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Case Study: Board Architecture at Arcelor Mittal

1. Assess the post-merger board structure and discuss the pros and cons before reading the financial times article.

The company under consideration, ArcelorMittal, was shaped by the international merger of the Asian company, Mittal, and European steel company, Arcelor. The merged company is one of the biggest steel companies in the world. While Arcelor operated on the European model, Mittal Company was based on the Asian family model. This basically suggests a difference in the underlying management approaches of both companies which eventually led to post-merger difficulties. Mittal family influenced the firm in such a manner that which was more favourable for them then the company itself. As mentioned by Mullins and Schoar (2016), family-led firms are less-innovative and less productive than non-family firms. The author suggested that this difference in the level of productivity and innovation is mainly due to the emphasis of family-led firms on power struggle rather than the merits of leaders.

Leadership approach of family-led firms involves passing down the leadership of the firm to heirs of the family, which in turn, breeds inequality in the firm and results in poor decision making. Moreover, the governance structure of such a company is not quite formal and mainly depends on the relationship among main family members and corporate knowledge. A company which is not based on the family structure is completely different from a family-led company and is commonly led by two boards, namely, executive and supervisory board, and both of these boards have no membership in common.

The major difference among the two governance structures is that while family-led governance focuses on the interests of the family members, companies with supervisory board strive to represent the interests of stockholder and work on their behalf. The supervisory board supervises and recruits the executive directors, and the executive board members oversee the company’s management. Even though it is not always agreed by external stakeholders, the interests of family members are always given priority in a family-based company like Mittal.

The conflict of interest among external management and internal management often increases the proclivity of the independent director to protect the right of all stakeholders. Thus, in order to make sure that the organization has people in place to protect the interests of external shareholders and minorities. Also, the structure and size of the board significantly affect the functioning of the organization. In addition to this, Cirillo and Mussolino (2019) stated that to complete the work faster, organizations should opt for a larger board, however, to perform the business operations more efficiently, a smaller board structure should be considered. This is so mainly because it is much easier to make decisions on small board as it is less likely that conflict of interests will ensue.

On the other hand, it is relatively cost-efficient to manage a small board as compared to a larger board. Moreover, this makes the recruitment and selection much easier. However, Rubino, Tenuta and Cambrea (2017) stated the drawbacks of the small board by mentioning that the limited number of members often results in extra workload on each member and in case the board members are not diverse enough, the quality of decision making can suffer. Also, there is no succession planning is this form of governance which has an impact on the productivity of employees. The desired skills are attained through the selection of adequate board members.

The succession planning is managed on an orderly basis under which every candidate has a chance of being selected. In terms of its disadvantages, large boards often have to face absenteeism which affects the diligence and effectiveness of the board. Madison, Holt, Kellermanns and Ranft (2016) mentioned that commitment of board members is vital for effective governance and a lack of such commitment can result in a negative perception of stakeholders towards company governance. Therefore, it can be said that there is no optimum board size for a company, but still, a board with fewer members which has the capability to appoint additional members is most effective. The overall goal of a company in respect of good governance should be to create a suitable structure and size of leaders to realize organizational goals.

2. 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?

He, Huang and Zhao (2019) reported that institutional investors play a crucial role in the promotion of sound governance. Institutional investors are effective in restraining company management and some of them also have a minority voting or value equity which gives them importance in corporate governance. Moreover, as Melis and Nijhof (2018) stated, investors should disclose the voting and governance policies of the organization by taking their investment into consideration. In the given case study, the dominance of Mittal as key stakeholders makes a significant difference in the institutional investor’s governance role. As it is given that the dominant stakeholder has the maximum voting rights, it can be suggested that this will limit the votes of the institutional investor to keep the insiders in the discipline.

Commonly, in case a business is family dominated, the key family member purchase a significant number of shares or voting rights of the company, which eventually results in a conflict of interests. Mittal lost control over the board by reducing the share to 43.5% which means that even though Mittal would have appointed most of the board members, they do not have decisive strength. As they lost control other stakeholders will get equal voting rights. In this sense, issues like failure of governance and corporate fraud will be solved by independent directors, thus, for the effective functioning of the corporate governance, independent directors should be limited.

Mcahery, Sautner and Starks (2016) also mentioned that external independent board members are more effective than board members that are not independent. The directors, on the other hand, facilitate the promotion of efficiency of governance as they are the ones who represent the interest of stakeholders and investors. Management of governance by the independent director can show the real picture of the company as they do not have any relation with the company’s internal management. This enables them to act in an independent manner and focus on the values of the company. The importance of the independent director has been commenced for good governance in the present time.

Therefore, the appointment of such an individual should be undertaken from a long term perspective. Furthermore, minority stakeholders are those who do not participate in decision making in case other stakeholders are present. Such stakeholders can only disagree with organizational decision making by selling their shares. However, Lewellen and Lewellen (2018) claimed that the effective participation of minority stakeholders is essential for the effective governance of the company. But still, it seems that there are always arguments against the voting rights of minorities as they do not have the required expertise which can result in incorrect decisions. Moreover, since institutional investors have experience and knowledge of corporate decision making because of their involvement of investment in numerous firms, their expertise is commonly prioritised over other minorities.

