Integrated Annual Report 2016
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Leadership

Overview

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

Ethical and effective leadership

The board of directors is the custodian, and focal point, of corporate governance at ArcelorMittal South Africa. The board supports and practises the principles set out in the King Code on Corporate Governance (King III).

As enunciated by King IV (the successor to King III), the board acknowledges that it is important to have good corporate governance structures and processes and that the board needs to lead and direct the organisation in an ethical and effective manner.

The board accepts that effective leadership entails guiding management and making strategic choices about the future direction of the company. Most importantly, the board remains accountable and should report in a transparent and open manner to all stakeholders regarding the performance of the company and how it has fulfilled its responsibilities as a board. As set out in King IV, the board is mindful about the outcomes it needs to achieve and appreciates that the company’s core purpose, its risks and opportunities, strategy, business model and sustainable development are all inseparable elements of its value creation process.

This year an externally facilitated self-assessment of the board’s performance and effectiveness found that the board believed its performance to have been effective. However, following this review and given the extremely challenging circumstances facing the company and the need for urgent, far-reaching strategic choices, the board decided on the following focus areas:

  • The CEO and management were directed to engage more frequently and with greater purpose outside of board meetings with board members
  • The board instructed the company secretary and management to improve the quality of director induction and the frequency of ongoing director development and education
  • CEO and senior executive performance goal-setting, evaluation and succession management to be more closely interrogated.

This year the board and committee terms and references and work plans were reviewed. Key board activities and achievements this year included:

  • Managing the appointment of the incoming CEO and the transition process
  • Actively supporting the CEO and management in charting a way through the many challenges faced by the company and the steel industry
  • Approving a strategy providing guidance to management on material issues and key strategic objectives to be addressed, and identifying key indicators to monitor progress against the achievement of these priorities
  • Closely monitoring progress in terms of the B-BBEE scorecard. Notably, the board was intimately involved in the process of selecting the most appropriate B-BBEE partners and in ensuring that the ownership transaction achieved this year would unlock maximum value for the company and for stakeholders, including local communities and employees
  • Reviewing the codes of business conduct and ethics and considering initiatives to enhance the compliance framework and culture within the company
  • Holding management to account on safety performance while giving direction on the company’s duty of care towards those injured at work and the families of those who passed away
  • Interacting extensively with management on corporate actions including import protection and localisation, Competition Commission issues, Evraz Highveld Steel and Thabazimbi mine
  • Through the safety, health and environment committee, monitoring, in detail, safety and environmental issues
  • Closely involving itself in matters relating to funding and the company’s status as a going concern as well as the footprint reviews of Saldanha and Vanderbijlpark Works and the Saldanha recovery plan
  • Giving direction on desired outcomes in terms of stakeholder engagement and social and human value creation
  • Giving detailed leadership on strengthening the internal audit and combined assurance functions
  • An externally facilitated evaluation of the board’s performance and effectiveness was undertaken in 2016.

Policies and procedures

The board’s governance policies and procedures are continually updated to ensure ongoing adherence to the JSE Listings Requirements, current legislation, international best practice and King III. The board also recognises that its role includes approving and monitoring the implementation of strategy that adequately considers the organisation’s priorities, its impacts on the various capitals, and its ability to create meaningful, sustainable value for stakeholders.

Structure and process

The board is governed by a formal board charter setting out its 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 shareholders and relevant stakeholders openly and promptly
  • Monitor the company’s integrated performance
  • 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 including information technology (IT) management 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.

The board delegates to committees of the board particular roles and responsibilities – which are detailed in committee reports forming part of this Leadership section. Committees of the board are all governed by formal terms of reference which in no way amount to a discharge of the board’s accountability.

A clear division of responsibility exists at board level, as captured in the board charter which provides evidence of the balance of power between the independent non-executive chairman, chief executive officer and non-executive directors. The company seeks to comply with the recommendations of King III regarding its composition. With the retirement of Mr C Murray in May 2016, as well as the appointment of Ms NP Gosa who represents the B-BBEE partner, the balance in the composition changed and includes two executive directors, five non-executives and five independent non-executives. The majority of members are non-executive directors but there is an equal number of non-executive and independent directors. It is envisaged that at the annual general meeting in May 2017 this matter will be addressed.

