The Monday Interview

August 3, 2014 2:38 pm

Corporate Italy’s new number rings out at Telecom Italia

Giuseppe Recchi, non-executive chairman of Eni SpA, speaks during an interview during the World Economic Forum (WEF) Annual Meeting of the New Champions in Tianjin, China, on Wednesday, Sept. 12, 2012. The meeting, also called "Summer Davos," takes place from Sept. 11. to Sept. 13. Photographer: Nelson Ching/Bloomberg *** Local Caption *** Giuseppe Recchi©Bloomberg

Operator switch: Giuseppe Recchi joined Telecom Italia this year after being plucked from Eni, Italy’s state-controlled energy group

Giuseppe Recchi, the recently appointed chairman of Telecom Italia, lost his last job as part of the three-yearly process by which the chief executives and board members of 76 state-ontrolled companies are shuffled by the Italian government. The process is derisively known in Italy as the toto nomine – the appointments sweepstake – a reference to the commonly held view that it provides politicians with the opportunity to reward allies and pay back favours rather than choose the best person for the job.

Mr Recchi, 50, was installed by shareholders at Telecom Italia, formerly the country’s state monopoly carrier and now a listed company, in April after the government plucked him from the chairmanship of Eni, Italy’s state-controlled energy group.

For Mr Recchi this year’s toto nomine , which was the first under new prime minister Matteo Renzi, marked a big break with the past. “I think the relationship economy [in Italy] is breaking apart,” he says. “There is a generational transformation in the country which is also bringing a governance transformation.”

The moves also saw the departure of longstanding chief executives such as Fulvio Conti at Enel and the appointment of a woman, Emma Marcegaglia, to replace Mr Recchi at Eni.

Mr Recchi’s appointment at Italy’s biggest telephone company certainly comes at a potential turning point both for the country and for Telecom Italia itself. To many, under former head Franco Bernabè, the company personified “old” Italy, the world of the salotto buono, or fine drawing room – a system based on influence and connections which bound Italian business together for decades.

Mr Bernabè ran the company as executive chairman, and the board was controlled by representatives of its largest shareholders: Telefónica, its Spanish rival, Generali and Mediobanca, the Italian insurer and investment bank respectively, which have traditionally dominated the Italian corporate landscape through a web of cross shareholdings.

Under Mr Bernabè, Telecom Italia’s operational performance suffered and it took on a burdensome level of debt. Last year, in one of the first of the upheavals that have transformed governance structures at many of Italy’s leading companies, Mr Bernabè was sacked and his management role split. Telecoms industry veteran Marco Patuano was appointed as chief executive, and in June some of the company’s leading shareholders announced their withdrawal .

The CV

1964, Naples

Graduates in engineering from the Polytechnic of Turin.

Starts out as an entrepreneur at family business Recchi SpA, an international contractor
1994-99 Executive chairman of Recchi America
1999 Joins General Electric as director of GE Capital Structure Finance Group
2002 Managing director for Industrial M&A, GE Emea
2005-11 President and chief executive of GE Italy
and then president and chief executive of GE South Europe
2007-14 Member of the European advisory board of Blackstone
2011-14 Chairman, Eni
April 2014 Chairman, Telecom Italia

Other positions:
Also sits on the board of Exor and on the executive committee of Confindustria, the Italian manufacturing and services industry organisation

Married with three children and lives in Rome.

Telecom Italia now has 13 new board members, including Mr Recchi, the majority of whom are independent. “Now the board is one board acting for the interest of the company,” he says. “I see [this as] a radical change from the past.

“There is a strategy in place, there is management and leadership in place, there is strength in place,” he says, then adds with a smile: “I’m the same age as Marco Patuano, actually two months older, so that makes me wiser, but not enough to catch up when he [has been] 20 years in the industry.”

Telecom Italia’s first-half results are due on Wednesday. Consensus second-quarter forecasts are for revenues to fall 10 per cent and earnings before interest, tax, depreciation and amortisation to fall 5.8 per cent year-on-year.

Mr Recchi believes the ownership structures that have unravelled at Telecom Italia are being transformed across corporate Italy. And he sees this as very positive. “It’s not just the salotto buono, it was an interlocking of [ownership]. Everyone was, at the same time, the controller and the controlled, a shareholder and a participant. This is breaking apart.”

He believes the changes are due in part to the financial crisis and to the pressures it has placed on Italian companies to look for different sources of financing and to seek out new markets. But he also believes there is a new generation of leaders taking charge. “The generational change is spreading all over. It’s spreading in business, spreading in politics – look at our prime minister. It’s spreading because there is a different way of looking at things. People are more connected, more international, they want to compete.”

Mr Recchi is himself a poster child for this sort of “international connectedness”. He worked for General Electric in Europe and the US from 1999 to 2011, and was until recently on the European advisory board of Blackstone, the US private equity group. He says the nationality of companies has never been less important than it is today.

“I think that it doesn’t make very much sense today to classify companies [by their nationality]. While GE is an American company, more than 50 per cent of its employees are foreigners. Capital has no flag, and companies are going to have no flag except their own,” he argues.

“I want to go out and meet a Telecom Italia guy and we connect because we’re both Telecom Italia and not because one is Brazilian and one is Italian.”

Brazil is one of the areas where the revamped Telecom Italia faces difficult decisions, with questions being asked about the future of its assets there. Mr Recchi says that, while “anything is possible” and all telecoms companies are looking at options “in a very creative way”, Telecom Italia remains strongly committed to the country.

And he denies, as sometimes reported in the media, that the Italian government would have either the right or the desire to intervene in any possible sale of Brazilian assets, via its newly awarded “golden powers”, which allow it to intervene in undertakings by companies holding assets deemed of strategic importance. “[If it did so] the next day the Italian [credit] rating would go sub-junk, because that means that the Italian government acts like [a] Stalinist controller,” he says.

Mr Recchi believes much more needs to be done in Italy both at national and regional levels to create a more stable environment for telecoms companies to make the necessary investment to catch up with the US. In particular, he echoes his chief executive in calling for a more predictable regulatory regime. “That’s where I see all the industry challenge at this moment,” he says. “And I consider the industry players, including ourselves, kind of heroes because we’re investing in Italy €9bn out of our three-year plan, and €3bn to €4bn of them are for high-tech technologies, fibre, LTE, and 4G. And we’re doing this without any defined, regulatory environment, so in a price vacuum of what it’s going to be.”

Telecom Italia is not unique in the challenges it faces. Some of Europe’s other big incumbents also borrowed too much in recent years – to lease spectrum, pay dividends or expand overseas – and employed too many. But Mr Recchi is bullish about the company’s ability to make progress, that he and Mr Patuano are the right men to oversee this, and that Italy’s new leader will also prove effective.

“I think that the forces coming up from people’s demands are stronger than any vested interests,” he says. “And that’s really the strength of the prime minister, which is to move on and make [things] happen.”


Letter in response to this article:

If I may put the record straight . . . / From Mr Franco Bernabè.

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