A controlling stakeholder or management may take advantage of their power and might not necessarily work in the favour of stakeholders. Belinga and Segrestin (2019) further proposed that the superior power provides authority to decision making and information but it is also possible that dominant stakeholders can abuse their rights. This can result in an agency problem due to the issues between the control and ownership between stakeholders. Therefore, the selection of investors, along with their responsibilities can create significant problems if not properly managed. The external stakeholders or minority will request for incentives and voting rights for decision making. The key reason behind the conflict of interests is the delegation of authority in external stakeholders and controlling management’s decision making. Lou, Lu and Shiu (2020) proclaimed that such an approach will lead to the effective utilization of resources which suggests that institutional investors do contribute to company governance.

3. Please read the financial time article under ‘Assessment tasks and submission’. 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.

Arcelor was familiar with the two-tier model used by Mittal, i.e. the Mittal family-controlled majority, and had a clear picture of the way Mittal operated. However, the business model, values and strategic vision of Mittal were not the same after the merger. To ensure that there is no chance of insolvency in board structure and the family ownership, Mittal had appointed family members and had taken over the board (Kumar 2019). In terms of A, B & C, the structure of the board looked like Mittal had the dominant position and most of the rules to enjoy. The position of Chairman and Chief executive officer was filled by Mittal’s daughter and son who, in turn, made it less likely for other stakeholders to get voting rights equality.

This means that Mittal will be dominating the Arcelor board’s voting rights. A subsidiary of Mittal steel with an inconsiderable amount of cash, but with no activities and assets was the first one to be merged with Arcelor, which eventually formed ArcelorMittal. Both of the companies joined together without the liquidation of Mittal steel and were called ArcelorMittal (Katoch 2017). The liabilities and assets of Mittal steel were transferred to ArcelorMittal as ArcelorMittal was issuing new shared to Mittal steel because the Mittal Steel was on the verge of ending. Before proceeding to the second step of the merger, ArcelorMittal director’s agreed to restructure the capital of Arcelor to have a one to one exchange ratio.

The share of Mittal was classified into 2 classes, namely, Class B common shares and Class common shares. Every share of the ArcelorMittal was equivalent to the share of Mittal steel, and the stakeholders received accordingly. After the merger, Mittal did agree for the majority of the representation of the board and to follow governance, he also owned 45% of the total equity (Manu 2019). Before the merger, both Arcelor and Mittal were proving to be the best merger as both of them were growing strongly, and had faith in sharing the integration. Normally, the companies in mergers are nominated and the members of such companies propose a draft to the board. Mangers build up their plan and numerous departments commence operations for selection of mangers.

A parallel approach was used in the case of ArcelorMittal and the members were created before the merger (Pepper 2019). The said actions were being undertaken even before the formulation of a detailed plan. The CEO plays an important role in the management of a company and always put forward the policies, strategies and goals accordingly. A merger allows the companies to get bigger and stronger by integrating with others. Thus, the CEO should be demanding and should be ready to reassure people. In the case of ArcelorMittal, the external and internal communication is undertaken by the CEO which means that it is important for executives to be well integrated and transparent. This concludes what ArcelorMittal had to face because of the merger.

Because of the governance controversy, the takeover by Mittal Steel had to be amended and forced Mittal to make significant changes in the new company. Moreover, Mittal had to reduce the shares from 88% to 43.5% and lose the dominant control over the management board. Joseph Kinsch, who was the ex-chairman of Arcelor was recruited as the chairman of ArcelorMittal and for the CEO position, Roland Junck was selected.


Belinga, R. and Segrestin, B., 2019, June. A conceptual mapping of the logics of institutional investors' corporate governance responsibilities: The case for" custodian" investor stewardship.

Cirillo, A. and Mussolino, D., 2019. Analysing the board of directors in family firms: an integrated framework for future research directions. In Research Handbook on Boards of Directors. Edward Elgar Publishing.

He, J.J., Huang, J. and Zhao, S., 2019. Internalizing governance externalities: The role of institutional cross-ownership. Journal of Financial Economics, 134(2), pp.400-418.

Katoch, R., 2017. Hostile Takeovers and Defensive Tactics: A Case study of Arcelor Mittal. International Journal of Management, IT and Engineering, 7(8), pp.177-189.

Kumar, B.R., 2019. Arcelor–Mittal Merger. In Wealth Creation in the World’s Largest Mergers and Acquisitions (pp. 355-359). Springer, Cham.

Lewellen, K. and Lewellen, J., 2018. Institutional investors and corporate governance: The incentive to increase value. Unpublished working paper, Dartmouth College.

Lou, K.R., Lu, Y.K. and Shiu, C.Y., 2020. Monitoring role of institutional investors and acquisition performance: Evidence from East Asian markets. Pacific-Basin Finance Journal, 59, p.101244.

Madison, K., Holt, D.T., Kellermanns, F.W. and Ranft, A.L., 2016. Viewing family firm behaviour and governance through the lens of agency and stewardship theories. Family Business Review, 29(1), pp.65-93.

Manu, M.V., 2019. Challenging the status quo.

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.

Melis, D.A. and Nijhof, A., 2018. The role of institutional investors in enacting stewardship by corporate boards. Corporate Governance: the international journal of business in society.

Mullins, W. and Schoar, A., 2016. How do CEOs see their roles? Management philosophies and styles in family and non-family firms. Journal of Financial Economics, 119(1), pp.24-43.

Pepper, R., 2019. Bigger Isn't Always Better: the Trend Towards More Extensive Investigations in European Merger Control. Competition Law International, 15(1).

Rubino, F.E., Tenuta, P. and Cambrea, D.R., 2017. Board characteristics effects on performance in family and non-family business: a multi-theoretical approach. Journal of Management & Governance, 21(3), pp.623-658.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Corporate Governance Assignment Help

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