The most awaited Italian meeting of 2013 was finally held on December 20th. The voting quorum reached an all-time high at Telecom Italia’s meetings: 54.26% of the share capital was represented. The major shareholder, Telco, cast votes representing 22.4% of the share capital, whilst the dissenting shareholder, Mr Fossati – who had called the meeting to remove the entire Telecom Italia Board – cast votes representing 5% through the Findim Group. Approximately 26.9% of the voting capital was represented by (more or less) independent shareholders.
The situation on the meeting date
Many events occurred during the last few days before the meeting: Telefonica's representatives (the CEO, Mr. Alierta, and the COO, Mr. Linares) resigned from their Board membership at Telecom Italia; Mr. Linares also renounced the nomination for potential re-election should the Board removal have been approved; as expected (by Frontis Governance), Telco proposed to keep the number of Directors unchanged at 15, submitting a further 6 nominees to the meeting.
Contrary to the reported comments of almost all international observers (with the sole exception of Frontis Governance and ECGS), the eventual removal would have resulted in the following new Board composition: 7 members appointed by the group of institutional fund managers (and supported by the dissident shareholder Mr. Fossati) and 8 members appointed by the major shareholder Telco, including the current CEO Mr. Patuano.
Aside from the inevitable confusion on which direction would have taken the Company, being the CEO removed, the great result would have been a strong increase in the independence rate. Certainly a very good result, but that would have not solved the conflicts of interest of Telefonica (as the Brazilian Antitrust Regulator, CADE, contested Telefónica's financial interests in Telecom Italia, that are still alive), nor the big problems related to the huge debt and the poor domestic performances of Telecom Italia. At the end of the day, so much promise for so little delivery!
The final result
After more than 8 hours of discussion, the dissenting shareholder’s proposal to remove the entire Board was not approved, with 42.3% of the voting share capital voting in favour of the removal (50.3% against and 7.4% abstaining, which is equivalent to a vote against).
Once having rejected the removal, the meeting was called to appoint two new Directors, to integrate the Board. One of the candidates, Mr. Provasoli, who was co-opted by the Board on October 3rdalso renounced to the nomination. As the nominees to the two open positions have been disclosed only the day before the meeting date (on December 19th), none of the shareholders voting by proxy were able to vote in favour, so no new members were ultimately appointed. The final result of all of this mess is: the current Board remains in charge, but with only 11 members out of 15, of which 5 are independent Directors (according to the Company’s appraisal).
Everybody wins, nobody wins
Even though he lost the battle, Mr Fossati achieved at least two significant results: Telefónica’s conflicts of interest are no longer represented on the Board, and the Company has finally acknowledged the significant distortions caused by the Board election mechanism, which stipulates that 80% of the members are to be elected from the slate of nominees obtaining the majority of votes, regardless of the actual percentage of votes received. During the meeting, the CEO, Mr Patuano, finally acknowledged that any amendments to the company’s articles of association must be discussed as soon as possible.
As already reported in our comment published on December 12th, all of Mr Fossati’s concerns were, and still are, entirely understandable. Perhaps a different strategy might have enabled him to gain control of Telecom Italia’s Board, with just 5% of the share capital. It is not clear whether Mr Fossati really wanted to gain control, or simply to bring about some changes. In the former case, he has definitely lost, but in the latter, he has achieved a great victory. On the other hand, the major shareholder, Telco, is reported to be the winner, as the Board was not removed; however, it is clear that they no longer control the company. From today onwards, minority shareholders are finally aware of their power, and all resolutions will be scrutinised closely.
The mandate of all current Board members will end on 2014, when the AGM will be called to the renewal. Probably the real battle has just been postponed. We will keep you updated!