The most eagerly awaited Italian shareholders’ meeting of 2013, concerning the dismissal of Telecom Italia’s Board of Directors, was finally held on 20 December. The voting quorum reached an all-time high for the company: 54.26% of the share capital was represented at the meeting. The majority shareholder, Telco, cast votes representing 22.4% of the share capital (41.3% of the voting shareholders), whilst the dissenting shareholder Marco Fossati cast votes representing 5% (9.2% of the voting shareholders) via Findim. The other minority shareholders, who were more or less independent, accounted for approximately 26.9% of the share capital (49.6% of the votes cast) at the meeting.
The situation on the day of the meeting
Many events in the days immediately preceding the meeting have substantially altered the scenario: the representatives of Telefonica (CEO César Alierta and General Manager Julio Linares) have both resigned from the Board of Directors of Telecom Italia; Julio Linares has also renounced his candidacy in the event that the revocation was approved; the co-opted director, Angelo Provasoli, also renounced his candidacy, in the opposite case of non-approval of the revocation; as foreseen (by Frontis Governance), Telco has proposed to keep the number of directors unchanged at 15, proposing 6 additional candidates to be elected in the event of approval of the revocation.
Contrary to the analyses reported by many international observers (with the sole exceptions of Frontis Governance and ECGS), the potential removal of the Board of Directors would have led to the following outcome: 7 Directors would have been elected from the Assogestioni list (supported by the dissenting shareholder Fossati), while the majority of the Board would still have been drawn from Telco, with 8 Directors, including the potentially revoked CEO, Marco Patuano.
Beyond the obvious and inevitable confusion about the company's direction in the absence of a CEO, the best outcome achievable from the dismissal would have been an increase in independence within the new Board of Directors. Certainly an excellent result, especially considering the many concerns about Telecom's latest operations, but one that would not have resolved the issues related to Telefonica's conflict of interest.The Brazilian antitrust authority CADE has specifically flagged the financial interest of the Spanish, which remains unchanged), nor those linked to enormous debt and poor domestic performance. In conclusion, much ado about nothing (or almost)!
The final result
After more than 8 hours of heated debate, the meeting rejected the proposal put forward by dissenting shareholder Marco Fossati, with “only” 42.3% of those present voting in favour of the removal (50.3% voted against, whilst 7.4% abstained).
Once the motion to remove the directors had been rejected, the shareholders had to vote on the appointment of two new directors (to replace the former Chairman Franco Bernabè and Elio Catania, who had resigned). As Angelo Provasoli had withdrawn his candidacy, the names of both candidates were only disclosed by Telco the day before the meeting (19 December). Naturally, no shareholder voting by proxy could have voted in favour of the nominations, of which they were unaware at the time of casting their vote. Consequently, the meeting also rejected all proposed appointments to the Board of Directors. The final outcome of this enormous confusion was that the Board of Directors remains in office, but comprises only 11 of the 15 members provided for, of whom 5 are independent according to the Company’s assessment (namely the 45%).
Everyone wins, everyone loses
Although he effectively lost the battle, Fossati nevertheless achieved at least two major successes: Telefónica’s conflicts of interest are no longer represented on Telecom’s Board of Directors, and the company has finally acknowledged the enormous distortions caused by the mechanism for electing directors set out in the Articles of Association. During the discussion at the AGM, Chief Executive Patuano finally stated that the current mechanism – which allocates 80% of the directors to the majority list regardless of the number of votes actually obtained – must be reviewed as soon as possible.
As already reported in comment posted on this blog on 13 December last, all of Fossati’s concerns were, and still are, entirely understandable. It is likely that a different strategy might even have enabled him to secure a majority on the Board of Directors, with just 5% of the share capital. It is unclear whether Fossati actually intended to take control of the company, or whether his real aim was to push it towards a substantial change in governance. In the former case, he would undoubtedly have lost, but in the latter he would have secured a historic victory. On the other side, the largest shareholder, Telco, is reported to be the winner of the shareholders“ meeting battle, given that the Board of Directors was not removed; however, it is clear that its control over Telecom has weakened significantly. The shareholders” meeting on 20 December clearly demonstrated the full strength of the ‘minority’ shareholders, and that from now on every resolution will be carefully assessed (and it is no longer a given that everything will be approved, as was the case in the past).
The term of office of the current directors will, in any case, expire in 2014, when the annual general meeting will be called to carry out the normal renewal of the board. It is highly likely that the real battle over Telecom has merely been postponed for a few months. We will keep you updated!