Founded in 1974 by Mark Rich, Glencore is the world's largest mining company by revenue earning $205,476 million in 2017. Since its founding, Glencore grew quietly positioning itself as a dominant player in the natural resources industry. Until its joint IPO on the Hong Kong Exchange and London Stock Exchange in 2011, Glencore was the world's largest private company by revenue. Glencore operates out of Baar, Switzerland positioning itself in a low-tax environment, as well as quick access to credit lines from Swiss banks (Glencore Plc, 2017).
Glencore's reach extends far in the commodities market and it has control of the production stages of agriculture, energy, minerals, and metals. In the metals and minerals sector, Glencore is involved in smelting, refining, mining, processing, and storing zinc, copper, lead, alumina, aluminum, ferroalloys, nickel, cobalt, and iron ore. Its energy activities include coal mining and oil production, covering a vast range of products including: crude oil, oil products, steam coal, and metallurgical coal. In addition, it makes large investments in ports, vessels, and storage facilities. In agriculture, Glencore engages in the storage, handling, processing, and port facilities of wheat, corn, sugar, etc.
On top of a large position in the production stages of commodities, Glencore also aims to provide liquidity to the market through trading. In addition to paper trading, a process often used to hedge their physical trades, Glencore trades on the physical side, gaining margins out structured trade agreements, by providing logistical and product alterations for third parties (Glencore Plc, 2017).
Since opening its books and displaying its practices to the public, Glencore has been under fire of multiple governments – notably the U.S.A – as well as the press, for its treatment of employees in Africa, tax avoidances and corruption accusations. Despite this, in recent years it has maintained profitability, paying out large dividends to remain enticing to investors
(Glencore Plc, 2017).
In this report, we aim to explore and evaluate Glencore's finances, organizational structure, corporate social responsibility and the corresponding challenges Glencore is faced with. In the face of an ever changing political environment, as well as new regulations being posted against large industrial corporations, we aim to assess whether their plan to expand further will be in accordance with these challenges and we will introduce potential ways to improve the company's reputation.
2. Organisational Structure
Glencore has adopted a complex organisational structure to suit the needs of their many different departments. Having a unitary board gives Glencore's directors equal responsibility for centralised decision-making. The roles and responsibilities of each member of the board such as Chairman, CEO, or other non-executive members are specified clearly, as seen in their annual report (Glencore Plc, 2018). Potential conflicts of interest that could arise between board members are managed by members themselves by reporting these within board meetings.
Due to the size of Glencore, the board of directors is in contact with many committees which support the board in decision making and most importantly, carrying out of these decisions. The four different board committees communicating with the board of directors are the boards of health safety environmental and communities (HSEC), audit, remuneration, and nomination. These committees communicating with and supporting the board of directors help highlight a specialist view to those exercising the decisions while keeping initial decision-making central. The centralised decision-making is an essential component in their tall hierarchical structure, while the specialised committees provide some flatness to the structure. With a conservative and disciplined marketing risk management approach, the company ensures that the quick decisions being made by subordinates (due to the flat organisational structure) are not of high risk. Despite individual, commercial decision-making, a centralised member of the company, the Chief Risk Officer (CRO), still provides supervision and verification for decision making. Hereby, risk is able to be assessed and high-risk decisions are partially centralised (Glencore Plc, 2018).
With its combination of decentralised decision-making through the flat organisational structure and supervision from key centralised positions, Glencore's complex organisational structure pursues the beneficial features of a flat structure while minimising its disadvantages. This unique combination of organisational structures has allowed Glencore to be more responsive to significant changes in its environment in comparison to its competitors.
3.Corporate social responsibility
The mining industry has received increased criticism with regards to its social and environmental impacts. This has led companies such as Glencore to formulate clear Company Social Responsibility (CSR) policies and strategies (Jenkins, 2004). The four main pillars of Glencore's sustainability strategy include promoting workplace health and safety, having a minimal environmental footprint, upholding human rights and supporting the development of the local communities where they operate (Glencore, 2018). Despite its strict CSR guidelines, Glencore's ethical practices have often been questioned due to frequent accusations of corruption, tax evasion and human rights violations.
