Corporate governance

Our Board is guided by four principles of leadership i.e. fairness, responsibility, accountability and transparency. This helps to retain our focus on improving financial viability and at the same time ensuring social equity and protecting the environment in which we operate. The Board aims to set the ethical tone for our company and to integrate our brand values of sustainability, quality and leadership into everything we do.

Introduction

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

In addition, the company supports the principles set out in the King Report on Governance for South Africa 2009 (King Code). This report sets out how the company has applied the principles set out in the King Code during the period under review.

The Board of Directors (Board) confirms its commitment to the highest standards of corporate governance.

Companies Act

The Companies Act with its regulations came into effect on 1 May 2011. A committee has been formed to ensure full compliance with the new obligations imposed upon the company and a number of necessary resolutions are included in the notice of the annual general meeting.

Other matters such as the adoption of the memorandum of incorporation by shareholders will be addressed within the transition period set out in the Companies Act.

Key changes for the year under review

The Board’s governance policies and procedures are continually updated to ensure ongoing adherence to the JSE Listings Requirements, the King Code and current legislation. During the period under review, the following changes were made:

• IT Governance Charter
• Appointment of directors’ policy
• Anti-fraud policy
• Counterparty limits policy
• Corporate approval framework
• Social and Ethics Committee was constituted as a statutory committee insofar as its obligations are set by the Companies Act
• The Transformation Committee was dissolved to incorporate the Social and Ethics Committee
• The terms of references for all the Board committees were amended
• Work plans for the Board and Boardcommittees for 2012 were approved
• Board and committee evaluations were carried out during 2011.

King Code

The King Code recommends that the Board should comprise a majority of non-executive directors and that the majority of the non-executive directors should be independent.

Although the Board comprises a majority of non-executive directors, at year-end there was a balance of independent non-executive directors and nonexecutive directors. However, at the date of signing of this report, the Board comprises of a majority of non-executive directors of whom a majority are independent directors. This is as a result of Mr CPD Cornier’s resignation as a non-executive director on 24 January 2012.

The Board of Directors

Changes to directorate

The following changes in the directorate have taken place during the period under review:

• Ms FA du Plessis was appointed as an independent non-executive director and member of the Audit and RiskCommittee on 4 May 2011 and as the Chairman of the Social and Ethics Committee on 26 October 2011;
• Mr AMHO Poupart-Lafarge resigned as a non-executive director on 25 May 2011;
• Mr GP Urquijo was appointed as a non-executive director on 27 May 2011 and as a member of the Social and Ethics Committee on 26 October 2011;
• Ms ND Orleyn was appointed as a member of the Social and Ethics Committee on 26 October 2011; and
• Mr CPD Cornier resigned as nonexecutive director with effect from 24 January 2012.

Membership

The Board comprised 12 members for the year under review. There are five independent non-executive directors (Messrs MJN Njeke, DCG Murray, M Macdonald, Ms ND Orleyn and FA du Plessis), five non-executive directors (Messrs DK Chugh, CPD Cornier, S Maheshwari, GP Urquijo and LP Mondi) and two executive directors (Ms N Nyembezi-Heita, the Chief Executive Officer (CEO) and Mr RH Torlage, the Chief Financial Officer (CFO)).

The independent non-executive directors completed an assessment, based on the guidelines contained in the JSE Listings Requirements, the King Code and the Companies Act and are considered by the Board to be independent in mind, character and judgement.

Chairman

Mr MJN Njeke was appointed as Chairman on 4 February 2010 as he is independent and free of any conflicts of interest. The Chairman’s role and functions are formalised and include the following:

• Sets the ethical tone for the Board and the company
• Provides overall leadership to the Board
• As Chairman of the Nominations Committee, identifies and participates in selecting Board members and oversees a formal succession plan for the Board, the CEO, the CFO and certain key management appointments
• Together with the Company Secretary, formulate a yearly Board work plan
• Ensures that the directors are aware of their fiduciary duties as directors of the Board
• Ensures that complete, timely, relevant, accurate and accessible information is placed before the Board to enable them to reach informed decisions
• Ensures that decisions by the Board are executed
• Ensures that good relations are maintained with the company’s major shareholders and stakeholders.

