of experts who are not recognized as its
owners. According to González Begega, Köhler and Aranea (2018), organizational development
comes with demands for various skills and capacities to manage the organization. Reports of
Yoo (2019) have revealed that ArcelorMittal has been exploring the potential of acquiring of
Uttam Galva and further recovering the value in KSS Petron after their payments in order to gain

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eligibility for Essar Steel bid. According to reports, ArcelorSteel has paid around Rs 74.69
billion to its financial creditors of Uttam Galva Steels as well as KSS Petron in order to lessen all
debts generated by Essar Steel’s committee of creditors. Such ownership has led ArcelorMittal to
serve as major financial creditor of Uttam Galva and has been accounting implications and
procedures to acquire ownership of Galva (Arcelormittal 2019). However, authors have noted
that there is clearly no connection between ArcelorMittal’s criteria. Moreover, the
inconsequential attempt of diverging from essential fact that ArcelorMittal has the most
captivating offers for its stakeholders specially ArcelorMittal’s financial creditors.
Question 2
The successful acquisition bid by Mittal Steel for Arcelor in 2006 has been considered as
landmark in several aspects. Studies of Park (2015) have mentioned that the acquisition has
reflected changes in governance, market for corporate regulation in addition to the tools for
intimidating takeovers, which have taken place in Continental Europe thus stimulating robust
shareholder activism. Since, Arcelor has been considered as typical Central European firm with
robust associations to local government it supported management in disadvantage to the
shareholders’ return. In 2006, Mittal Steel made its hostile acquisition bid for Arcelor with
around €18.6 billion cash and share offer for Arcelor. As per reports, the offer primarily
proposed charges of maximum of around €4.7 billion with the remaining being invested through
stock offering of around four new shares in Mittal Steel for every five, which has been held in
Arcelor (González Begega, Köhler and Aranea (2018).
It has been noted that offer valued Arcelor’s shares at around €28.21 billion per share
along with around 28% premium. The new regulation as documented should avert Mittal Steel
from resubmitting its offer for around 1 year if the requisites of the directed organization

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transformed throughout the M&A procedure. Authors have mentioned that if Arcelor were to
issue additional shares, sell a number of of its ventures or procure another organization (Park
2015). On the other hand, the second highly captivating reason for acquisition of Dofasco has
been related to force Mittal to take out its proposition, thus necessitating a full year before
resubmission. According to Ferrary (2018), Arcelor have built additional defences in opposition
to Mittal overtures. Furthermore, it has been noted that Arcelor has executed a white
knight protection via strategic association with the Russian steel company recognized as
SeverStal. Park (2015) has noted that Arcelor believed procurement of SeverStal has been
dependable on Arcelor’s strategies for development and could be accessible as a practical
alternate to Mittal Steel’s original offer. In such a scenario, ArcelorMittal has courted strategic
associate to offer an alternative to the stakeholders as well as the board. Through this activity,
organization could develop as the leading associate with M&A, thus maintaining its recognition
while incorporating recent and potentially valuable asset.
Reports of Friedman et al. (2016) have revealed that Arcelor being part of the Mittal Steel
Empire either by acquisition or by merger. Consequently, ArcelorMittal initiated a campaign in
opposition to Mittal from defensive position. However, authors have claimed that many conflicts
amongst stakeholders have won with inferior forces. Furthermore, it has been noted that the
adversary does not show willingness or the capability or obligation to view the campaign to its
end. In the view of Ferrary (2019), for Arcelor, the outlays and rapid growth of the Mittal Steel
bid completely denied the option. Recent reports have revealed that SRM Global Fund has
confronted the investment banks further advising Mittal Steel on its €26bn merger with Arcelor
in relation to their conflicts of interest. According to assertions made by SRM Global Fund, the
investment fund operated by former UBS trader has contended that banks, which include

