Post-Glasenberg Glencore has to find a work-litigation balance
The company’s legal challenges have been mounting as its CEO is about to step down
It was back in 2011 and the market was abuzz with the news that Glencore, the world’s biggest commodities trading company, was going public in London.
Most investors were caught up in the hype, but some fretted about whether its wily and irrepressible management team, led by chief executive Ivan Glasenberg, were selling at the top.
When the company announced that its new board would be led by Simon Murray, a colourful former Hutchison Whampoa executive and French Foreign Legion veteran who once hiked through Algeria with two severed heads in his backpack, corporate governance departments weren’t exactly thrilled.
In one meeting, a severe woman asked him a pointed question: “How do you say no to Ivan Glasenberg?”
Murray, with a twinkle in his eye, exclaimed there were lots of ways. From his time in Hong Kong, for example, he had learnt the four tones used in Chinese and, for her benefit, he would demonstrate them.
There was the quizzical: “No-o?” The motherly: “No-o-o.” The flat: “No.” And the gruff bark: “No!”
This helpful answer, alas, did not impress his audience.
Glasenberg had always said he would retire around the age of 65 and, now with him turning 62 in January and many of Glencore’s long-standing managers moving on, he has begun to talk about succession planning.
The company has a mounting list of legal troubles and its share price is languishing at about half its float price of 530p. Total returns since the float are minus 32% with dividends taken into account.
“You see!” say the corporate governance aficionados smugly, “Being good pays.” Well, maybe.
But the lesson of Glencore is more complicated than that. In part, the company has suffered from a general rout in commodity prices that has also taken down its peers. Since its share price drubbing in 2015, its stock has nearly tripled and the current valuation looks cheap given its enormous reserves of copper and cobalt, metals that are hard to find and essential to the electric car industry.
What’s more, Glencore’s incentive structures, at the heart of so many corporate governance rows, are a model of decorum. The company is 30% owned by employees. Glasenberg is technically one of the lowest paid CEOs in the FTSE 100, taking home $1.5m a year in salary. Instead, he earned $172m in dividends last year, aligning his incentives wholly with shareholders, and has said he will retain his stock for years even after he retires.
When the company was forced into a $2.5bn cash call to reduce its debt burden in 2015, its top managers stumped up to avoid being diluted, just as other investors did.
Glencore’s senior managers are a rather austere, hard-driving bunch. Not for them the lush perks of other C-suite types.
Glasenberg is the type of man who, given the choice of going for a run or getting one hour’s sleep before an early-morning flight, will do the former. He and his managers share the use of one jet to reach the many exotic locations of their assets.
When the company took over its mining rival Xstrata, one of its first acts was to resell a new $50m corporate jet that Xstrata’s boss had just ordered for himself.
Glasenberg has stated that there is no such thing as a “work-life balance” at Glencore – and he wasn’t joking.
I once asked one of its richest managers what he did with his vast fortune. “Have you got a yacht?” I said, rather gauchely. He replied impatiently: “I don’t have time for a yacht. I’m always working. The money is just the score.”
You can hardly accuse Glencore, therefore, of being a profligate corporate welfare machine with little concern for shareholder value. Its managers have every reason to want to protect the company from harm.
And yet even a cursory glance at its mounting list of legal problems is rather daunting.
Last week, authorities in Brazil accused Glencore, along with several rivals, of paying tens of millions in bribes to employees of the country’s state oil company, Petrobras. Glencore stands accused in a US court of helping to pay bribes to employees of Venezuela’s state oil company, PDVSA.
Its Toronto-listed Congolese subsidiary, Katanga, has been accused by Canadian authorities of failing to disclose crucial information to the stock market. And Glencore has been subpoenaed by the US department of justice (DoJ) over money-laundering claims for documents relating to its operations in Nigeria, Venezuela and the Democratic Republic of Congo (DRC).
In fact, its DRC assets, which account for about 10% of the company’s net present value, have been at the centre of various legal and political problems for years.
Most recently, its former partner in the DRC, Dan Gertler, was placed under US sanctions, forcing Glencore to suspend royalties payments to him before resuming them in euros.
Its Russian partner, Rusal, is also under the threat of US sanctions.
The company’s defenders suggest that Glencore isn’t unusual in having its issues in emerging markets.
Since floating, it has replaced Murray with the much more respectable face of Tony Hayward in the chairman’s seat. It has hired compliance officers and drawn up all sorts of codes and policies.
It has hired a series of more traditional corporate faces on the board, who probably have a less creative approach to saying “no”.
But none of that is much comfort to investors. When news of the DoJ subpoenas emerged, Glencore’s share price plunged 10% in a day and its valuation is still depressed.
If this shows anything, it’s that a maniacal focus on pay and wealth is a stupid approach to corporate governance. As investors begin to contemplate the post-Glasenberg era, it won’t be the reward structure they are worried about so much as whether or not his successor should be a little less, uh, adventurous.
Meanwhile, governments should know that if companies like Glencore vacate the field and give up control over strategic resources like cobalt, it will be corporations from Russia and China who fill the gap. If Western governments don’t like that prospect, they need to ask why exactly public shareholders should take on the risk.
– © The Daily Telegraph