A)Environmental impact and Sustainability
Glencore's goals regarding their environmental impact are to reduce short-term and long-term impacts, maintain growth in performances, and keep waste in constant reuse as much as possible (Glencore Plc, 2018). In fact, abatement systems are utilized in the process so that the level of emissions doesn't surpass their “Applicable Threshold Values.” In 2017, Glencore produced the most hazardous and non-hazardous mineral waste (2,129 million tones) compared to previous years (Glencore Plc, 2018). The waste situation was due to the reopening of an Australian coal operation where Glencore unwittingly dumped 63 truckloads of insidious waste material in the “wrong place” (Davidson 2018). According to Helen Davidson (2018), the waste caught fire and sent sulphur dioxide into the atmosphere. The same year these statistics proved remarkable, Glencore brought up the Tailings Management Protocol group to correct socio-environmental issues, business risks, and/or other issues related to Tailings Storage Facilities (TSF). Tailings are the mineral waste generated by their coal and metal assets. Thus, while Glencore's inputs of material, labor, and methods spread across more than 50 countries, the company relies on their processes of waste management to reduce the output of undesirable waste similar to a living organism.
To Glencore, air emissions take a larger toll on local scales where they have had their focus on in recent years (Glencore Plc, 2018). In 2017, the company accomplished having the least total sulphur dioxide emissions (358 thousand tonnes).The decrease was due to a scarcity of concentrate at a large operation setting situated in Mount Isa Mines because the SO2 emissions are dependant on the SO2 levels within the concentration (Glencore Plc, 2018).
According to Glencore Plc (2017), communal complaints concerning their emissions are typically rare. Contradictingly, in Argentina the company received a suspension of working on one of their copper-gold mines in Alumbrera following the pollution complaint. However, after studying the site and finding no clear evidence of pollution, a federal judge unsuspended the company from the area and their work continued. Similarly in the Philippines, the company's copper smelter PASAR (device used to record amount of waste) got complaints about emissions which was not convincing for Glencore because PASAR concluded that no corroboration could be identified that proved that the asset passed the Philippines emissions monitoring system (Glencore Plc, 2018). Nevertheless, contingency planning still occurs at full effect making sure no anomaly or disruption is missed.
To ensure compliance in South Africa, PASAR has a consistent emissions monitoring system constantly keeping track of sulfur dioxide (SO2) emissions. Additionally, by 2020 the government will have put new limits on industry specific SO2 emissions that will require the need for Glencore's adaptation towards the environment and its political amendments. According to the company, they have met the overhauled requirements with their ferroalloys smelters, specifically their vanadium smelter that has been improved and is currently being tested ahead of time. Creating internal deadlines ahead of time forms part of the strategic planning of Glencore in accordance to rules, regulations, and setting of the environments it is situated in.
One of the strongest characters this international organization holds besides its vast size is its capability of adapting with all of its environments. Similar to Social Darwinism, the contingency approach would favor Glencore's strong fit in its various settings although ignoring many ways Glencore's waste might still impact the environment on a local scale.
B) Workplace health and safety
One of the ambitions of Glencore is to become a safety and health leader in their respective industry through a strategic plan aiming to minimize fatalities, injuries and work-related diseases (Glencore Plc, 2018). They developed and applied the SafeWork programme, an initiative which aims to provide the necessary knowledge and tools for safe practices in the workplace (Glencore, 2018). The four main elements of the programme include fatal hazard protocols to address the most common causes of fatalities; critical behaviors to employ in potentially dangerous situations; the responsibility of line-managers to encourage their employees to practice these behaviors as well as providing supporting tools in the form of awareness and virtual training (Glencore Plc, 2018). According to the 2017 annual sustainability report the programme is contributing towards embedding a culture of safety on the 150 sites the company operates (Glencore Plc, 2018). As a result, fatalities have decreased from 16 in 2016 to 9 in 2017 and lost time injury frequency rate has decreased by 27% compared to 2016. Also, 93% of assets recorded zero work-related diseases (Glencore Plc, 2018).