Chief Executive Officer

Ms N Nyembezi-Heita was appointed as the CEO on 1 March 2008. The CEO 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-to-day business of the company. 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 the following:

• Appointing the executive team and ensuring proper succession planning and performance appraisals
• Developing the company’s 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
• Establishing an organisation structure for the company to enable execution of its strategic planning.

Directors

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 to enable them to effectively govern the business. 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 they 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.

Roles and responsibilities

The Board is governed by a formal Board Charter setting out composition, processes and responsibilities. The primary responsibilities of the Board include the following:

• Retain full and effective control of the company
• Give strategic direction to the company
• Monitors 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 effectiveness of internal systems of control and accept responsibility for the total process of risk management
• Assess the performance of the Board, its committees and its individual members on a regular basis.

Board meetings and attendance

The Board meets regularly, at least once a quarter and when necessary to fulfil its role. The Board held five meetings during the past financial year and a Board strategy session in August 2011. Attendance by directors at Board meetings is set out in the table called “Meeting attendance”.

Retirement and re-election of directors

In terms of the approved Board Charter, the retirement age for an executive director is 63 and for a non-executive director is 70 years of age, subject to review at the discretion of the Board on the recommendation of the Nominations Committee. As Mr M Macdonald turns 70 in April 2012, the Board waived the retirement age for Mr M Macdonald and he was re-elected as an independent director and Chairman of the Audit and Risk Committee and will recommend his appointment as Chairman of the Audit and Risk Committee at the forthcoming annual general meeting. Mr M Macdonald will retire at the 2013 annual general meeting. The Nominations Committee will start with their succession process to find a suitable replacement for Mr M Macdonald.

One-third of the directors are subject, by rotation, to retirement and re-election at the annual general meeting in terms of the Company’s Articles of Association (articles). Ms ND Orleyn, Mr DK Chugh, and Mr M Macdonald retire and being eligible, have offered themselves for re-election. The biographical details are provided in the Integrated annual report to enable shareholders to make an informed decision in respect of their election.

In accordance with the company’s articles, the shareholders will be required to confirm the appointment of Ms FA du Plessis and Mr GP Urquijo as directors of the Board at the forthcoming annual general meeting.

Board appointments and induction

The Board has adopted a policy on the procedures for the appointment of directors to ensure that appointments are formal, transparent and a matter for the Board as a whole. The Nominations Committee periodically assesses the skills represented on the Board by the nonexecutive directors and determines whether those skills meet the company’s needs. Directors are invited to assist with the identification and nomination of potential candidates.

The Nominations Committee proposes suitable candidates for consideration by the Board. The Board ascertains whether potential candidates are competent to be appointed as directors and are able to contribute to business judgement calls made by the Board. The Board particularly considers the knowledge and experience required to fill the gap in the Board, the integrity of the individual and the skills and capacity of the individual to discharge his/ her duties to the Board.

Meetings are scheduled for new directors to meet key management and visit all the operational sites of the company.

Remuneration

Details of the remuneration paid to the executive and non-executive directors, the prescribed officers and the three most
highly paid employees of the company, are set out in the Integrated annual report. Shareholders will be invited to consider and approve the non-executive directors’ fees at the 2012 annual general meeting by means of a special resolution.

Board and committee evaluations

The Board evaluated the performance of the Chairman, the Board and its committees through a self-evaluation process against their respective mandates in terms of the Board Charter and the terms of reference of the Board committees. A consolidated summary of the evaluation was reported to and discussed by the Board, including any actions and suggestions for improvements. The annual evaluation process showed that the Chairman, the Board and its Board committees had functioned well and discharged their duties as per the mandates in their charters. Furthermore, the independence of each director was evaluated. The Board determined that although some directors had served as members for nine years or longer, they all demonstrated that they were independent in character and judgement and there were no relationships or circumstances that were likely to affect or could appear to affect their independence.

