Louis is a Justmeans staff writer on the topic of Finance & Investing where he covers trends in the socially responsible investment space. He is co-founder and principal of Washington Square Capital Management, a NYC-based independent investment advisory firm with a focus on socially responsible investing. His clients include individual investors, businesses and institutions. Prior to fou...
Is Glencore The Poster Child For Activist Investing?
Activist SRI investors take note: the "Goldman Sachs" of the commodities world is about to go public.
Over the past several weeks, speculation has been swirling that an initial public offering (IPO) announcement is imminent from Glencore International, the Swiss-based commodity trading powerhouse with interests in mining and raw materials operations in virtually every corner of the globe.
Despite its enormous size and influence (recent valuation estimates have come in anywhere from $50-$60 billion), Glencore is a relatively unknown entity with a low public profile. This is mainly due to the fact that it's long been privately held, operating in the often shadowy world of global commodities trading.
Glencore was originally founded by Marc Rich in the 1970's as a trading firm in metals, minerals, crude oil and other commodities. In 1983, Rich fled to Switzerland after being indicted for tax evasion and illegal trading with Iran (charges brought by then US Federal Prosecutor Rudolph Giuliani). Rich was famously pardoned in 2001, during the final hours of Bill Clinton's presidency, allegedly because his former wife had made large donations to the Democratic Party and the Clinton Library on his behalf.
Rich was later bought out by his partners (in a reportedly acrimonious breakup - Rich's name is found nowhere on Glencore's website), but his exit from the company has not slowed Glencore's global expansion. With assets of $66.2 billion at the end 2009 and 50 offices across 40 different countries, Glencore is now one of the most ubiquitous and influential players in the commodity trading space and one of the largest privately held companies in the world.
Corporate Social Responsibility
While Glencore continues to expand in market share, their CSR track record, to put it mildly, has been less than stellar. Despite claims on their website of being a responsible corporate citizen, in recent years, Glencore's name has repeatedly been tied to allegations of bribery, corruption, tax evasion and human rights violations. Glencore was also accused by the CIA of paying kickbacks in the Iraq oil for food scandal. Glencore, for its part, has denied any wrongdoing in all of these cases.
In 2005, ABC Radio ran an exposé on Glencore, claiming it "has been accused of illegal dealings with rogue states: apartheid South Africa, USSR, Iran, and Iraq under Saddam Hussein", and has a "history of busting UN embargoes to profit from corrupt or despotic regimes".
But being a privately held entity has allowed Glencore to largely sidestep the widespread controversy and fallout that would beset a similar publicly traded company.
So why go public now?
In a word: capital. By dipping into the public markets, Glencore will no doubt open itself up to a level of scrutiny never before experienced in its history, but it will also provide an opportunity for an enormous cash infusion which the partners can use for compensation, expansion and mergers & acquisitions.
There's also the issue of where commodity prices are trading today. Since collapsing in 2008, once the global recession took hold, commodities have climbed steadily in the past couple years, with huge gains recently in silver, crude oil, cotton and corn. The thinking is that Glencore's partners, widely regarded as some the savviest traders around, see an opportunity to cash out at these levels.
It's a move similar to what Goldman Sachs, the company Glencore is most often compared to, did at the height of the IPO craze in 1999, shortly before equity markets peaked.
Target for activist SRI investors?
While traditional SRI investment funds will almost certainly steer clear of Glencore stock, it could be an interesting target for a bold activist SRI fund looking to influence the questionable business practices of a major force in an industry with an often deplorable CSR track record.
Activist SRI investors often take positions in some of the larger and more controversial companies in an effort to directly engage management through through shareholder resolutions and proxy votes.
With a rumored $16 billion offering in the works, it will likely require a substantial investment from an activist investor or a coalition of activist investors to obtain the share amount necessary to have an impact on Glencore's corporate governance.
It may not happen overnight, but it will be interesting to see if by opening themselves up to the investing public, Glencore will be forced to change their business practices.
Image Credit: Fatdeeman