Following the retirement of Mr Murray in May, the board functioned without a lead independent director. The board was of the view that it would be appropriate to postpone electing a lead independent director until after the completion of the company’s B-BBEE transaction and the appointment of an additional independent non-executive, scheduled for Q1 2017.

The board remains an effective board. A board matrix, which sets out the skills and expertise of the various directors, as well as feedback from regular board evaluations and the accepted need for diversity and transformation, inform the composition of the board, and assist in identifying any additional skills or areas of expertise needed to ensure a balanced and effective board.

The board, through the nominations committee, has considered that the executive and non-executive directors together have the range and mix of skills, knowledge and experience necessary for them to govern the business effectively. The nominations committee assists the board in ensuring that the board comprises individuals whose background, skills, experience and diversity will assist the board in meeting the future needs of the company.

This year the board accepted that women were underrepresented – both within the workforce and on the board. As a result, greater substance was given to the board’s gender diversity policy (adopted the previous year).

In particular, in 2016 the nominations committee was tasked with addressing barriers to, and providing strategic direction on, the advancement of gender diversity at board level. The remuneration, social and ethics committee was also tasked with creating synergy across the business on issues of gender diversity, succession planning and transformation in general.

The board’s gender diversity policy was aligned with the company’s 2016 B-BBEE scorecard targets as these related to management control. Accordingly, in 2016 two female directors were appointed, Ms Lungile “Zee” Cele in January and Ms Noluthando Gosa of Likamva Resources with effect from December. This brought the number of women on the board to three of 12 members.

The gender diversity policy obliges the board to seriously consider the appointment of female candidates, particularly black women, whenever vacancies, retirements or other opportunities for board appointments arise. While the board was mindful of the importance of setting gender diversity targets, it was of the view that such decisions would be best taken after ensuing changes to board membership had been effected (in early 2017).

The roles of the chairman and CEO 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 CEO 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 budget and provides input. The CEO 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.

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 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.

Ethical business practices

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. This year the remuneration, social and ethics committee reviewed the code and anti-corruption guidelines and reported to the board that it believed these were adequate.

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.

This year the Competition Tribunal confirmed a settlement agreement reached between the company and the Competition Commission relating to past practices. In terms of the settlement agreement, we will be obliged to annually provide the Commission with a report on our compliance with all terms of the agreement. In addition, an independent external audit will be conducted by our independent auditors or another reputable audit firm to confirm that the pricing remedy forming part of the agreement has been applied in accordance with the agreement’s provisions. The company will report to the Commission on its adherence to the pricing remedy on a six-monthly basis.

In December 2016 the CEO communicated to employees, including managers and directors, as follows: “ArcelorMittal South Africa is already on a bold new compliance path and we welcome the fact that we have settled past legacy behaviours with the Commission. With that behind us, our management team can focus on returning the company to sustained profitability in compliance with law.

“It is of crucial importance that as an organisation we never find ourselves in this position again. It is important for all employees, especially those of you who have responsibilities dealing with customers and other stakeholders, that you become familiar with your obligations, and in particular, what kind of conduct may or may not be permissible. If in doubt you are invited to contact your manager, the legal department or compliance officer for advice and assistance. In addition, a Competition Law training programme is available and being rolled out throughout the organisation.”

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.

In line with our commitment to create and maintain supply chains that our customers trust, suppliers must acknowledge their adherence to the global ArcelorMittal code for responsible sourcing. This year we required suppliers to complete a responsible sourcing questionnaire which covered their policies and practices, record keeping and certification of human rights, health and safety, and environmental best practice. Responses to the questionnaire were incorporated into supplier performance evaluations.

Over the past year, 61 ethics-related incidents were reported to forensic services (2015: 53). Of these, 58 were found to have been unsubstantiated or were referred back. Seven allegations were substantiated.

Corrective action taken this year resulted in one dismissal and one case of corrective counselling. One employee resigned as a result of forensic investigations and one was issued with a final warning.

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.