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. 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 attendance by the members at the committee meetings is set out in the table below.

Audit and Risk Committee

The Audit and Risk Committee report required in terms of the Companies Act of South Africa is set out here in this 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 Messrs DCG Murray (Chairman), M Macdonald and Ms N Nyembezi-Heita (CEO). The committee appointed representatives of both Numsa and Solidarity as permanent invitees. The general managers of all the business units, the Chief Operating Officer, the Chief Technology Officer, the Health, Safety and Wellness Group Manager as well as the Environment Group Manager are permanent invitees of the committee.

The committee met three times during the year under review and rotated its visits between all plant sites.

The main duties of the committee are to:

• ensure that the management of safety, health and the environment in thecompany is aligned with the overall business strategy of the company;
• consider and approve corporate safety, health and environmental strategies and policies;
• ensure that its 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 continual improvement;
• deal with any other matters formally delegated by the Board to the committee from time to time; and
• ensure adequate resource provision to comply with SHE policies, standards and regulatory requirements.

Remuneration Committee

The Remuneration Committee comprised Ms ND Orleyn (Chairman), Messrs DCG Murray, DK Chugh and LP Mondi. The CEO, the Human Resources General Manager and the vice-president Human Resources for the ArcelorMittal Group attend the meetings by invitation. This committee met three times during the period under review.

The functions of the Remuneration Committee are to:

• determine and agree with the Board the framework or Board policy for the remuneration of the company’s executive and senior management;
• determine the targets and rules for any performance-related pay schemes operated by the company;
• determine the rules for any share incentive scheme;
• approve general salary increases and mandates for negotiations with trade unions and review and assess any ad hoc remuneration matters;
• oversee any major changes in employee benefit structures;
• be involved in and ensure a proper system of succession planning for top management and monitor succession planning in the rest of the organisation;
• confirm appointment to senior management positions;
• approve employment equity plans for implementation; and
• deal with any other human resources matters formally delegated by the Board to the committee from time to time.

Nominations Committee

The Nominations Committee is chaired by the Chairman of the Board of Directors and consists only of independent directors, namely Mr MJN Njeke (Chairman), Ms ND Orleyn and Mr DCG Murray. The CEO, Messrs DK Chugh, GP Urquijo, the Human Resources General Manager and the vice-president of Human Resources of the ArcelorMittal Group attend the meetings by invitation.

The functions of the Nominations Committee are to:

• 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;
• be responsible for identifying and nominating 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 CEO;
• formalise the annual performance reviews of the Board as a whole, the respective Board committees and individual Board members;
• exercise its duties with 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.

This committee met twice during the period under review.

Social and Ethics Committee

The Social and Ethics Committee was appointed by the Board as a statutory committee on 26 October 2011. The members are all independent directors: Ms FA du Plessis (Chairman), Mr M acdonald and Ms ND Orleyn. The CEO and Mr GP Urquijo will attend the meetings by invitation. The committee will meet three times in 2012 and have the responsibilities as set out in the Companies Act.

appointed by the Board as a statutory committee on 26 October 2011. The members are all independent directors: Ms FA du Plessis (Chairman), Mr M Macdonald and Ms ND Orleyn. The CEO and Mr GP Urquijo will attend the meetings by invitation. The committee will meet three times in 2012 and have the responsibilities as set out in the Companies Act.

Independent advice

The members of the Board and committees may seek advice from independent experts whenever it is considered appropriate. Individual directors, may with the consent of the Chairman, seek independent professional advice at the expense of the company, on any matter connected with the dischargeof their responsibilities as directors.

Price-sensitive information

The Board acknowledges its responsibility for ensuring the equal treatment of all shareholders. To this end, a disclosure of information policy is in place and sets out the necessary guidelines that have to be adhered to at all times in the external communication of the company’s affairs.