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Goldman Sachs, Morgan Stanley, Fortis as well as Société Générale, did not provide autonomous
advice in delivering their fairness opinion related to the management of Arcelor’s minority
stakeholders (Kumar 2019). In addition to this, Mittal Steel Co. has appealed to the French
market regulator to take necessary action in contradiction of Arcelor SA shareholder group
Association des Actionnaires d'Arcelor (AAA), claiming that it has been misrepresenting itself
by claiming to be independent from the Luxembourg-based company. Mittal's attorneys have
stated that AAA has distributed documents regarding Mittal's public tender, which have been
highly thoughtful regarding the pending offer as well as the Mittal Steel group and have been
aimed in order to persuade against shareholders (Arcelormittal 2019).
Question 3
With M&A of Arcelor and Mittal, studies have observed six-month conflict between
Arcelor board, which refuted the agreement and the company’s stakeholders. According to
Viorica (2019), while trading of both Arcelor and Mittal has been adjourned on the preliminary
announcement date, several competitor shares have experienced economic fluctuations. With
such fluctuation companies like Corus, Severstal and Nippon Steel all experienced uncertainties
by gaining around 2.3 respectively. In the view of authors, stakeholders and block-holders have
been sharing similar objectives. Primary differences have been related to procedures through
which organization’s leaders manage their stakeholders and their expectations. In the case of
shareholders, the CEO and the board must be sales representatives as well as management. Steel
industries in current times have been employing utmost position on correct governance of the
corporation and precisely shed light on performing practical risk-taking movements, which
achieve balance between generations of recompenses for shareholders who capitalize their

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wealth in addition to the delivery of effective service for employees in an approach, which will
eventually underwrite to the benefit of community.
Kumar (2019) has been of the view that organizations’ leaders must consistently persuade
the investors, which have been acquiring correct pathway, although the direction results in lower
dividends, share value as well as market share. Reports have revealed that during the Mittal
proposition, Arcelor requested the Luxemburg Government for investment law modification in
order to aggravate Mittal Steel’s appropriation bid. Arcelor has requested for modifying the
Luxemburg investment regulation in order to add time requirement for re-bidding by non-EU
companies. At this juncture, any modification to the target organization would necessitate the
company in acquisition to wait for another year for resubmission of new bid. However, in such
an attempt of combatting such hostile acquisition, Arcelor could simply procure or sell assets,
which would transform organization’s value (González Begega, Köhler and Aranea 2018). For
these reasons, Mittal Steel being an aggressor business enterprise would have to wait for another
year before submitting another bid. However, such a strategy failed since an Indian National
living in the UK and being headquartered in Rotterdam, Netherlands has owned Mittal Steel.
Thus, being a European Corporation, the rules failed to be applicable for Mittal.
Upon effectiveness of M&A, each of ArcelorMittal dividends, which have been owned
by stakeholders at the effective time of merger, will be transformed into newly issued Arcelor
share without any nominal value that has been considered as Arcelor dividends (Kumar 2019).
As per reports of authors, all shares of Arcelor outstanding at the effective of the merger leaving
the shares owned by ArcelorMittal will continue to experiencing high revenue generation of
merger (Arcelormittal 2019). Moreover, on the basis of percentage of ArcelorMittal shares,
Arcelor has expected to issue highest percentage of around 1,417,207,253 Arcelor shares to

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ArcelorMittal stakeholders during the M&A (González Begega, Köhler and Aranea 2018). As
per reports, these reports being nominally lowered by number of ArcelorMittal dividends will be
held by or on behalf of Arcelor or ArcelorMittal until 2007. Post-merger of Arcelor, it has been
noted that for stakeholders, applications have been made to the necessary authorities for the
authorization of the Arcelor shares, which included currently issued Arcelor stocks to trading on
the Luxembourg Stock Exchange’s controlled market. Moreover, as per the study of Ferrary
(2019), post-merger will not affect stakeholders, if ArcelorMittal investors adopt the choice to
amalgamate as expected by the unification bid as well as the explanatory communication flanked
by other conditions set.
Therefore, regardless of the lack of extensive consolidation, bids and propositions have
been taking place. These bids have explained the current market and in which direction
ArcelorMittal has been advancing. It has been noted that distinguishing number of factors of
these bids and negotiations and concurrently focusing on conventional M&A issues for steel
organizations. Furthermore, a major step in guaranteeing that ArcelorMittal has focused on
capital position, its capital position will reveal its role in the M&A market and the way its
regulators consider and restrict the company. Moreover, significant lack of wide ranging
consolidation has been attributable thus increasing the shortage of easy access to capital for
majority would-be acquirers, thus increasing uncertainty to capital supplies.

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References
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Kumar, B.R., 2019. Mergers and Acquisitions. In Wealth Creation in the World’s Largest
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http://dlib.scu.ac.ir/bitstream/Hannan/559998/1/9783030023621.pdf
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