Greece’s OTE faces activist push for board change

by on 13 June 2019

Hedge fund seeks to improve corporate governance by proposing independent member

Amber Capital is making a fresh attempt to improve corporate governance at Greece’s largest telecoms operator OTE, in which Deutsche Telekom holds a controlling stake. The London-based activist hedge fund will propose Alberto Horcajo, a former chief executive at Telefónica Brasil, to take over as an independent non-executive deputy chairman and board member at OTE’s annual shareholders’ meeting on Wednesday. Mr Horcajo’s candidacy is backed by Institutional Shareholder Services, a leading proxy adviser. The move has highlighted continuing weak standards of corporate governance in Greece, where listed companies still ignore new requirements legislated in 2013 as a condition of the country’s second international bailout. Greece’s creditors, the EU and International Monetary Fund imposed corporate governance reforms at the country’s biggest banks, but it was left to the Greek capital markets commission to ensure that other companies listed on the Athens stock exchange increased the number of independent members on their boards and appointed qualified board members to their audit committees. The country’s poor governance record was highlighted by revelations last year that Folli Follie, a listed Greek jewellery maker, faced a cash hole of $290m after overstating profits from its Asian outlets by almost $1bn. The commission delayed appointing an investigator for several months after the gap was exposed in a report by QCM, a US hedge fund. Folli Follie’s audit committee had not reported any accounting irregularities at their Asian operations.

Minority shareholders would be better represented by a deputy chairman that has not been sponsored by the controlling shareholder
Giuseppe di Mino, Amber Capital managing director

OTE is the most prominent Greek company to fall short on governance. OTE’s 10-member board should include four independent directors, according to the Hellenic Corporate Governance Code, but only two are serving at present. Deutsche Telekom, which holds a 45 per cent stake in the operator, has put forward its own candidate for deputy chairman: Eelco Blok, a former chief executive at the Dutch telecoms operator KPN. No other board members are due to be replaced. Giuseppe di Mino, Amber Capital’s managing director, praised OTE’s Athens-based management team for their handling of “very difficult market conditions” during the country’s eight-year recession but said that corporate governance at the group was in urgent need of an overhaul. “We see inadequate board independence and insufficient knowledge among audit committee members . . . Minority shareholders would be better represented by a deputy chairman that has not been sponsored by the controlling shareholder.” In a letter seen by the Financial Times, Amber Capital urged Deutsche Telekom to back their candidate for deputy chairman. The letter pointed out that the incumbent had served as a board member since 2004, outstaying his legitimate term. The letter suggested that governance improvements at OTE, the largest listed Greek company, might set an example for other companies to follow.

Amber Capital holds a 2 per cent stake in OTE. The fund is focused on investing in Europe, including southern Europe, and also holds stakes in a leading Greek bank and two listed construction companies. At last year’s AGM, minority shareholders overwhelmingly backed Mr Horcajo for a post as an independent board member, but were overruled by controlling shareholder Deutsche Telekom.

Kerin Hope –