Integrated Annual Report 2014
Corporate governance
Key to this report.

Corporate governance

Overview

ArcelorMittal South Africa is a public company listed under the Industrial – Steel and Other Metals sector of the JSE Ltd (JSE). The company is subject to the JSE Listings Requirements, the Companies Act as well as other legislation applicable to companies in South Africa.

The board supports the principles set out in the King Code and Report on Governance for South Africa (King III). A report setting out how the company has applied the 75 principles of King III during the period under review, and highlighting any exceptions, is available online.

Although the company has complied throughout the reporting period with all provisions of King III, the board recognises that practices and procedures to ensure the highest standards of corporate governance can always be improved. Hence, the board will continually review the company’s own standards against those in a variety of jurisdictions.

The board’s governance policies and procedures are continually updated to ensure ongoing adherence to the JSE Listings Requirements, King III and current legislation. This year the board approved revised board and committee terms and references. Key board activities, changes and achievements this year were the following:

  • An independent service provider conducted a board effectiveness review. In addition, board and committee self-assessments were undertaken;
  • An interim board sub-committee, the B-BBEE committee, was established;
  • The board approved comprehensive board and committee work plans;
  • The board changed the frequency of financial reporting to shareholders from quarterly reporting to six-monthly reporting in accordance with the Companies Act and the JSE Listings Requirements with effect from 10 September 2014.

The board of directors

A clear division of responsibility exists at board level, as captured in the formal board charter which provides evidence of the balance of power between the independent non-executive chairman, chief executive officer and non-executive directors. The roles of chairman and chief executive officer are separate. The chairman provides overall leadership to the board without limiting the principles of collective responsibility for board decisions. The chairman has no executive functions.

The chief executive officer is responsible for developing and recommending to the board a strategy and vision for the company, as well as an annual business plan and budget to support the strategy. The board rigorously interrogates the strategy and provides input. The chief executive officer exercises final executive authority to run the company efficiently on a day-to-day basis, and is the leading interface between the board and executive management.

The board, through the nominations committee, has considered that the executive and non-executive directors together have the range of skills, knowledge and experience necessary for them to govern the business effectively. Directors exercise objective judgement on the affairs of the company independently from management but with sufficient management information to enable proper and objective assessments to be made.

The nominations committee assists the board in ensuring that the board comprises individuals whose background, skills, experience and characteristics will assist the board in meeting the future needs of the company.

The directors understand their fiduciary duty to act in good faith and in a manner that the directors reasonably believe to be in the best interests of the company. Each decision made is based on all the relevant facts provided to the board at the time.

Membership

For the year under review, the board consisted of 11 members: five independent non-executive directors (Messrs PM Makwana, DCG Murray, JRD Modise, Ms NP Mnxasana and Ms FA du Plessis), four non-executive directors (Messrs DK Chugh, S Maheshwari, GP Urquijo and LP Mondi) and two executive directors (Mr PS O’Flaherty and Mr MJ Wellhausen).

Changes to directorate

Appointments to the board are made in a formal and transparent manner, with the assistance of the nominations committee. Changes in the directorate are as follows:

  • Mr PS O’Flaherty was appointed CEO and executive director on 1 July 2014 following Ms N Nyembezi-Heita’s resignation as CEO and executive director on 18 February 2014.
  • Following Mr O’Flaherty’s appointment as CEO, Dr HL Rosenstock (who was appointed as interim CEO on 19 February 2014) stepped down from the board as interim CEO and executive director on 1 July 2014.
  • Mr G van Zyl was appointed acting CFO following Mr MJ Wellhausen’s resignation as CFO on 15 March 2015.
  • Mr S Maheshwari resigned as non-executive director with effect from 31 March 2015

Independence of directors

King III provides that assessment of the independence and performance of directors who have been serving on the board for more than nine consecutive years should be more rigorous than for those who have been appointed more recently. As at 31 December 2014 none of the company’s independent directors had served for that length of time.

The independent non-executive directors are considered by the board to be independent in mind, character and judgement.

Board of directors

The board is governed by a formal board charter setting out composition, processes and responsibilities. The primary responsibilities of the board are to:

  • Retain full and effective control of the company;
  • Give strategic direction to the company;
  • Monitor management in implementing plans and strategies, as approved by the board;
  • Appoint the CEO and executive directors;
  • Ensure that succession is planned;
  • Identify and regularly monitor key risk areas and key performance indicators of the business;
  • Ensure that the company complies with relevant laws, regulations and codes of business practice;
  • Ensure that the company communicates with shareowners and relevant stakeholders openly and promptly;
  • Identify and monitor relevant non-financial matters;
  • Establish a formal and transparent procedure for appointment to the board, as well as a formal orientation programme for incoming directors;
  • Regularly review processes and procedures to ensure the effectiveness of internal systems of control and accept responsibility for the total process of risk management; and
  • Assess the performance of the board, its committees and its individual members on a regular basis.

