Corporate governance report

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 confirms its commitment to the highest standards of corporate governance and recognises that practices and procedures can always be improved. Hence, the Board will continually review the company’s own standards against those in a variety of jurisdictions.

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. The Board approved revised Board and committee terms of references. During the period under review, the following changes were made:

• 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 Board committees for 2012 were approved
• Board and committee evaluations were carried out during 2011.

Shareholders are encouraged to read the full corporate governance report on the website.

Board of Directors

The Board of Directors

Roles and responsibilities

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 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.

Membership

At the date of signing this report, the Board consists of 11 members: five independent non-executive directors (Messrs MJN Njeke, DCG Murray, M Macdonald, Ms ND Orleyn and Ms FA du Plessis), four non-executive directors (Messrs DK Chugh, S Maheshwari, GP Urquijo and LP Mondi) and two executive directors (Ms N Nyembezi-Heita, the Chief Executive Officer, and Mr RH Torlage, the Chief Financial Officer).

The independent non-executive directors completed an assessment of the Board (based on the guidelines contained in the JSE Listings Requirements, the King Code and the Companies Act) and are satisfied that it is 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 to:

• setting the ethical tone for the Board and the company;
• providing overall leadership to the Board;
• as Chairman of the Nomination 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

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 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.

Company Secretary

The Company Secretary is Premium Corporate Consulting Services (Proprietary) Limited, 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 the legislation and regulatory requirements applicable to South Africa. On a quarterly basis, the Board is informed of changes to legislation, regulation and best practice.

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.

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 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.

Changes to directorate

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

• Ms FA du Plessis was appointed as an independent non-executive director and member of the Audit and Risk Committee 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
• Mr CPD Cornier resigned as a non-executive director on 24 January 2012.

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 years of age 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. Mr M Macdonald will retire at the 2013 annual general meeting. The Nominations Committee will start with its 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 and Messrs DK Chugh and M Macdonald retire and, being eligible, have offered themselves for re-election. Their biographical details are provided on page 34 to 35 of this report to enable shareholders to make an informed decision in respect of their possible re-election.

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

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 appointments and induction

The Board has adopted a policy on the procedures for the appointment of directors to ensure that the 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 judgements made by the Board. The Board particularly considers the knowledge and experience required to fill the gaps 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.

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 to discharge 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.

Audit and Risk Committee

The Audit and Risk Committee report, required in terms of section 94(7) of the Companies Act No 71 of 2008, 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 Mr DCG Murray (Chairman), Mr M Macdonald and the CEO. The committee appointed representatives of both NUMSA and Solidarity as permanent invitees. The general managers of all business units, the Chief Operating Officer (COO) and the Chief Technology 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 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 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 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; and 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), and Messrs DCG Murray, DK Chugh and LP Mondi. The CEO, Mr AMHO Poupart-Lafarge, the General Manager: Human Resources and the Vice President: Human Resources for the global 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 broad 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 throughout the company;
• 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 and consists only of independent directors, namely Mr MJN Njeke (Chairman), Ms ND Orleyn and Mr DCG Murray. 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:

• 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;
• in the exercise 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.

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 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.

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 below.