Corporate Governance
In June 2001, Mittal Steel adopted Corporate Governance guidelines in line with best practices on corporate governance. Mittal Steel will continue to monitor diligently new, proposed and final US and Dutch corporate regulatory requirements and will make adjustments to its corporate governance controls and procedures to stay in compliance with these requirements on a timely basis. Mittal Steel is committed to meeting the corporate governance mandates and requirements under applicable current and proposed SEC and NYSE listing standards and the laws of The Netherlands. There are no significant differences between Mittal Steel's current corporate governance practices and those currently required to be followed by US domestic companies under the NYSE listing standards.
The new Dutch Corporate Governance Code was published on December 9, 2003. During the Mittal Steel annual general meeting of shareholders held on May 5, 2004, the implications of the new Dutch Corporate Governance Code were discussed with its shareholders and certain proposed changes to Mittal Steel's Articles of Association to bring them in line with the requirements of the Dutch Corporate Governance Code were approved by the shareholders. The changes to Mittal Steel's Articles of Association lowered the number of votes required to overrule a binding nomination for the appointment of a member of Mittal Steel's Board of Directors made by the holders of Mittal Steel class B common shares from a majority of at least two thirds of votes cast representing more than half of the issued share capital of Mittal Steel to an absolute majority of votes cast representing at least one third of the issued share capital of Mittal Steel. In addition, Mittal Steel's Articles of Association now provide that a class A director can be appointed for a maximum term of four years and cannot be appointed indefinitely as was previously permitted. Accordingly, Mittal Steel is materially in line with the requirements of the provisions of the Dutch Corporate Governance Code, in accordance with the implementation provisions. However, Mittal Steel's annual general meeting of shareholders also approved that Mittal Steel will differ from the Dutch Corporate Governance Code with regard to the separation of the posts of Chairman and Chief Executive Officer. Mittal Steel's Chairman and Chief Executive Officer will continue to be Mr. Lakshmi N. Mittal.
Role of Mittal Steel's Board of Directors and Management
Mittal Steel's business is conducted through operating subsidiaries, which are managed by their Boards of Directors and headed by the subsidiary's CEO/President. Mittal Steel's Board of Directors and the senior corporate management provide the oversight to enhance the value to the stakeholders.
Director Independence
As per the criteria laid down by Mittal Steel's Board of Directors, directors will be considered "independent" if they do not have a material relationship with Mittal Steel. Mittal Steel's Board of Directors currently consists of nine directors, of whom Messrs. Rene Lopez, Muni Krishna T. Reddy, Narayanan Vaghul, Ambassador Andres Rozental and Mr. Lewis Kaden are independent under Mittal Steel's independence criteria and the NYSE listing standards. These directors constitute a majority of Mittal Steel's board of directors and are also considered independent under the Dutch Corporate Governance Code.
Function of Mittal Steel's Board of Directors
As per Mittal Steel's Corporate Governance guidelines, Mittal Steel's Board of Directors are responsible for the stewardship of Mittal Steel and assume responsibility for the adoption of a corporate strategy; monitoring of risk and control; succession planning including appointing, training and monitoring of senior management personnel; maintaining an investor relations programme for Mittal Steel; ensuring the integrity of Mittal Steel's internal control and management information system; and setting a remuneration policy that incorporates appropriate performance hurdles. Mittal Steel's Board of Directors and each of its committees also have the power to hire independent advisors as they deem necessary.
Qualification
Directors should possess the highest personal and professional ethics and integrity, and be committed to representing the interests of the stakeholders. Mittal Steel's directors possess experience in managing large companies and contribute towards the protection of the stakeholders interests in Mittal Steel through expertise in their respective fields. All directors bring an independent judgment to bear on issues of strategy, performance, resources and standards of conduct.
Size of Mittal Steel's Board of Directors and Selection Process
All directors are subject to election by the shareholders. The names of directors submitted for election shall be accompanied by sufficient biographical details to enable shareholders to make an informed decision on their election. Each time a member of Mittal Steel's Board of Directors is to be appointed, the meeting of holders of Mittal Steel class B common shares may make a binding nomination. A binding nomination can be overruled by a shareholders' resolution passed by an absolute majority of votes cast representing at least one third of the issued share capital of Mittal Steel. Mittal Steel's Board of Directors currently consists of nine members, which is considered reasonable given the size of Mittal Steel. All members of Mittal Steel's Board of Directors, except for Messrs. Lakshmi N. Mittal and Aditya Mittal and Mrs. Vanisha Mittal Bhatia (who as class A directors only stand for re-election once every four years), will next be considered for re-appointment at the annual general shareholders meeting in 2005. At the extraordinary general meeting of shareholders, Mr. Mukherjee and Mr. Ruiz Sahagun have resigned as directors of Mittal Steel. Mr. Mukherjee remains as the Chief Operating Officer of Mittal Steel and Mr. Ruiz Sahagun will become a director of Mittal Steel's US subsidiary. On the recommendation of The Mittal Steel Nomination Committee, Mr. Kaden was elected as a director of Mittal Steel at the Extraordinary General Meeting of shareholders held on April 12, 2005.
