Arcelor Mittal and Mittal Steel: A Corporate Governance Analysis

This case study analyzes the corporate governance of Mittal Steel, focusing on the post-merger board structure following the merger with Arcelor. The analysis examines the composition of the board, the influence of the Mittal family, and the role of institutional investors. The study evaluates th...Read More

Running head: CORPORATE GOVERNANCE- MITTAL STEEL
CORPORATE GOVERNANCE- MITTAL STEEL
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Assess the post-merger board structure and discuss the pros and cons before reading
the Financial Times article.
Mergers and acquisitions are two terms that describe and define the consolidations
made between two companies or the assets through the processes of mergers, acquisitions, or
financial transactions. It can also be defined as a financial alliance between two companies
that come together to start a business in order to expand or grow in the market. The case
study include the merger between the Arcelor Mittal and the Mittal Steel have been an
industrial revolution. Since the merger, it is likely that there will be no unitary board of
directors, which refers to a single controlling board. In the newly merged company, there are
18 members, in the unitary board and all of them are acting as non- executive board of
directors, and independent, and is involved into the decision making process. The Mittal Steel
retained 43% of the voting rights, however, in the board there are six members from Mittal
steel and six from the Arcelor Mittal, working as per the provisions laid in the articles of the
association of the company. Therefore, the board of directors of the newly merged company
can be regarded as an example of a unitary board of directors, as all of the directors are non-
executive and are involved into the decision making process. Such a pattern of board of
directors are not
However, the merger process includes, both positive and negative impact upon the
companies and the society. The positive impacts or the advantageous positions of the merger
process are, very rare in case of a public organization, though, it can be found among the non-
profitable organizations, dealing into sports, trusts, charity and others. The structure
moreover, propounds the dominance of the Mittals in the decision making process in the
company’s governance.

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Cost Efficiency. The merging between two companies result into cost cutting by both of the
companies. Since the organizations have the similar objectives and agendas now and since
both the organization will be spending on the project therefore, naturally, the organizations
can easily include a cost effective approach, as each of the industries have to spend equally,
that makes it half expenses for each of the companies (Frølich, and Caspersen. 2015).
New Markets. The merging between two companies can provide each of them new markets,
as both the companies can take a joint imitative, or if the companies belong to two different
fields, then to both of the companies, a new market is opened
Competitive Edge. The merging between the two organizations would provide both of the
organizations, new talents, financial stability and the ground to take new initiatives and risks.
Therefore, all these provides the organizations to gain a new competitive edge in the society
and in the market.
Synergy. The synergy, created because of the merging between the two companies, are more
potent than a single company, running a business. Therefore, this enhances the performances
of the companies and the increases the values of the shareholders as well (Lajoux. 2019).
The disadvantageous positions for the organizations include,
Reduction in Jobs. The merger between two companies involve in the reduction of jobs, as
the two companies are merging together, therefore, the employee strength is likely to get
increased, therefore, in certain cases it is seen that the companies bench some of the
employees in order to manage their employee cost.
Changed Pricing Structure. It is often seen that after a merger is made, the organizations,
increase the products of the prices. Therefore, it impacts upon the existing consumers of the
organizations and therefore, affect its loyal customer base. Also, the increased pricing
structure does not allow the organizations to increase its customer base

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An Economic Disruption. The increase in the size of the company often lead to an economic
disruption. It is often seen that a merger refers to a greater economic management, and often
the business houses are not adept to maintain such a large economy, which ultimately leads to
an economic disruption or a bad management of economy within the organizational structure
(Belikova. 2016).
Since the Mittal family retain 43.5% of the voting equity, can an institutional investor
make a significant contribution to the governance of the company?
An institutional investor is referred to the entity who makes financial contribution in
the security section of the company, in the properties of the same, or facilitates the
organization to get a loan. However, the institutional investors have almost a 50% share in
the company, and in the stocks of the same. Therefore, according to the industry analysts, the
institutional investors have the potential to change the governance system of the corporate
and introduce potential sustainable changes within the organizational structure, and include
options and new vibrant avenues for the organization. The institutional investors also play a
great role during the time of financial and legal disputes faced by the organization
(Filatotchev, Jackson, and Nakajima. 2013).
The big institutional investors, also play a great role in the processes of business
quoting, policy statements, and liaison with other organizational houses. The institutional
investors also enable the business houses to take the risk and invest in other firms or in newer
products.
However, in case of Mittal companies, including an institutional investor is much
needed. As per the recent business reports, it has been found that the company is facing
pressing governance issues. The company is structured in a way that there are three tires in
the directional processes, and the voting us done on all the three shares. The share a is held by

