Glencore and Xstrata epitomize the resource curse: Unions oppose their merger

04.07.2012

Trade unions representing Xstrata’s and Glencore’s unionized workforces across the world have voiced their opposition to the proposed merger of the two companies and especially the extreme retention bonuses being paid to Xstrata management.

Consideration should be given by regulators to breaking up the companies rather than allowing further concentration and abuse of power.

Both companies are major examples of the “resource curse" in action, with Glencore leading the way because of its greater history of secrecy and lack of transparency as a Swiss-based private company.

Trade unions have frequently had very difficult relations with these companies and their intended merger can only magnify those problems as the combined entity will become one the mega-corporations dominating the global resources sector. These corporations are increasingly distant from the operations they own and manage, and from the communities affected by those operations.

Trade union problems with Xstrata are well-documented.

  • In Canada they include broken employment commitments in Canada after the takeover of Falconbridge.
  • In Australia there is an unresolved complaint under the OECD Guidelines for Multi-National Enterprises concerning the company’s effort to destroy collective bargaining and reduce working conditions at its operations. The company refused to participate in mediation procedures provided under the Guidelines and is therefore in continuous breach of the Guidelines to this day.
  • In South Africa Xstrata’s effort to achieve a merger with Anglo American were denounced by the National Union of Mineworkers because of the company’s poor record in industrial relations.
  • The Australian union complaint under the OECD Guidelines also covered a major area of concern for shareholders – the anticompetitive marketing arrangements with Glencore that provided that company – also Xstrata’s largest shareholder – with benefits not matched with those for other shareholders.
  • Unions also note that Xstrata is subject to a further OECD Guidelines complaint in Argentina.

With respect to Glencore, unions share the widespread grave concerns about the company’s conduct in many developing countries where weak governance appears to give the company opportunities for dubious dealings. The most recent examples include the Global Witness statement regarding mine asset purchases in the Democratic Republic of the Congo (DRC), and also the allegations of connection with child labour and extreme water pollution in that country broadcast by the BBC’s Panorama show in the UK.

Recent research published in the journal Foreign Policy shows that Glencore’s fundamental business model relies on operations in weak governance zones where public scrutiny and transparency are frequently absent. The list of countries in which Glencore has been accused of poor conduct include Colombia, Equatorial Guinea, Ivory Coast and Zambia in addition to the DRC.

Glencore also stands accused of extreme financial engineering to reduce its tax payments far below the level it should pay. The NGO Publish What You Pay says that Glencore’s effective tax rate is as low as 9.3%, in large part because many of its subsidiaries are located in “secrecy jurisdictions”.

Xstrata’s own corporate governance has been routinely problematic for many years, with multiple strong protest votes over many years concerning the company’s excessive remuneration for top management. There has also been the issue of the lack of an independent Chairman, with Glencore Chairman Willy Strothotte also chairing Xstrata for many years. The two companies only belatedly fixed that problem when Glencore moved to become a public company; Sir John Bond was appointed as an independent Chairman only in May 2011.

In the current merger proposal between Glencore and Xstrata, the top management of Xstrata is to receive £240 million (around US$375m) in so-called retention payments of which Chief Executive Mick Davis is to receive £29m (US$45m). All without performance hurdles; just for continuing in their jobs for which they are already extremely well-paid.

Those who actually produce the wealth for Xstrata and Glencore – the workers who toil in remote mines in harsh environments and deep underground – are to receive nothing, while their bosses intend to bathe in wealth beyond their wildest dreams.

Unions commend those of Xstrata’s shareholders who have publicly criticised the grossly unjustifiable retention packages to Xstrata management.

Unions say that Xstrata and Glencore are already too powerful in world resources, especially given their poor track record. Further concentration of power in the hands of those already known for their propensity to exploit workers and bully governments can only lead to further abuses.

Competition and corporate regulators should consider doing the opposite of what Glencore and Xstrata propose; regulators should break up the companies into smaller units so that their capacity to manipulate and abuse markets, governments and workers is reduced.

The unions taking the position against the planned merger and who represent workers at Xstrata include the Construction, Forestry, Mining and Energy Union (CFMEU) in Australia, the United Steelworkers (USW) in Canada and the National Union of Mineworkers (NUM) in South Africa.

Contact: Andrew Vickers (CFMEU), email: [email protected], tel.: +61 (0)2 9267 1035

Ken Neumann (USW), email: [email protected], tel.: +1 416 544 5950

Frans Baleni (NUM), email: [email protected], tel.: +27 82 375 6443

Glen Mpufane (IndustriALL), email: [email protected], tel.: +41 22 304 1845