Board Committees
Mittal Steel's Board of Directors has established the following committees
to assist the Board of Directors in discharging its responsibilities: (i) Audit; (ii) Remuneration; and (iii) Nomination.
Board Agenda
The items placed before Mittal Steel's Board of Directors include, among others, strategic plans of Mittal Steel; annual operating plans and budgets and any updates; capital budgets and any updates; quarterly results for Mittal Steel and its strategic business units; minutes of Audit Committee and other committee meetings; the information on recruitment and remuneration of senior management; environment, health and safety related matters; risk management policy of the group and such other matters considered important for the oversight of Mittal Steel's Board of Directors.
Ethics and Conflict of Interest
Ethics and conflicts of interest are governed by the Code of Business Conduct adopted by Mittal Steel. The Code of Business Conduct sets out standards for ethical behavior, which are to be followed by all employees and directors of Mittal Steel in the discharge of their duties. They must always act in the best interests of Mittal Steel and must avoid any situation where their personal interests conflict, or could conflict with their obligations toward Mittal Steel. As employees, they must not acquire any financial or other interest in any business or participate in any activity that could deprive Mittal Steel of the time or the scrupulous attention that they need to devote to the performance of their duties. Any behavior that deviates from Mittal Steel's Code of Business Conduct is to be reported to the employee's supervisor, a member of the management, the head of the legal department or the head of the internal audit/ internal assurance department.
Mittal Steel's Code of Business Conduct is available on Mittal Steel's website at http://www.mittalsteel.com.
Separate Meeting of Non-Executive Directors
The non-executive directors of Mittal Steel regularly schedule meetings without the presence of management. There is no minimum number of meetings that the non-executive directors must hold per year. During 2004, the non-executive directors
of Mittal Steel held four meetings separate from the executive directors. The presiding independent director at each of these meetings is chosen at the meeting.
Communications with the Board
Mittal Steel's Board of Directors has established a process through Mittal Steel's website at http://www.mittalsteel.com by which a shareholder or any other person may send communications directly to the Board of Directors.
MITTAL STEEL AUDIT COMMITTEE
The primary function of the Mittal Steel Audit Committee is to assist Mittal Steel's Board of Directors in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by Mittal Steel to any governmental body or the public; Mittal Steel's system of internal control regarding finance, accounting, legal compliance and ethics that the management and Mittal Steel's Board of Directors have established and Mittal Steel's auditing, accounting and financial reporting processes generally.
The Audit Committee's primary duties and responsibilities are to serve as an independent and objective party to monitor Mittal Steel's financial reporting process and internal controls system; review and appraise the
audit efforts of Mittal Steel's independent accountants and internal auditing department; provide an open avenue of communication among the independent accountants, financial and senior management, the internal auditing department and Mittal Steel's Board of Directors. It is responsible for approving
the appointment and fees of the independent auditors. It is also responsible for monitoring the independence of the external auditors.
Audit Committee Members
The Audit Committee consists of three directors: Messrs. Narayanan Vaghul and Muni Krishna T. Reddy and Ambassador Andres Rozental, all of whom are independent under Mittal Steel's Corporate Governance guidelines, the New York Stock Exchange standards as well as the Dutch Corporate Governance Code. The Chairman of the Audit Committee is Mr. Narayanan Vaghul, who has significant experience and financial expertise. Mr. Vaghul is the Chairman of ICICI Bank, a company that is listed on the New York Stock Exchange and the Mumbai Stock Exchange. Both Mr. Reddy and Ambassador Andres Rozental have considerable experience in managing companies' affairs.
Charter and Meetings
Mittal Steel's Audit Committee charter is available on Mittal Steel's website at http://www.mittalsteel.com. The Audit Committee, which is required to meet at least four times a year, met nine times during 2004. Of these meetings, six were physical meetings and three were teleconference meetings.
Process for Handling Complaints about Accounting Matters
As part of the procedures of Mittal Steel's Board of Directors for receiving and handling complaints or concerns about Mittal Steel's financial accounting, internal controls and auditing issues, Mittal Steel's Code of Business Conduct encourages all employees to bring such issues to the Audit Committee's attention. Concerns relating to accounting or auditing matters may be communicated through the Mittal Steel website at http://www.mittalsteel.com. Employees reported no significant complaints of this nature during 2004.
Internal Audit/ Internal Assurance
Mittal Steel has an Internal Audit function. The function is under the responsibility
of the Director -- Internal Assurance, who reports to the Audit Committee. The function is staffed by full time professional staff located at each of the principal operating subsidiaries and at the corporate level. Recommendations and matters relating to internal control and processes are made by the Internal Audit function, and their implementation is regularly reviewed by the Audit Committee.
