Glencore chair will determine governance discount

March 29, 2011

Glencore has everything in place for a possible record-breaking London float. Everything, that is, apart from an independent chairman. Leading the commodities trader’s initial public offering should be a prestigious gig. But it also represents a big corporate governance challenge. That gives the candidates some leverage over the terms on which they might accept the chairman’s role. 

To outsiders, privately-held Glencore has the look of a family business used to doing things its own way. Chief executive Ivan Glasenberg and outgoing chairman Willy Strothotte are part of the furniture. The fear is that even the toughest of corporate cookies will struggle to stamp some authority on the board. Add in the fact that Glencore is a complicated business operating in far-flung markets, and the group is in danger of being lumbered with a discount rating. A strong chairman would help reassure prospective shareholders. 

It might not be comfortable for Glencore to invite a strong-willed outsider into the boardroom. But it is in the commercial interest of Glasenberg and his partners to have a genuinely powerful figure at the helm. If the IPO happens, the firm’s 500-odd partners will share about $60 billion of equity. But as they face multi-year lock-ins on their stock, they can ill afford the valuation to suffer. 

The other wrinkle is that the chairman’s position faces a possible early challenge. There is a real chance that Glencore will soon merge with Xstrata, the miner in which it has a 34 percent stake. That would introduce two competitors to chair the enlarged group — Xstrata chief executive Mick Davis, and his newly appointed chairman, banking veteran John Bond. 

The key will be having a slate of non-executive directors who cement the chairman’s power. Glencore is looking to appoint perhaps five new non-executives, with expertise drawn from oil, mining, and financial services. Tony Hayward, the former boss of BP, looks likely to be the senior independent director. But this search is being carried out by Glencore. It’s possible the non-execs will turn out to be just the ones the new chairman would have picked. But before signing on the dotted line, the successful candidate should exercise the right to have the final say.

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