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Mr Mittal himself, the personnel holding the share B has recently been expired, and the share
C is held by the six non- executive class directors. However, it is seen that there is a poor
relationship structure between the share A directors and the share C directors, and with the
share B director being absent from the situation, it is more difficult for the share C directors
to get votes. The company holds 67% of the share in the paper, and the share B being
distributed among the son and daughter of Mr Mittal, the company now holds a 98.3% of the
company share, in a total (McCahery, Sautner, and Starks. 2016). Therefore, as it can be seen,
that the Mittal group is keeping the company essentially within the family. The family
members work as per their own disposal, and also, the organizational conducts are mostly
decided by the Mittal family. Also, the chairman of ICICI bank, holds a position in the
company, of which the Mr Mittal is the director. Again, Mr Reddy, the director of Inter
commercial Bank of Trinidad, also holds a position in the company, and Mr Mittal is a part
owner of the company. Therefore, most of the votes of the company go to the Mittal family.
And this increases a conflict of interest within the organization. The company has a detailed
definition and reporting requirements and systems and policies within the organization, that
also fall under the code of ethics of the company, are applicable all the same for all the
members of the company. However, the organizational conducts and processes often deviate
from the written or the structured rules in case of the personnel enlisted in the share A. That
is, there are relaxations or rules and regulations for the family members involved in the
business. There are also certain situations, where it completely rests in the hands of the
director to consider a particular incident to be potential and act upon it, or not, and also it is
the decision of the director only to include and let publish a particular incident in the annual
year book. Therefore, the members of the share C find that their efforts are not getting
recognised enough and they are not provided with the benefits, which the family members are
having easily. Therefore, this has created a discretion within the organization (OECD. 2011).

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This has impacted upon the voting policies as well. Since, the company is major owned by
the family members and the family friends, therefore, it is likely that the voting policies will
always result in the favour of Mr Mittal, and this gives a little or no place for the institutional
investors within the company. Such a situation is effectively impacting upon the
organizational conducts, and it can further negatively impact upon the organization.
Therefore, the organization must recognise this issue and come up with an effective solution.
Discuss the positive and negative impacts on the effectiveness of the (pre-merger) Mittal
Steel board after reading the article and compare its effectiveness with the post-merger
board.
Before the merge with the Arcelor Mittal, the Mittal group had a good position in the
industry. Especially the organization had a great human resource team, and the powers
conferred upon both the executive members and the non- executive members of the
organization. However, before the merger, the competition was in a position of non-
competition position in the business industry. This marked the fact that he could not run the
private businesses or could not take interest in the private steel businesses and cannot
compete with the quoted companies without the agreement from the audit committee. This
had limited the company and its organizational conducts in many of the sectors. Before the
merger it was often seen that the organization and Mr Mittal had entered into potential
conflicts and the Mr Mittal had to face criticisms, because of their non- participant into non-
competition (Marsh. 2019). Also, this had resulted into underperformance in his private
interests.
However, since the merge, many changes have taken place within the organization.
The most beneficial outcome that has taken place within the organization, since the merge, is
tee increase and increment in the value of the steel, and this change has taken place across the

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world. The merge has made the organization, essentially the steel giant in the market. With
the merge, the organization has gained an advantageous position in the market, as it has
marked an increased share of the organization in the market. Also, since the organization is
essentially a family involved organization, therefore, the organization can ensure the highest
percentage of profit (Giarratani, Madhavan, and Gruver. 2013). For example, as per the Steel
Consult International, the organizational merge refer to a 14% market share, globally, which,
if compared to other industries, is much more. It is also believed that the merger will also
include a leadership structure, which is by value as well. According to Aditya Mittal, the son
of Mr Mittal, this merge will create and reshape the steel industry of the world. The merge
will also support a financial strength to the global industry, and it will also include a
consistency in the performance of the company, or the organization (Koinova, and
Karabegović. 2017). The merger is also believed to have fostered a consolidation among the
business houses in the steel industry. This consolidation will ensure consistent performance
and position in the steel industry of the world. Another aspect of this merge is that this will
help to maintain a volatility of the prices within the industry. As the company now has a
greater share, therefore, the prices of the steel will not easily fluctuate, and the organization is
likely to continue its price structure. The industry analysts also believe that tis merge will
result into research and experiments in the steel industry and it will also facilitate Arcelor
Mittal group to meet the customer requirements, which it was not being able to earlier
(Marsh. 2019). This has also impacted the other business houses in the market, and will
enable them to think in a newly fashioned manner.

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References:
Avdasheva, S. and Tsytsulina, D., 2015. The effects of M&As in highly concentrated
domestic vis-à-vis export markets: By the example of Russian metal industries. Research in
International Business and Finance, 34, pp.368-382.
Belikova, K.M., 2016. General approaches to dominant market position, prohibition of abuse
of market power, and market structure control within the BRiCS countries. BRICS Law
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Filatotchev, I., Jackson, G. and Nakajima, C., 2013. Corporate governance and national
institutions: A review and emerging research agenda. Asia Pacific Journal of
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Frølich, N. and Caspersen, J., 2015. Institutional governance structures. In The Palgrave
international handbook of higher education policy and governance (pp. 379-397). Palgrave
Macmillan, London.
Giarratani, F., Madhavan, R. and Gruver, G., 2013. Steel industry restructuring and
location. Handbook of industry studies and economic geography, p.11.
Koinova, M. and Karabegović, D., 2017. Diasporas and transitional justice: transnational
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Lajoux, A.R., 2019. The Art of M&A: A Merger, Acquisition, and Buyout Guide. McGraw
Hill Professional.

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Marsh, P. (2019). Arcelor and Mittal agree to €27bn merger | Financial Times. [online]
Ft.com. Available at: https://www.ft.com/content/ffc47b5e-047b-11db-8981-0000779e2340
[Accessed 28 Aug. 2019].
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-
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OECD, C. G. (2011). The role of institutional investors in promoting good corporate
governance.