External Auditors' Independence
The appointment and determination of fees of the external auditors is the direct responsibility of the Audit Committee. The Audit Committee is further responsible
for obtaining annually a written statement from the external auditors that their independence has not been impaired. Mittal Steel's current external auditors have informed Mittal Steel of their intention to rotate their lead and engagement partners in line with the new US regulatory requirements in 2004 and 2005, respectively. The Audit Committee has obtained a confirmation from the external auditors that none of their former employees are in a position with Mittal Steel, which may impair their independence.
MITTAL STEEL REMUNERATION COMMITTEE
Charter and Meetings
The Mittal Steel Remuneration Committee is comprised of three independent directors. The purpose of having a Remuneration Committee consisting exclusively of directors who are independent of management is to have members who are free of any business or other relationship, which could interfere with the exercise of their independent judgment. Mittal Steel's Board of Directors has established the Remuneration Committee to determine on their behalf and on behalf of the shareholders within agreed terms of reference, Mittal Steel's framework of remuneration and compensation, including stock options for executive members of Mittal Steel's Board of Directors, the Chief Financial Officers, and the Chief Executive Officers of operating subsidiaries and designated senior management at the corporate level. The Remuneration Committee is required to meet at least twice a year and met three times in 2004.
The charter of the Remuneration Committee is available on Mittal Steel's website at http://www.mittalsteel.com.
Remuneration Committee Members
The Mittal Steel Remuneration Committee consists of three directors: Mr. Narayanan Vaghul, Ambassador Andres Rozental and Mr. Rene Lopez, all of whom are independent. The Chairman of the Remuneration Committee is Ambassador Andres Rozental.
Remuneration Principles
The Mittal Steel Remuneration Committee's principal responsibility in compensating executives is to encourage and reward performance that will lead to long-term enhancement of shareholder value. None of the members of Mittal Steel's Board of Directors currently has entered into any contracts with Mittal Steel or any of its subsidiaries that provide benefits upon termination of employment. The Remuneration Committee reviews the remuneration of executive members of Mittal Steel's Board of Directors, the Chief Financial Officers, and the Chief Executive Officers of operating subsidiaries and designated senior management at the corporate level.
Report of the Remuneration Committee
The remuneration for the executive members of Mittal Steel’s Board of Directors consists of a base salary, a short-term performance related bonus scheme and a stock option plan. In addition certain allowances and fringe benefits are also paid, similar to many other employees at Mittal Steel. Mittal Steel does not have written contracts with the executive members of its Board of Directors.
Base Salary
The base salary for the executive members of Mittal Steel’s Board of Directors is set typically at a market competitive level. Where executive members of Mittal Steel’s Board of Directors reside outside the Netherlands, benchmark salaries are referenced to the market situation of their country of residence.
Non-Executive Directors compensation is based upon remuneration paid to similar Non-Executive Directors in other public companies and is benchmarked with comparable organisations in Netherlands and US.
Variable pay
Variable pay is an important part of the remuneration package for the executive members of Mittal Steel’s Board of Directors. They participate in a company-wide bonus scheme for all senior employees of Mittal Steel, but they can earn a higher percentage of variable pay compared to base salary. The criteria used are company performance compared to business plan, EBITDA (earning before interest, income taxes and depreciation) of the company, prime billings / shipments and operating cost per ton. The scheme has been approved by the Remuneration Committee of the Board that consists exclusively of independent non-executive Board members.
Stock Option Plan
Mittal Steel operates a stock option plan but since 2002 no stock options have been granted. The Board’s Remuneration Committee is considering the effectiveness of the stock option plan as a long-term incentive and is in the process of comparing it with other forms of long-term incentive plans. No decisions have been made about future option grants and the conditions under which such grants might be made.
Pension and Pre-Pension Provision
The executive members of the Board of Directors can participate in a defined contribution Pension Plan with an identified Service Provider similar to other employees.
Personal loans
The company does not grant personal loans or guarantees to members of the
Board of Directors.
MITTAL STEEL NOMINATION COMMITTEE
Charter and Meetings
Mittal Steel has a Nomination Committee comprised exclusively of three independent directors. The Nomination Committee elects its Chairman and members of the Nomination Committee are appointed and can be removed by Mittal Steel's Board of Directors. The Nomination Committee is required to meet at least twice a year and met three times in 2004.
The charter of the Nomination Committee is available on Mittal Steel's website at http://www.mittalsteel.com.
Nomination Committee Members
The Mittal Steel Nomination Committee consists of three directors: Narayanan Vaghul, Muni Krishna T. Reddy and Ambassador Andres Rozental, all of whom are independent. Ambassador Andres Rozental is the Chairman of the Nomination Committee.
Function of the Nomination Committee
The Mittal Steel Nomination Committee will at the request of Mittal Steel's Board of Directors, consider any appointment or re-appointment to Mittal Steel's Board of Directors. It will provide advice and recommendations to Mittal Steel's Board of Directors on such appointment. The Nomination Committee is also responsible for developing, monitoring and reviewing Corporate Governance principles applicable
to Mittal Steel.
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