One of the objectives of the company is to create a fatality, injury and disease-free workplace which will enable them to be considered as workplace safety leaders (Glencore Plc, 2018). They aim to approach this objective by implementing strong safety leadership and informing every employee and contractor that they are expected to take full responsibility for their and their colleagues' safety (Glencore Plc, 2018). These practices alongside the SafeWork initiative contribute to the 3rd and eighth sustainability goals with regards to good health, well-being and decent work and economic growth (United Nations Sustainable Development, 2018).
However, according to “The Guardian” the company was accused by the Democratic Republic of Congo for profiting from child labor in copper and cobalt digging (Sweeney, 2018). A mine in Tilwezembe which was previously run by Glencore up until 2008 is now run by a local company that hires artisanal and hourly mine workers. Undercover researchers at the mine observed and identified children working in the mine without any appropriate equipment or safety measures. A documentary conducted by Panorama tracked the shipments from this particular mine up until a major partner of Glencore, Groupe Bazzano (Sweeney, 2018). This could raise questions as to whether the company indirectly profits from child labor. However, chief executive Glasenberg strictly denied such accusations (Sweeney, 2018).
C) Respecting human rights
Glencore is a international company with presence in over 50 countries and as such it does acknowledge the risk of human rights violations, especially the occurrence of modern slavery, along its operations and supply chain (Glencore Plc, 2016). The company has a Board of Health Safety, Environment and Communities (HSEC) which is responsible for determining their approach to human rights. In order to prevent the occurrence of modern slavery and human trafficking along its operations and supply chain, Glencore voluntarily publishes a Modern Slavery Statement (Glencore Plc, 2016). According to the statement, Glencore's commitment to protecting human rights is evident in its Code of conduct and Human rights policy which have been constructed based on the UN Guiding Principles and the Sustainable Development Framework of the International Council on Mining and Metals. Some of the core guidelines ensure that every employee is familiar with the company's Code of conduct and that the individuals responsible for ensuring the implementation of human rights have the appropriate training (Glencore Plc, 2016).
However, the corporation has often been accused of violating human rights in countries such as the Philippines, Colombia, Zambia and the DRC. This is due to the fact that Glencore's employees consist almost entirely of precarious people, which makes it “easier” for the company to underpay its workforce, and to disregard local laws. (IndustriALL, 2018). Between 2017 and 2018, the number of people employed by the company grew to 43 percent, deteriorating even more the working conditions.(IndustriALL, 2018). However, Glencore Plc claims (2018) they are devoted to sustaining human rights, which is paradoxical, considering the issues they are currently facing. Therefore, one of the main challenges that the company is facing is the need to increase their transparency when it comes to the actions that they take in order to ensure they fulfill their mission in regards to human rights protection. Investments in infrastructure and higher transparency are key to improving the
D) Legal Compliance : Governmental issues
Glencore is characterized by a complex global structure and has often exploited its corporate power as a tool of reducing tax exposures (Greenpeace International, 2016). Glencore has had a rich history of exploiting tax havens mostly in Europe and the Caribbean where 46 of its subsidiaries are incorporated , as well as battling poor countries in court with the aim of minimising tax payments. As a consequence, Glencore has been labelled as a very non-transparent company as the company's financial data secrets remained under the radar. This was until the “Paradise Papers”, a leak of offshore financial data from the law firm Appleby where Glencore was an important client, brought the attention to Glencore's tax tricks and consequent governmental issues (Fitzgibbon et al., 2017). One of the instances revealed by the Paradise Papers was the case of tax avoidance in Burkina Faso.