Closed periods

A closed period is exercised by the directors from the date of the end of every quarter up to the date of the publication of the quarterly results as published on SENS. Additional closed periods are enforced as required in terms of any corporate activity or when directors are in possession of price-sensitive information. No director or any employee who participates in the management share scheme, may trade in ArcelorMittal South Africa shares during the closed periods. The Company Secretary informs the directors of the closed periods.

Directors’ share dealings

ArcelorMittal South Africa has adopted a share dealing policy requiring all directors, senior executives and the Company Secretary to obtain prior written clearance from either the Chairman or CEO to deal in ArcelorMittal South Africa shares. The Chairman and CEO may not deal in the company’s shares without first advising and obtaining clearance from the appointed compliance officer and the Board.

No director may trade in ArcelorMittal South Africa shares during closed periods as defined in the JSE Listings Requirements. The directors of the company keep the Company Secretary advised of all their dealings in shares.

Interests of directors

The direct and indirect interests of directors and their associates in the company’s shares as at 31 December 2011 is set out in the annual financial statement. A record of dealings and clearance provided in terms of the JSE Listings Requirements is kept by the Company Secretary.

Conflicts of interest

ArcelorMittal South Africa encourages directors to avoid situations where they have, or can have, a direct or indirect interest that conflicts with the company’s interests. Directors are required to inform the Board timeously of conflicts or potential conflicts of interests they may have in relation to particular items of business. A director who has a conflict of interest with respect to a contract or transaction that will be voted on at a meeting, shall not be counted in determining the presence of a quorum for purposes of the vote, may not vote on the contract or transaction, and shall not be present in the meeting room when the vote is taken.

Interests in contracts

No director has a significant interest in any contract or arrangement entered into by the company or its subsidiaries. The register of interests of directors in contracts in terms of the Companies Act is updated on an annual basis and when relevant.

Company Secretary

Premium Corporate Consulting Services (Proprietary) Limited is the Company Secretary who advises the Board on the appropriate procedures for the management of meetings and the plementation 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 applicable legislation and regulatory requirements. On a quarterly basis, the Board is informed of changes to legislation, regulations and best practices.

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 is dealt with by the Board.

The Company Secretary monitors directors’ dealings in shares and ensures adherence to closed periods for share trading.

Annual financial statements and going concern

The Board acknowledges its responsibility for ensuring the preparation of the annual financial statements in accordance with International Financial Reporting Standards (IFRS), the Companies Act of South Africa, the JSE Listings Requirements and applicable legislation. The external auditors are engaged to express an opinion on these financial statements. The Board is responsible for ensuring the maintenance of adequate accounting records and effective systems of internal control. During the year under review nothing has come to the Board’s attention to indicate that any breakdown in the functioning of the internal controls and systems has occurred which could have a material impact on the business.

The annual financial statements are prepared from the accounting records on the basis of the consistent use of appropriate accounting policies supported by reasonable and prudent judgements and estimates that fairly present the state of affairs of the company. The financial statements have been prepared on a “going-concern” basis and there is no reason to believe that the company will not continue as a going concern in the foreseeable future. ArcelorMittal South Africa places strong emphasis on achieving the highest levels of financial management, accounting and reporting to stakeholders. Our accounting policies and practices also conform to IFRS.

The directors report that, after making enquiries, they have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the group continues to adopt the going-concern basis in preparing the annual financial statements.

Legal compliance

A legal compliance programme designed to increase awareness of, and improve adherence to, applicable legislation and regulation is in place. This programme involves the delegation of esponsibility for compliance to designated managers equipped to deal with the area of legal compliance. A compliance framework document has been prepared by Legal Counsel and has been rolled out. This is aimed at further entrenching a sound compliance culture. A regular review of the compliance programme is conducted by internal audit.

Sustainable development

Sustainable development is a cornerstone of how we do business as captured in our vision of producing safe, sustainable steel. This retains our focus on our key goal of improving the company’s financial viability while ensuring social equity and protecting the environment in which we operate.