The chairman

The chairman is an independent nonexecutive director and is free of any conflicts of interest. The chairman’s role and functions are formalised and include:

  • Setting the ethical tone for the board and the company;
  • Providing overall leadership to the board;
  • As chairman of the nominations committee, identifying and participating in selecting board members and overseeing a formal succession plan for the board, the CEO, the CFO and certain key management appointments;
  • Together with the company secretary, formulating a yearly board work plan;
  • Ensuring that the directors are aware of their fiduciary duties as directors of the board;
  • Ensuring that complete, timely, relevant, accurate and accessible information is placed before the board to enable it to reach an informed decision;
  • Ensuring that decisions by the board are executed; and
  • Ensuring that good relations are maintained with the company’s major shareholders and stakeholders.

Chief executive officer

The CEO is an executive director on the board and sets the tone in providing ethical leadership and creating an ethical environment. The CEO plays a critical role in the operations and success of the day-today business of the group. Board authority conferred on management is delegated through the CEO, in accordance with approved authority levels. The CEO’s role and functions are formalised, and include:

  • Appointing the executive team and ensuring proper succession planning and performance appraisals;
  • Developing the company strategy for consideration and approval by the board;
  • Developing, recommending and implementing the annual business plans and the budgets that support the company’s short and long-term strategies; and
  • Establishing an organisational structure for the company to enable execution of its strategic planning.

Retirement and re-election of directors One-third of directors are subject, by rotation, to retirement and re-election at the annual general meeting in terms of the company’s memorandum of incorporation. Messrs PM Makwana, DCG Murray and LP Mondi retire and, being eligible, have offered themselves for re-election. In accordance with the company’s memorandum of incorporation the appointment of Mr PS O’Flaherty as a director of the board will be confirmed by shareholders at the forthcoming annual general meeting.

Company secretary

The company secretary is Premium Corporate Consulting Services (Pty) Ltd, which advises the board on the appropriate procedures for the management of meetings and the implementation of governance procedures. The company secretary provides the board collectively, and each director individually, with guidance on the discharge of their responsibilities in terms of legislation and regulatory requirements applicable to South Africa. On a quarterly basis, the board is informed of changes to legislation, regulation and best practice by means of a formal written update provided by the company secretary.

The company secretary and chairman of the board ensure that the affairs of the board are managed effectively. Appointment and removal of the company secretary are dealt with by the board.

The company secretary monitors directors’ dealings in shares, and ensures adherence to closed periods for share trading.

Board committees

While the board remains accountable and responsible for the performance and affairs of the company, it delegates to management and board committees certain functions to assist it in discharging its duties properly. Each committee acts within approved written terms of reference under which authority is delegated by the board. The chairman of each committee reports at each scheduled meeting of the board, and minutes of committee meetings are provided to the board. The board committees are as follows:

Audit and risk committee

The audit and risk committee report is required in terms of section 94(7) of the Companies Act. LINK Click here for the Audit and Risk Committee Report.

 

Safety, health and environment committee (SHE)

The SHE committee has been mandated to assist the board in ensuring sound management of safety, health and environmental matters.

The committee comprised Adv FA du Plessis (chairman), Mr DCG Murray, Ms NP Mnxasana and the CEO. Representatives of both the Numsa and Solidarity unions attend meetings as permanent invitees. The general managers of all business units, the chief operating officer, the group manager: health, safety and wellness as well as the group manager: environment are permanent invitees of the committee.

The committee met three times during the year under review. It rotates its visits between plants to ensure site visits by committee members. The main duties of the committee are to:

  • Ensure that the management of safety, health and the environment in the company is aligned with the overall business strategy of the company;
  • Consider and approve corporate safety, health and environmental strategies and policies;
  • Ensure that committee members are informed about all significant impacts on the company in the safety, health and environmental field and how these are managed (process and activities);
  • Monitor the company’s safety, health and environmental performance, progress and improvement; and
  • Ensure adequate resources are provided to comply with SHE policies, standards and regulatory requirements.

Remuneration, social and ethics committee

LINKClick here for the remuneration, social and ethics committee report.