Glencore invested in Burkina Faso in 2010 and its investment in the construction and production stages also involved providing technical, operational and managerial support to a local operating entity known as Nantou Mining (ICIJ, 2017). The company states that it has had a positive impact in the local community through Nantou Mining as it has enabled the construction of educational institutions, roads, bridges, sanitation facilities as well as many other services. However, a recent assessment by Burkina Faso's tax office revealed that Glencore was using Nantou Mining to make fictitious charges to a shell company , Pasley Universal, to avoid paying large amounts of taxes to the government (Greenpeace International, 2018). Consequently, the company was accused of depriving a resource rich but cash-strapped country such as Burkina Faso from its tax revenues . In response Glencore reported to ICIJ (2017) that the aforementioned allegations were false as the agreement on Pasley Universal's provision of technical, managerial and operational support to Nantou Mining was constructed by strictly following the tax regulations of Burkina Faso. However, the fact that Glencore was fined by the tax office according to the report of Greenpeace International (2016) creates ambiguity as to whether these allegations could potentially be true.
Furthermore, Glencore has not only been accused of using tax tricks in developing countries but also in developed countries such in the UK and Australia. One of the widely criticized tax tricks that has been used by the Australian arm of Glencore is the cross-currency swaps which allow the exchange of loan principals and interest instalments in different currencies in order to make use of the most favorable interest rates (Greenpeace International, 2016). The Australian subsidiary has been accused of using the swaps to reach deals at non-commercial rates and then shifting profits from high-tax to low-tax countries (Greenpeace International, 2016).
E) Corruption accusations
Accusations of corruption and exploitation of corporate power are a regular challenge for Glencore. (Greenpeace International, 2016) Having subsidiaries in an extensive range of countries around the world, it is to no surprise the the company has been accused of tax evasion. Glencore has a non transparent company located in Bermuda which has a corporate tax rate of 0% which is already a red flag for tax evasion. By many files which were unpublished before were retrieved and published by a company named Paradise Papers, Glencore's Bermuda company had issued a loan of 45 million U.S. dollars to another company in the British Virgin Islands which is owned by Dan Gertler, billionaire businessman of the natural resources industry. These unreported, unpublished loans between Glencore and Dan Gertler, who already had been accused of many unethical, corrupt, and exploitive ways of business where later revealed to be linked to Glencore's deal with Democratic Republic of the Congo (DRC)(Doherty, 2018). Gertler had been accused of using large bribes towards the DRC government as means of securing important mining licenses for Glencore. These licenses then allowed Glencore to extract the valuable natural resources of the DRC making immense gains while dodging payments or fair treatment of the citizens of the DRC. The population continues to have low standards of living although the natural resources of their country could save them. Aside from the unethical issues of this, the accusations of corruption between Glencore, Dan Gertler, and the government of the DRC continue to be a challenge for Glencore. They have responded to the accusations of corruption by granting the U.S. authorities access to demanded documents about Glencore's mining deals in Nigeria, Venezuela and the DRC for a corruption investigation (Reuters, 2018). Due to accusations and uncertainty of the companies future, the stocks of the company crashed to an annual low. Glencore's response to this was to pay out large dividends to satisfy shareholders and demonstrate the company's confidence in its future. With a large part of the companies opportunities stemming from resource extraction in these countries, the investigation is a great challenge for the company and can lead to great changes in the public relations, stock prices, and overall success of the company.
An essential branch in Glencore's business relies on its financial . In 2017 Glencore had an exceptional year and has a positive outlook on the future. A core part of Glencore's financial success lies in economies of scale as well as flexibility and its entrepreneurial spirit. Thanks to its scale, it is able to produce commodities at lower rates than other companies in the industry, as well as have high bargaining power when it comes to creating structured contracts delivery contracts for its physical trading. Thus, in the financial section of this report we will analyze the company's current financial health and future investments.
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