Cultivating trust


Cultivating trust Ethical BoardroomBy Fernando Frías – Non-Director Vice-Secretary of the Board of Directors, Head of Compliance and Corporate Governance, Red Eléctrica Corporacion SA



When Ethical Boardroom invited me to write an article on corporate governance for the prestigious magazine, I immediately felt grateful considering the first-class professionals who usually contribute to the publication with their articles: leading experts who have a deep knowledge of  the international good corporate governance scene.

I accepted the invitation under the personal commitment to address the topic with honesty while sharing some of the reflections I have forged over my long experience in Red Eléctrica Corporacion (REC), a Spanish public company listed on the Ibex 35 stock market index.

This article is not intended to be an inventory of the company’s corporate governance practices over its history nor a review of the policies adopted in the past year. In fact, any interested readers may find on our website both our corporate governance story in a modern, schematic and friendly format and our annual corporate governance report, as approved by the board of directors. So please continue reading, I promise to keep it interesting.

I do wish to start my article however by mentioning that REC was recently awarded Best Corporate Governance in the utilities industry in Europe by Ethical Boardroom in its Winter 2017 edition. We have received this honour with great satisfaction.

The main activities undertaken by Red Eléctrica Group, offered on an exclusive basis within a regulated sector, are energy transmission – which covers the construction and maintenance of the high voltage grid – and the operation of the electricity system in Spain, thus guaranteeing an uninterrupted, safe and quality power supply for all citizens. Additionally, the Group is also devoted to expand its business base through telecommunications and international activities.

REC has been quoted on Spanish stock exchanges since 1999. Its current shareholder structure includes the State Industrial Holding Company (SEPI, Sociedad Estatal de Participaciones Industriales), which holds 20 per cent of the capital stock, around 70 per cent foreign institutional shareholders, mostly Anglo-Saxon, and some minority institutional and retail shareholders from Spain.

Driving good governance

Furthermore, it must be noted that about 63 per cent of the total attendance of the annual general meeting held in April 2016 was represented by foreign institutional shareholders, who are particularly active, engaged and a clear majority at the AGM; hence the power and real influence of foreign institutional shareholders and the proxy advisors on REC today. They are the main drivers of good corporate governance practices in listed companies sustained in the long run.

“The board of directors of our company is able to embrace the reasons and arguments in favour of good governance expressed by our foreign shareholders”

Looking back to 1999, when the company first went public, we could say our journey has been long and complex: the board of directors, led by different chairmen and with a particular structure and make-up throughout the years, has gradually become aware of the relevance of corporate governance in the company and, little by little, has understood, incorporated and progressed towards notable good governance practices. These in turn emerged and evolved as our foreign shareholders, proxy advisors and investors expressed their interests, thanks to a genuine and reliable engagement process. Good governance certainly has evolved ever since.

Listening to shareholders

REC has advanced from an attitude towards our shareholders of simple or passive listening in its early years as a quoted company – when we struggled to even understand the reasons underlying each good governance recommendation – to a more proactive and participatory style, which allows for a dialogue between both parties. Today we could even describe our relationship as ‘empathetic or committed’, one in which each of the parties can understand the other’s concerns.

Our shareholders express their recommendations to us, but they are also open to listening, understanding and adapting to the local particularities in our country, in our industry and even in our company, and suggest alternatives or allow the company to make gradual progress. Likewise, the board of directors of our company is able to embrace the reasons and arguments in favour of good governance expressed by our foreign shareholders. As a result of this ‘empathetic’ engagement process, REC took a pioneering step in Spain between 2015 and 2016: the CEO role was separated from that of non-executive chairman of the board of directors. This measure was fully supported by the board, which called an extraordinary general meeting to put it to the vote of its shareholders and made all the necessary information and documentation available. It was massively upheld and welcomed by our shareholders.

We must remember that the boards often forget that the company belongs to the shareholders. Therefore, our developments in the area of good governance have meant an actual shift in the mindset and culture of our company, but also of the board of directors. We have been able to assimilate into our DNA the chromosome of genuine and credible corporate governance. In my opinion, this was our greatest accomplishment: the finish line of a journey where our foreign shareholders and the proxy advisors on the one hand, and the board of directors (led by the chairman in office at each time), on the other, have walked together, shoulder to shoulder with genuine and exhilarating as well as deliberate, proactive, constructive, transparent, anticipated and bilateral engagement.

We know that incorporating engagement as an actual and sustainable part of our culture has required much effort in the past to understand and accept our shareholders’ requests and will certainly require us to go the extra mile in the future. The result of this actual and sustainable engagement can be summarized with one word: trust. In an equity market, such as the stock exchange, trust is key to the economic and social growth of a company, of a nation and, essentially, to the development and social and economic balance of our world.

Before I conclude these reflections, it is only fair that I express my sincere gratitude to all the individuals and institutions in the foreign investment world who, over these years, have offered us their constant cooperation, support, patience, understanding and, ultimately, their trust. We hope to cultivate this trust with our empathetic and sustainable engagement, trying to protect and foster an asset shared by the company and its shareholders.


About the Author:

Fernando Frias was appointed Non-Director Vice-Secretary of the Board of Directors of Red Eléctrica de España, S.A. on 21 April 2005.  Early in his career, he was a lawyer in the Legal Department of Red Eléctrica de España, S.A. since 1990 and Secretary of the Board of Directors of Infraestructuras de Alta Tensión, S.A., Red de Alta Tensión, S.A. and Tenedora de Acciones de Redesur, S.A. Currently, Fernando is a Member of the Madrid Bar Association, and Head of the Corporate Governance and Compliance Department of Red Eléctrica de España, S.A