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

Fraud awareness training sessions for various employees of all levels were held during the fraud awareness week in November 2016. Various posters with the whistleblower number, email address and website are visible within our buildings. An email was sent to all users of the company email and flyers were distributed across all plants two weeks prior to the fraud awareness week, with information regarding the week. An interview was also conducted with the general manager: forensic services of the ArcelorMittal group and published in the ArcelorMittal South Africa e-newsletter during November.

The CEO distributes group notices to all employees on an ongoing basis which highlight forensic issues identified, creating awareness of fraud and its consequences while advertising the hotline numbers. After finalising our long-running competition issues with the relevant authorities, measures to prevent a repeat were widely disseminated by the CEO’s office.

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 office bearers and the regular maintenance of political donations registers and the signing of regular compliance certificates.

Human rights

In the year reviewed none of our operations was 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.

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.

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 want our workforce to be safe and healthy, committed to our success, and to carry out our business with integrity. We are committed to respecting the human rights of all of our employees. We develop our employment policies with the aim of achieving uniform worldwide 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 want our customers to trust that we live up to their standards, both in our steel business and in our supply chain. We seek to respect and promote human rights when engaging with subcontractors, suppliers, customers, joint ventures and other partners. We do this, as appropriate, through proactive engagement, monitoring and contractual provisions
  • Local communities: it is important that we are welcomed as good neighbours that actively engage and listen to local stakeholders, and make a positive contribution to more resilient and thriving communities through both our day-to-day operations and through thoughtful, well-targeted investments. To this end, 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 of our human rights policy 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.

Board membership and changes to directorate

For the year under review, the board consisted of 12 members: five independent non-executive directors (Mr PM Makwana, Mr JRD Modise, Ms NP Mnxasana, Mr NF Nicolau and Ms LC Cele), five non-executive directors (Messrs RK Kothari, D Clarke, H Blaffart, LP Mondi and Ms NP Gosa) and two executive directors (Mr WA de Klerk and Mr D Subramanian).

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

Biographical details of board members at the date of this report as well as their membership, and attendance at meetings of board committees click here.

Expanded biographical details of directors and senior managers are available at http://www.southafrica.arcelormittal.com/Whoweare/ DirectorsManagementProfile.aspx.

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

  • Ms LC Cele was appointed as an independent non-executive director with effect from 4 January 2016
  • Following Mr PS O’Flaherty’s resignation as the CEO and executive director of the company on 12 February 2016 he was appointed as a non-executive director, with effect from 1 March 2016. Mr O’Flaherty resigned as a board member on 20 July 2016 following an effective handover process to the new CEO
  • Between 13 February and 1 July 2016, the CFO Mr D Subramanian was appointed as acting CEO and Mr G van Zyl as acting CFO. Mr WA de Klerk was appointed as CEO and executive director with effect from 1 July 2016
  • Mr M Vereecke resigned as a non-executive director on 15 July 2016 as a result of his new responsibilities in Europe, following an internal reorganisation of the ArcelorMittal group
  • Mr DK Chugh retired as an employee of the ArcelorMittal group at the end of July 2016 and therefore also retired from board appointments related to his official position. His resignation as a non-executive director became effective on 15 July 2016
  • In Messrs Vereecke and Chugh’s places, Messrs D Clarke and H Blaffart were appointed as non-executive directors with effect from 19 July 2016
  • Following conclusion of the B-BBEE ownership transaction, one representative nominated by Likamva Resources, Ms NP Gosa, was appointed as a non-executive director with effect from 1 December 2016.

The chairman

The chairman is an independent non-executive 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
  • Ensuring that good relations are maintained with the company’s major shareholders and stakeholders.

CEO

The CEO is an executive director on the board and 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
  • 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, R Kothari, NF Nicolau and Ms LC Cele retire and, being eligible, have offered themselves for re-election at the AGM in May 2017.

In accordance with the company’s memorandum of incorporation, shareholders will be asked to confirm the appointment of Messrs WA de Klerk, D Clarke, H Blaffart and Ms NP Gosa as directors of the board at the forthcoming AGM.

Company secretary

The company secretary advises the board on 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.

Ms Nomonde Beatrice Bam has served as the company secretary since August 2015.

Board committees

While the board remains accountable and responsible for the performance and affairs of the company and the need to provide consistent, quality, ethical and effective leadership, it delegates to management and board committees certain functions to assist it in properly 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.

