Interview for “Bursa” with Mr. Michiel Boersma, member to the Board of Directors Electrica SA



1. Why did you accept to be a member of Electrica’s board?
In August, last year I was approached by an Executive Search Agent who enquired on behalf of the European Bank of Reconstruction and Development (EBRD) whether I was interested in a non-executive director position in the Board of Electrica. Prior to accepting nomination I visited Bucharest and spoke with Mr. Ioan Rosca, the CEO of Electrica, the minister of Energy at that time, Mr. Razvan Nicolescu, and Mr. Mihnea Craciun from EBRD. I also read the IPO document. As a result, I got a very good impression of the challenges Electrica was facing post IPO. I have accepted to be nominated for two reasons. Firstly, I have experience with the energy and electricity distribution business from my time (2003-2010) as CEO of Essent, the largest Dutch utility in the Netherlands and thought that I was able to contribute with my experience to the future development of Electrica. Secondly, EBRD wanted to introduce western corporate governance in Electrica and Romania and as I have experience with how boards in other countries (USA, France, Sweden, Finland, Belgium, Germany, The Netherlands) work and as I am also a professor of corporate governance of utility companies at TIAS, the Business School of Tilburg University in The Netherlands, I thought I could make a contribution to Electrica in this respect.


2. What is your vision about Electrica’s future on romanian and regional energy market?
Electrica’s vision is to expand the Group’s leading position in the Electricity distribution and supply market segments, both nationally and regionally. I fully subscribe to this vision and believe that Electrica can achieve this by investing prudently in its networks, acquiring romanian and regional businesses that come up for sale against fair value and providing exceptional services to its customers in a safe, reliable, affordable and sustainable manner. This will bring longterm value to our shareholders.

3. Electrica has a lot of cash since the IPO but no big investment. What do you think are the investment opportunities for the holding so as the shareholders can gain more value?
Electrica has been looking at a number of possible acquisitions and will continue looking at new opportunities. Unfortunately, our attempts to acquire new businesses were not successful, partly because the price was not right, partly because the seller decided to discontinue the process. I often hear that we need to spend the cash. I then point towards the IPO document. There it is mentioned that we will invest in our networks to improve the operational performance. That is what we need to do. Furthermore, it is also mentioned in the IPO document that we will grow our business. Certainly we will, but not at every price. Spending the money is quite easy, spending it prudently and responsibly is a different game, as this requires the right opportunity.

4. What are the company’s achievements since the IPO?
We have prepared with the help of reputable consultants a restructuring plan for the company, which is ready to be launched. As in every restructuring this means new behaviors, new values, new competences and thus new people. For this we also need a new remuneration system to be implemented. So that we can hire the people that can make the restructuring happen. This new remuneration system needs to be approved by our shareholders, hopefully by the GSM that takes place this week. Further, we have implemented many new corporate governance procedures, like a whistle blower policy, a policy outlining the new values and behaviors, charters for the board and its committees. We also have made a strategic plan for the period 2015-2018, the elements of which have been shared with our shareholders. Financially we are in line with our plan so far.

5. What are the improvements that Electrica need to do in order to reform the company?
I mentioned already the implementation of the restructuring plan. As part of this plan we also want to set-up a new shared services center. Further, we need to have a look at the broader corporate governance structure of Electrica, which basically is a holding company on top of a number of subsidiaries with their own boards. You can imagine that such a structure is not very efficient. Furthermore, I have noticed that in Romania General Shareholder Meetings (GSM’s) often meet. My experience tells me that Executive Management, I mean the CEO and his management team, manages the Company, whereby the board is responsible towards the shareholder that Executive management does this all in a responsible, prudent and transparent manner. The board acts on behalf of the shareholders and other stakeholders. But really, you can not run a company via general shareholders meetings. Shareholders should leave the management of the company to the executives and the control of the executives to the board. Only for very important decisions the shareholders should be consulted and sometimes they need to approve certain important proposals. That is what happens in most companies in Western Europe. In this respect Romania has still some way to go.

6. Are you pleased with the management and with the actual stage of implementing the corporate governance?
There are many experienced, hardworking and passionate people working in Electrica, but there can also be learned from the best practices from other European countries, like in the areas of operations, smart metering, asset management and corporate governance. As I said earlier in the area of corporate governance many new procedures have been put in place and we have implemented most of the action that were agreed with the EBRD in the Corporate Governance Action Plan during the IPO last year.

7. What is the role of the Board in utility companies in Europe?
The board of Electrica is a so called one-tier board consisting solely of non-executive directors. Basically the board of Electrica overlooks and approves certain Executive management’s actions, gives advice to Executive management, acts as employer for Executives with a mandate contract and make its network of contacts available to the company in case Executive management request this.

8. The members of these Boards of Directors have variable component linked to company performance?
Currently, the members of the board have a fixed monthly remuneration and a variable component coupled to certain performance indicators, but in the GSM this week it is proposed to change this to a so-called attendance fee system, which means that board members receive a fixed remuneration and a fee for every meeting they attend . This is a better system, as a system with variable remuneration for the board potentially invites the wrong behavior, as it is linked to performance indicators that need to be achieved during the year. As these are short term oriented and the board should look at the performance of the company in the longer term, boards in Western Europe usually do not have a variable remuneration coupled to performance indicators.

9. What are the important elements that can help a utility company such as Electrica, to achieve the performance of similar companies in Western Europe?
First of all, the employees of Electrica need to be outward looking by reading international professional journals and literature and visiting international professional conferences. Secondly, Electrica could compare and benchmark its performance with that of utility companies in Western Europe and assess the reasons for the discrepancy, so they can take proper action. Finally, Electrica could set up an exchange program with utility companies in Western Europe and transfer knowledge. The last process is currently happening, as there are already contacts between executives from Electrica and a Dutch network company.


10. Is there any political pressure upon the board of Electrica?
The Romanian state is still the largest shareholder in Electrica, with just under 50% of the shares. According to good corporate governance the board should treat all shareholders equally. But we also know that large shareholders have more influence than small shareholders. So, we need to careful listen to what the arguments of the large shareholders are when they want to achieve something. But equally here lies an important responsibility for the large shareholders, as they always need to to ensure that they handle in the best interest of the company. This is what the board should look at: the interest of the company, its stakeholders and the environment in which it operates.