Our policies and initiatives aimed at achieving our sustainable development objectives are covered extensively within the sustainability report, which has been prepared in accordance with the Global Reporting Initiative guidelines. ArcelorMittal South Africa supports the strategies adopted by the World Steel Association of which the company is an active member.

These include:

• social responsibility, including education and community development;
• safety, health and environmental management, policies and practices;
• employee issues such as employment equity, the potential impact of HIV/Aids on our activities and the development of human capital;
• initiatives to support broad-based black economic empowerment; and
• the identification and management of risk.

Internal assurance

The internal assurance department is integral to ensuring effective corporate governance processes. Its main areas of focus include all aspects concerning internal controls, risk management, control self-assessment, compliance, and reliability of the financial records and the safeguarding of assets. The internal assurance team assists the Board in ensuring a sound system of risk management, internal control and governance. The internal assurance department is fully mandated by and accountable to the Audit and Risk Committee, which approves the internal audit work plan for the year and monitors the department’s performance. An internal audit charter defines the purposes, authority and responsibility of the internal audit function.

Risk management

ArcelorMittal South Africa’s enterprise risk management (ERM) policy, comprising the standard operating procedures, policy statement and charter, was revised to align the policy with world best practices,King III proposals and the draft ISO 31000 standard. The revised policy is also in line with the code of practice as laid out by the Risk Management Federation of South Africa and the ArcelorMittal Group risk management policy.

ERM is an integrated approach to risk management, whose key objectives are to:

• effectively identify, assess, monitor and report all the risks and opportunities which the organisation is exposed to;
• implement intervention protocols to adequately mitigate these exposures; and
• ensure that the risk management process is adequately controlled and assessed on a continual basis.

The risk management process at the company is overseen by the Audit and Risk Committee. The manager, Insurance and Risk prepares a consolidated risk management report that is presented to the Executive Committee, the Audit and Risk Committee and to the Board.

The company has documented business continuity plans in place which will allow it to continue its critical business processes in the event of a disastrous incident impacting on its activities.

A list of ArcelorMittal South Africa’s key systemic and business risks is included in the Integrated annual report.

Insurance

The company’s insurance department undertakes regular loss prevention audits of all the company’s plants and operations using recognised international procedures and standards. The company participates in local and international insurance programmes that provide, at competitive costs, insurance cover for losses above agreed deductibles.

Code of business conduct

ArcelorMittal South Africa is committed to the highest standards of ethical and professional conduct which apply to all directors, employees and contractors. The company’s core values of honesty, integrity and dignity are firmly entrenched in the company’s code of business conduct.

The code covers a range of behaviours, including:

• compliance with laws and regulations;
• prevention of conflicts of interest;
• fair dealing;
• respect for the environment;
• protection of confidential information; and
• respect for the workplace environment

The company has an anonymous fraud hotline which encourages employees, customers, suppliers and other interested parties to report incidents of unethical and corrupt behaviour. All reported incidents are investigated by the internal forensic department and outcomes of the investigations are communicated to employees.

Communication

The Board ensures that material matters of interest and concern to shareholders and other stakeholders are addressed in the company’s public disclosure and communication. In this regard the Board ensures that the group provides adequate transparency on all pertinent matters. The CEO and CFO meet with shareholders and analysts as well as with the media and press in order to ensure accurate reporting of company matters.

The Board further encourages shareholders to attend its annual general meeting, notice of which is contained in the Integrated annual report, where shareholders have the opportunity to enquire with the Board and the Chairman of the Audit and Risk Committee.

The company’s website provides all pertinent company announcements and the latest and historical financial reports.

Employment equity

An affirmative action programme forms part of the group’s business plan. The group offers equal opportunities to all employees. It seeks to provide a work environment in which individuals of ability and commitment are able to develop their careers regardless of their background, race, religion or gender.

The group fully supports the vernment’s initiative to achieve greater equity in the workplace and management of all group companies is fully committed to complying with the Employment Equity Act of 1998 (as amended).

Additional information is set out in the Sustainability report.