Published On: Sun, May 18th, 2014

Ivan Glasenberg Facing Storm In A Tea Cup At Glencore’s Upcoming Annual Shareholders Meeting ?

The Annual General meeting of shareholders of Ivan Glasenberg’s Glencore Xstrata mining group is rapidly coming up this week, and is scheduled to take place on May 20th, which is on Tuesday.

Whilst the company is registered in St. Helier in Jersey, one of the Channel Islands, its official head office is in the picturesque small town of Baar, Switzerland just outside the small city of Zug, capital of the wealthy Canton of Zug.

Accordingly shareholders who want to attend the meeting will have to trek to Zug, which is just over 20 miles from the beautiful city of Zurich, and where the meeting will be held in Zug’s Theatre-Casino. One can imagine this will be no great hardship for investors, and that the air will be cleaner at least than in the sooty old City of London.

The meeting comes just one year after the merger of Glencore with Xstrata, and associated corporate moves, such as a major restructuring of the company’s credit arrangements and, as well, the recent sale of the Las Bambas copper project to Chinese interests for US$5.8 billion.

In the process Ivan Glencore has decisively stabilised the company’s balance sheet, and provided a relatively safe strategic approach to healthy future growth in these days of declining metals prices.

Accordingly one would think shareholders would be quite pleased, and there would be a lack of contentious issues to deal with at the meeting. However that does not now seem to be the case and there are at least two difficult issues some shareholders seem to be raising, judging by some of the press reports emanating out of London this week.

One easy item on the agenda to get out of the way, a proposal changing the name of the company back to just Glencore, as it was before the merger last year, nobody will complain about and this will go through on the nod.

However the recent appointment of Tony Haywood as permanent Chairman of the company has raised several eyebrows, particularly coming as it has done as a near fait accompli before the meeting.

Haywood thus far has acted as Glencore’s interim Chairman, and is routinely up for re-election as a Director of Glencore this week alongside several of his colleagues.

However Haywood was formerly the head of BP until a major undersea oil rig spill in the Gulf of Mexico tarnished his reputation for the way he dealt with it, which led to his ouster there. This has led many institutional investors, and others, in the City of London to question his suitability for the role of permanent chairman at Glencore, particularly when the company already has one free-wheeling cowboy in the form of its aggressive CEO, Ivan Glasenberg.

As a tactical move therefore, it seems Glasenberg took the somewhat unusual step of asking his existing Board of Directors to appoint Haywood to the permanent Chairmanship even before the meeting, as indeed it was constitutionally empowered to do.

This then leaves it to shareholders to dare to challenge the CEO the only way now possible, i.e. by now not re-electing Haywood to the Board of Directors at all. In a game of chicken like that a CEO who knows what he wants usually wins against usually fairly passive investors, therefore one would expect that this time around as well.

However, in the proxy circular materials issued for the meeting there is an additional agenda item that seems may now have become adapted as a weapon of a sort in the debate over Haywood as well.

Like many companies do from time to time, Glencore is this week proposing shareholders vote to update the legal boilerplate of its articles of association, to make minor changes or update items that are simply no longer factually relevant. Most of such changes are arcane, immaterial and make very good sense. One item on this occasion is now becoming contentious, however, according to a report in today’s Telegraph newspaper.

As a public company Glencore presently publishes its consolidated financial statements under what are termed IFRS accounting regulations, which most European public companies adopt. The equivalent set of American rules are US GAAP, which are very similar in many, though not all, respects.

Hitherto, Glencore has also published the unconsolidated accounts for the company under IFRS rules as well. Glencore, which is headquartered in Switzerland, is therefore now proposing to change its articles of association this week, and to publish its unconsolidated accounts, only, according to Swiss GAAP, which would under Swiss statutes be all it is actually required to do for such unconsolidated statements.

This proposal seems however to have reignited some of the existing suspicion and acrimony already surrounding the acceptance of Tony Haywood as permanent Chairman of the company.

As the Telegraph reports today, one group of UK pension fund advisory consultants, Pensions & Investment Research Consultants (PIRC), has apparently warned in a note to investors, “As a result of this change, true dividend cover of the company will not be transparent nor will the rest of the balance sheet. Although this is not required by Swiss law it is not in line with UK standards.”

PIRC then argues, according to the Telegraph, that the policy will mean that, in a complex global structure, the actual company owned by shareholders will “not prepare public accounts.” Other UK investors have chimed in on this as well it seems.

In response Glencore has said simply that, “We currently and continue to disclose separate accounts which highlight the dividend cover, ” adding, “We support increased transparency of how taxes and royalty payments are redistributed and/or reinvested into the communities in which we operate.”

So at one level this is quite frankly completely a non-issue, and very much a storm in a tea cup. At another level, though, if there should be sufficient wider general investor unease underlying it, this could even lead to their main target to date, Tony Haywood, being rejected as a Director and thus his appointment as permanent Chairman actually also nullified as a result.

This is quite hard to envisage actually happening, though, as one can imagine Ivan Glasenberg must certainly have canvassed enough of his core shareholder groups to ensure passage of Haywood’s re-election as a Director in any case.

Nevertheless it does illustrate the general importance of managements always correctly stage-managing their meetings, and what goes into their agendas, in order to minimize associated frictions and, possibly, unintended collateral damage. Previous rows over bonus pay at Glencore under Hayward’s predecessor have been fractious enough; it should be a fun meeting.

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