As the world’s largest commodity trader, Glencore (LSE: GLEN) has seen its fair share of controversy in the past. News earlier this month that the UK’s Serious Fraud Office (SFO) is now investigating the company over “suspicions of bribery”, one would think, should hurt its shares. However, this has not been the case. As I write, the stock is actually up about 11% compared to the day the news broke.
Investigations a plenty
Though it seems surprising that the company’s shares are not suffering on the back of this latest news, perhaps taken in the context of the myriad investigations the firm is currently under, we can consider the risks and potential costs to be already priced in.
In July last year Glencore was subpoenaed by the US Department of Justice over corruption allegations, specifically a breach of the Foreign Corrupt Practices Act in Africa and South America.
The company is also under investigation by the US commodity market regulatory body – the Commodity Futures and Trading Commission – and in Brazil over the “car wash” corruption and bribery scandal.
The full details of this latest investigation from the SFO are being kept under wraps by the body, confirming only that it was investigating the “conduct of business by the Glencore group of companies, its officials, employees, agents and associated persons”.
Most agree that it probably relates to its operations in the Democratic Republic of the Congo. It first emerged in 2018 that Glencore might come under investigation over its ties in the country to its former business partner billionaire, Dan Gertler.
Old boys’ club
Another allegation often thrown at Glencore is that it is an old boys’ club, with both a 1980’s style of brash commodity traders lower down the corporate ladder and a close-knit group of billionaires leading the firm. Indeed, in almost 50 years, the company has only had three CEOs.
This latest investigation is likely to put even more pressure on the firm to change this image as well. To be fair to Glencore, it has already indicated it plans to do exactly this.
At an annual investor briefing, CEO Ivan Glasenberg said “There are not many of us old guys left. So the old guys will be leaving. How soon? We are reviewing it right now. I would imagine it would occur next year”.
Given the controversial nature of all these investigations, it seems to me this kind of image change has to be a good thing for the company, though I think it is still very early days.
Meanwhile the investigations don’t just bring bad press, but depending on the findings may results in real fines for the company. These costs could have serious repercussions, not least to its future operations.
Commodity prices are far from certain, and personally I would like to see an end (one way or another) to these various investigations before I would be willing to risk an investment in Glencore.
