Telecom Italia Appoints Chairman, Adds Independent Directors

By Manuela Mesco 

Telecom Italia's shareholders appointed Giuseppe Recchi as chairman Wednesday as part of a board reshuffling that also saw a doubling in the number of independent directors after pressure from minority shareholders for more aggressive leadership of the telecom giant.

Mr. Recchi will work together with Chief Executive Marco Patuano, who has been trying to bolster a company that is under heavy pressure at home from a sharp fall in telecom rates and declining market share. The company needs to quickly invest in technology to fend off such giants as Vodafone, which is sinking billions into its Italian business. At the same time, Telecom Italia, which posted a loss of EUR674 million ($931 million) last year, must cut a EUR27 billion debt load.

Last year, credit agencies slashed its rating to junk, on concerns about the size of its debt and the deterioration of business in Italy, where around 1.2 million customers gave up on their land lines in two years, according to regulator AGCOM. Telecom Italia's market share in the fixed line business dropped by almost 1.5 percentage points in the last year.

"I'm not satisfied to run a company that has been rated as junk," said Mr. Patuano at Wednesday's shareholders meeting. "We'll do all we can to go back to investment grade as soon as possible."

Minority shareholder Marco Fossati, who owns 5% of Telecom Italia, has been clamoring for months for a shake-up of the board, attempting last December to topple it and replace it with one including more independent members. Shareholders narrowly rejected his proposal. The new 13-member board, whose members will serve for three years, will now include 10 independent directors, up from five.

Questions about the board's independence emerged last year when Telefonica took a large minority stake in the holding company that controls Telecom Italia, becoming the group's largest single shareholder. That deal immediately raised strategic issues because both Telefonica and Telecom Italia have interests in Brazil, where they own the two largest telecom companies in the region, Vivo and TIM Participacoes.

Minority shareholders complained that Telefonica's stake in Telecom Italia effectively keeps the Italian company from maximizing its Brazilian business, a charge that Mr. Patuano denies. He said Telecom Italia plans to invest further in Brazil. But Telefonica's directors resigned from the holding company that controls Telecom Italia in December to ease concerns of a conflict of interest.

More generally, Mr. Fossati charges that the situation has left the board largely ineffective at a time when Telecom Italia must respond more aggressively to fierce competition in its domestic market. At Wednesday's meeting, Mr. Fossati said that he's willing to support whoever is appointed in the new board for the sake of the company, but added that if the board doesn't represent the interests of all shareholders, he will push again for its dismissal.

Mr. Recchi replaces Aldo Minucci. He had been appointed interim chairman after the resignation of Franco Bernabe, who was chairman and chief executive until October. The new chairman will not have executive duties, but the board will decide which powers he will hold.

Mr. Recchi has been chairman of Italian energy company Eni since 2011, but was replaced earlier this week by Emma Marcegaglia. He also chairs a foreign investment committee within the business lobby group Confindustria. Before his time at Eni, he was a senior executive at General Electric, where his posts included being head of southern Europe.

According to proxy advisor ISS, "Although Recchi does not have the sector expertise, he has certainly the background, experience, and profile to perform as chairman of Telecom Italia."

Write to Manuela Mesco at [e-mail]

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