Audit and risk committe
The audit and risk committee report, required in terms of section 94(7) of the Companies Act, is set out in this integrated annual report (click here).

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

The committee comprised Mr NF Nicolau (chairman), Ms NP Mnxasana, Ms LC Cele, Mr D Clarke 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 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. 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
  • Ensure adequate resources are provided to comply with SHE policies, standards and regulatory requirements.

Remuneration, social and ethics committee (RSEC)
RSEC’s roles and responsibilities include setting and reviewing remuneration policy, implementation and reporting, and oversight of the company’s ethics, social value creation, sustainable development and stakeholder engagement.

The committee met four times during the year. As per King IV, all members were non-executive directors, of whom a majority were independent. From May RSEC members were Ms NP Mnxasana (chairman), Mr JRD Modise,
Ms LP Mondi, Mr H Blaffart and Mr NF Nicolau. Mr RK Kothari was a permanent invitee.

In 2016 the committee reviewed the company’s performance and strategy relating to the economic, social and environmental contexts, including its 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
  • The Broad-Based Black Economic Empowerment Act.

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

  • Remuneration policy and the design and implementation of guaranteed and variable pay
  • Promotion of equality, prevention of unfair discrimination, and reduction of corruption
  • Contribution to the development of communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed
  • Records of sponsorship, donations and charitable giving
  • The health, environmental and public safety impacts 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’s protocol on decent work and working conditions, and the company’s employment relationships with and its contribution toward the educational development of its employees
  • General salary increases and mandates for negotiations with trade unions
  • Ensuring a proper system of succession planning for top management and monitoring of the succession plan for the rest of the organisation
  • Confirming appointments to senior management positions
  • Employment equity plans for implementation
  • Matters relating to corporate culture and management performance in terms of retention and talent development.

Nominations committee

The functions of the nominations committee are to:

  • Ensure that 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 assume responsibility for board diversity including gender diversity policy
  • Identify and nominate candidates for the approval of the board to fill board vacancies 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, the respective board committees and individual board members

The nominations committee is chaired by the chairman of the board and consisted of a majority of independent directors: Messrs PM Makwana (chairman), NP Mnxasana, JRD Modise, RK Kothari and H Blaffart. The committee met three times in 2016.

The CEO and other relevant members of management attend the meetings by invitation.

In 2016, in addition to the responsibilities detailed above, the committee was instrumental in furthering achievement of the board’s gender-diversity policy.

B-BBEE committee
The committee monitors the company’s performance on improving its B-BBEE scorecard performance and provides an “umbrella view” of how the company performs against each of the identified pillars of the B-BBEE codes.

The committee’s terms of reference include formal work plans which the committee focuses on and drives each quarter. These include:

  • Considering and determining B-BBEE strategies and policies with respect to the following year’s transformation objectives, and setting targets
  • Monitoring the implementation of determined strategies and improvement actions per the scorecard elements as approved by the board
  • Ensuring that effective transformation takes place within thecompany in respect of recruitment, retention, career development and succession planning
  • Ensuring that effective economic transformation takes place in respect of enterprise development, supplier development and preferential procurement
  • Establishing and reviewing B-BBEE partnership programmes and transactions.

The committee consisted of Messrs PM Makwana (chairman), JRD Modise, Ms NP Mnxasana, R Kothari, D Clarke, Ms NP Gosa and the CEO. It met four times in 2016.

In 2016 the committee was intimately involved in the process – and negotiations – leading to the successful conclusion of the company’s B-BBEE transaction.

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 JSE Ltd.

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

A closed period was triggered by the cautionary announcement issued by the company on the Securities Exchange News Service on 30 September 2015, announcing the commencement of a B-BBEE ownership transaction and the intention to undertake a rights offer.

A withdrawal of the cautionary announcement and terms announcement relating to the B-BBEE transaction was issued at the end of September 2016, lifting the embargo on the trading of the company’s shares.

The board is satisfied that it has fulfilled its responsibilities in accordance with its charter for the financial year ended 31 December 2016.

A statement on the company’s compliance with King III is available online.


© ArcelorMittal 2017