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Chairman reversal clouds Lufthansa shareholder meeting
May 7, 2013 / 12:10 PM / in 4 years

Chairman reversal clouds Lufthansa shareholder meeting

* Some shareholders vow to vote against Mayrhuber

* Former CEO in running for board after abrupt withdrawal

* Lufthansa cutting costs after troubled expansion drive

By Peter Maushagen and Marilyn Gerlach

COLOGNE, May 7 (Reuters) - Lufthansa urged shareholders to back the appointment of former CEO Wolfgang Mayrhuber to lead the German airline’s supervisory board on Tuesday after an embarrassing reversal that saw him withdraw and then resubmit his candidacy within hours.

The about-face on the eve of the annual general meeting (AGM) in Cologne exposed flaws in the airline’s corporate governance and angered shareholders, some of whom vowed to oppose Mayrhuber, the 66-year old Austrian who was chief executive of Lufthansa for seven years until 2010.

Under Mayrhuber, Lufthansa pursued an aggressive acquisition drive, buying up BMI, Austrian Airlines and Swiss.

The results have been mixed at best and Germany’s biggest airline has suspended its dividend and is cutting costs as part of a painful strategic overhaul overseen by his successor as CEO, Christoph Franz.

“It was exciting until the very end,” Franz told shareholders at the meeting, making light of Mayrhuber’s surprising about-face on Monday. “He did great things during his time with the company.”

Some shareholders disagree. Proxy advisory firm ISS and German fund manager Union Investment are refusing to support Mayrhuber, citing his poor acquisition record and the “excessive” number of board appointments he already holds.

“We are speechless. How can you change your position on Lufthansa two times yesterday, Mr Mayrhuber?” Ingo Speich, of Union Investment, told the AGM.

“A withdrawal in the morning, and then in the evening a withdrawal of the withdrawal. That is already casting a shadow on your future term.”

However, Ulrich Hocker, president of Germany’s DSW association for private investors, said that the Mayrhuber about-turn was the product of misguided meddling by Anglo-American shareholders rather than problems at Lufthansa.

“Lufthansa did the right thing,” he said. “Insisting on an independent director is good, but independence can also mean cluelessness. Mayrhuber is the ideal sparring partner for the Lufthansa CEO.”

Shareholders are due to vote on members of the supervisory board later on Tuesday afternoon. If Mayrhuber is voted in, the board would be expected to appoint him chairman later in the day.

He is already chairman of Infineon, a chipmaker, and sits on the supervisory boards of carmaker BMW and reinsurer Munich Re.

Under Germany’s two-tier corporate governance system, the supervisory board - members of which have non-executive functions - exerts control over a separate management board.

REVERSAL

On Monday morning, Lufthansa announced abruptly that Mayrhuber was withdrawing his candidacy to become chairman of the airline because of “criticism from shareholders”.

That came after German daily Frankfurter Allgemeine Zeitung reported that ISS was recommending that shareholders vote against him.

Several hours later however, the airline issued a new statement saying Mayrhuber was back in the running.

Airline analyst Donal O‘Neill of Goodbody stockbrokers said that as long as Mayrhuber supported the management board’s restructuring programme, his appointment would not be a problem.

“I can understand investor concerns in terms of Mr Mayrhuber’s past performance,” he said. “However, I think this is proving a bit of a sideshow in what is a very positive time for Lufthansa.”

Franz, who took over in 2011, has launched a revamp of Lufthansa, dubbed SCORE, including job cuts and the merger of loss-making European short-haul flights with discount carrier German wings.

Franz told shareholders on Tuesday that the management board would take a 5 percent pay cut for the 18-month period ending December 2014 as its contribution to SCORE.

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