Nominations committee

The nominations committee is chaired by the chairman of the board and consists only of independent directors: Messrs PM Makwana (chairman), DCG Murray and JRD Modise. The CEO, Messrs DK Chugh and GP Urquijo, the general manager: human resources and the vice president: human resources of the global ArcelorMittal group attend the meetings by invitation.

The functions of the nominations committee are to:

Ensure that the procedures for appointments to the board are formal, transparent and in accordance with the JSE Listings Requirements, the memorandum of incorporation and the Companies Act;

Regularly review the board structure, size and composition and make recommendations to the board on the composition of the board in general, and any adjustments that are deemed necessary, including the balance between executive, non-executive and independent non-executive directors;

  • Identify and nominate candidates for the approval of the board to fill board vacancies (executive and non-executive directors) as and when they arise;
  • Be responsible for succession planning, in particular for the chairman and executive directors;
  • Agree, and put in place, a performance contract with the chief executive officer;
  • Formalise the annual performance reviews of the board as a whole, the respective board committees and individual board members;
  • In the exercising of its duties, have due regard for the principles of governance and code of best practice; and
  • Deal with any other nominations matters formally delegated by the board to the committee from time to time.

Interim committee: B-BBEE committee

The B-BBEE committee consists of Messrs PM Makwana (chairman), DCG Murray, JRD Modise, DK Chugh and the chief executive officer.

The committee was formed to monitor the company’s performance in improving on its B-BBEE scorecard and to provide an “umbrella view” of how the company is performing against each of the seven identified pillars of the B-BBEE Code. The committee seeks to help management to move forward the process of improving the company’s B-BBEE rating.

Share dealings by directors and management

In line with statutory and regulatory obligations and best practice, directors and management may not deal directly or indirectly in the company’s shares during specific closed periods. These closed periods operate from year-end to the announcement of annual results, and from half-year end to the announcement of interim results. Restrictions on share dealings are also applied during any other period considered sensitive in terms of the requirements of the JSE Ltd.

Directors and the company secretary require the prior approval of the chairman or chief executive officer before dealing in the company’s shares.

Ethics

Fair and ethical business practices are at the heart of our values. These principles are entrenched in our Code of Business Conduct and reinforced by specific policies and training programmes on issues such as anti-trust and anti-corruption behaviour.

The anti-corruption guidelines establish procedures for handling concerns about possible corrupt practices and provide guidance on how to fight and prevent corruption. All senior executives and staff in relevant sections of the business are required to be trained in the application of these guidelines.

Anti-competitive behaviour is monitored according to anti-trust guidelines. All senior executives and staff in relevant sections of the business are trained in the application of these guidelines.

In the past year the remuneration, social and ethics committee reviewed our performance and strategy relating to social and economic development, including the company’s standing in terms of the goals and purposes of:

  • the 10 principles set out in the United Nations Global Compact Principles;
  • the OECD recommendations regarding corruption;
  • the Employment Equity Act; and
  • the Broad-Based Black Economic Empowerment Act.

The committee also received reports on, and considered, the company’s:

  • promotion of equality, prevention of unfair discrimination, and reduction of corruption;
  • contribution to the development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and
  • record of sponsorship, donations and charitable giving.

The functions and responsibilities of the remuneration, social and ethics committee include:

  • Social and economic development, including the company’s standing in terms of the goals and purposes of:
    • the 10 principles set out in the United Nations Global Compact principles;
    • the Organisation for Economic Co-operation and Development (OECD) recommendations regarding corruption;
    • the Employment Equity Act; and
    • the Broad-Based Black Economic Empowerment Act.
  • Good corporate citizenship, including the company’s:
    • promotion of equality, prevention of unfair discrimination, and reduction of corruption;
    • contribution to the development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and
    • record of sponsorship, donations and charitable giving.
  • The environment, health and public safety, including the impact of the company’s activities and of its products or services.
  • Consumer relationships, including the company’s advertising, public relations and compliance with consumer protection laws.
  • Labour and employment, including the company’s standing in terms of the International Labour Organisation.
  • Protocol on decent work and working conditions; and the company’s employment relationships with and its contribution toward the educational development of its employees.
  • To draw matters within its mandate to the attention of the board as occasion requires.
  • To report, through one of its members, to the shareholders at the company’s annual general meeting on the matters within its mandate.
  • To review areas of compliance such as conflicts of interest (to be considered annually by the board) and insider trading concerns.
  • To receive and consider, on an annual basis, the report of the combined assurance process.
  • To annually review the Ethics Code and note training done by management on the Code.

