ArcelorMittal, the Luxembourg-based steelmaker in the throes of acquiring Indian rival Essar Steel, has declined to say whether it recused its chairman and CEO Lakshmi Mittal from Board meetings discussing the takeover of KSS Petron, a company he owned.
Lakshmi Mittal is the largest shareholder in publicly-listed ArcelorMittal, owning 37.41% of the world’s biggest steelmaker that generated revenues of $76.03bn in 2018 and employs over 200,000 staff worldwide.
The recusing of directors from Board discussions is a mechanism used by companies to ensure directors are seen to be acting in a principled manner when potential conflicts arise.
KSS Petron was acquired by Arcelor Mittal for $224m last year in order to clear its debts, a move the steel giant considered critical to its takeover with Japan’s Nippon Steel of Essar Steel. Another company, Uttam Galva, was also acquired as this was also deemed necessary to seal the Essar Steel deal.
“In October 2018, the Supreme Court of India ruled that for ArcelorMittal to be eligible to bid for Essar Steel, ArcelorMittal had to clear the debts of KSS Petron (and Uttam Galva). Without taking this course of action, our offer for Essar Steel would have been ineligible and therefore not considered by Essar Steel’s creditors,” said an Arcelor Mittal spokesman.
ArcelorMittal declined to answer the question put by Financial Director on whether Lakshmi Mittal was recused from Board meetings related to the KSS Petron acquisition. This is despite the context of global pressure for greater boardroom accountability and transparency in recent years.
A spokesman for ArcelorMittal, which is listed in Amsterdam, Luxembourg, New York and Paris, as well as the stock exchanges of Barcelona, Bilbao, Madrid and Valencia, said “We never comment on the details of individual Board decisions.
He said: “What we are absolutely clear on is that the Board undertook a comprehensive assessment, which also involved seeking legal opinion from an external law firm, and concluded that given the significant benefits that Essar Steel would bring to ArcelorMittal, making this payment was an appropriate course of action and was purely in the interest of ArcelorMittal itself. ArcelorMittal was subsequently selected as the winning bidder by Essar Steel’s creditors, and we are hoping to complete the transaction by the end of Q3 2019.”
Corporate governance experts said they have witnessed a growing call for greater Boardroom accountability, as part of a wider push for better corporate governance standards. “The recusing by directors in conflict situations is expected by shareholders and other stakeholders,” said Lawrence Loh, associate professor and director of the Centre for Governance, Institutions & Organisations (CGIO), at Singapore’s NUS Business School. “Even if there is no regulation, directors recusing themselves is the only right thing to do – directors have to act in principled ways in the discharge of their duties,” he said.
Prof Loh referenced the Singapore Stock Exchange’s Code of Corporate Governance which says: “Directors facing conflicts of interest recuse themselves from discussions and decisions involving the issues of conflict.”
Dr Simon Learmount, lecturer in corporate governance at the Judge Business School at the University of Cambridge, said: “In principle, directors need to make sure they are being transparent to shareholders, whether they recuse themselves or at least make plain to investors they do have other interests.”
Asked if Lakshmi Mittal would pay back the $224m ArcelorMittal spent acquiring KSS Petron, the ArcelorMittal spokesman said: “The beneficiary of the decision to settle the debt of KSS Petron was and remains ArcelorMittal; there would have been no economic or financial benefit to Mr Mittal, nor did he have any contingent liability or responsibility to settle KSS Petron’s dues.”
The ArcelorMittal spokesman insisted that there had been no breach of ArcelorMittal’s Code of Conduct, which states that all employees “must comply with every local, state, federal, national, international or foreign law or regulation that applies to the Company’s business”.
He said: “At no point did ArcelorMittal evade the law, nor was the company’s Code of Conduct breached in any manner. ArcelorMittal and, in the case of KSS Petron, the Mittal family, exited from these companies by following due process in line with all laws and regulations. These exit transactions remain valid.”