Over the past year, 47 ethics-related incidents were reported to Forensic Services (2013:50). Of these, 39 were found to have been unsubstantiated or were referred back. Eight allegations were substantiated.

Corrective action taken this year resulted in four dismissals, five final warnings, one written warning and one case of corrective counselling. Two employees resigned as a result of forensic investigations. Action taken by the internal forensic services team resulted in recoveries or savings of R28 million.

A formal process is in place to track and report incidents, while also ensuring that recommendations are fully implemented by management. We have zero tolerance for performing or concealing fraudulent and/or illegal acts, as defined in the company’s anti-fraud policy.

Since 2013, 1 859 employees and vendors have received training in fraud awareness and prevention. A fraud awareness week was held in November and publicised across the company.

A fraud whistleblower line (0800 001 672) is operated by Global Compliance on behalf of the company.

LINK Click here for the ArcelorMittal South Africa Code of Business Conduct.

This year no donations – either financial or in kind – were made to political parties. Such donations are strictly governed by an ArcelorMittal group policy which requires prior written approval by responsible officebearers and the regular maintenance of political donations registers and the signing of regular compliance certificates.

In the new three-year cycle, which started on 1 January 2013, 1 859 AMSA employees underwent fraud awareness training. Nine anti-fraud awareness training sessions for various employees of all levels were held during the fraud awareness week in November 2014, which covered 282 employees in total. Various posters with the whistleblower hotline number, email address and website are visible within our buildings. An email was sent to all users of company and 8 300 flyers were distributed across all plants, two weeks prior to the fraud awareness week, with information regarding the week.

The CEO distributes, on an ongoing basis, group notices to all employees which highlight forensic issues identified, creating awareness of fraud and its consequences and advertising the hotline numbers.

Human rights

In the year reviewed none of our operations were identified as having human rights violations, including violations of the right to exercise freedom of association and collective bargaining, or to have been at risk for child, forced and compulsory labour.

One allegation concerning human rights at Vanderbijlpark Works was made during the year.

Our close relationship with suppliers provides an opportunity to positively influence their environmental and social conduct, and we see this as an important part of our responsibility as a good corporate citizen. This year no instances were identified where the possibility existed for suppliers to infringe human rights as defined by our human rights policy and internationally accepted covenants and declarations. No specific human rights issues were raised at the board or senior executive levels.

Our global code for responsible sourcing was developed in collaboration with customers, suppliers, peer companies and NGOs. It outlines the minimum standards with which we expect suppliers to comply in the areas of health and safety, human rights, ethics and environmental responsibility.

It applies to our suppliers and contractors, their affiliates and to all of the products and services that we purchase. We encourage our suppliers to promote the requirements of the code within their own supply chains.

The ArcelorMittal human rights policy complements and brings together the human rights aspects from other company policies and guidelines. These include our code of business conduct, the health and safety, environment and human resources policies and the anti-corruption guidelines.

The human rights policy sets out the principles underlying our actions and behaviour in relation to human rights, and applies to all employees and subcontractors working at our sites. Key stakeholders include:

  •  Employees: We are committed to respect the human rights of our employees. We develop our employment policies with the aim to achieve uniform worldwide Corporate governance and risk management application of the relevant aspects contained in the International Human Rights Declarations. We are committed to train our employees to be aware of, respect and protect human rights in the workplace and in the local communities directly impacted by our operations.
  •  Business partners: We seek to respect and promote human rights when engaging with subcontractors, suppliers, customers, joint ventures and other partners. We will do this, as appropriate, through proactive engagement, monitoring and contractual provisions.
  •  Local communities: We seek to respect human rights and to develop an understanding of the cultures, customs and values that prevail in our local communities by developing an inclusive and open dialogue with the people affected by our operations.

Specific provisions include:

  •  Promoting health and safety.
  •  Promoting freedom of association.
  •  Eliminating forced or compulsory labour.
  •  Abolishing child labour.
  •  Eliminating unlawful discrimination in the workplace.
  •  Eliminating harassment and violence.
  •  Providing competitive compensation.
  •  Upholding conditions of employment.
  •  Avoiding involuntary resettlements.
  •  Respecting indigenous people’s rights.
  •  Adopting proportionate security arrangements.
  •  Developing practices for land and water use.

Statement of King III compliance

The board, through the audit and risk committee, has satisfied itself with the extent of the company’s compliance with King III for the financial year ended 31 December 2014.

The company complies with the King Code’s recommendation of ensuring that the board comprises a majority of non-executive directors, the majority of whom are independent.

LINK Click here for a statement on the company’s compliance with King III.