COLOGNE Wolfgang Mayrhuber was named chairman of Lufthansa's supervisory board on Tuesday after a stormy meeting where major shareholders voiced their displeasure with the return of the German airline's longtime chief executive.
The 66-year-old Austrian, who ran Lufthansa for seven years before stepping down at the end of 2010, had withdrawn his candidacy for the board a day before the annual general meeting (AGM) in Cologne, only to change tack hours later and re-enter the race.
Despite the flip-flop and a record as CEO that some have criticized, Mayrhuber received the support of 63.2 percent of shareholders voting at the AGM, a less than resounding endorsement but enough to place him on the supervisory board.
When Mayrhuber was CEO, Lufthansa pursued an aggressive acquisition drive, buying up rivals including Austrian Airlines and Swiss.
But the results have been mixed at best and Germany's biggest airline has suspended its dividend and slashed costs as part of a painful strategic overhaul overseen by his successor, Christoph Franz.
"During his time, debts piled up and these are now burdening Lufthansa," said Dietmar Pfaff, a 63-year-old retiree and shareholder from Cologne who attended the AGM.
Ingo Speich, representing Union Investment, told the meeting that he was "speechless" at Mayrhuber's about-face and said it had already cast a shadow over his new role at the firm.
Both Union and proxy advisory firm ISS refused to back Mayrhuber because he left Lufthansa so recently. Under German guidelines, a CEO can become supervisory board chairman after a two year "cooling off" period, but some governance experts believe a five-year gap is more appropriate.
They also objected because Mayrhuber already holds board seats at chipmaker Infineon (IFXGn.DE), where he is chairman, and at carmaker BMW (BMWG.DE) and reinsurer Munich Re (MUVGn.DE).
Others like Ulrich Hocker, president of Germany's DSW association for private investors, blamed Mayrhuber's U-turn on misguided meddling by Anglo-American shareholders rather than governance problems at Lufthansa.
In announcing Mayrhuber's withdrawal on Monday morning, the airline cited "criticism from shareholders". Several hours later, it issued a new statement saying Mayrhuber was back in the running.
"Lufthansa did the right thing. ISS feels a cooling off period of five years is needed but being out of the airline industry for five years means you are not just cooled off, you are deep frozen," he told Reuters.
"Insisting on an independent director is good, but independence can also mean cluelessness. Mayrhuber is the ideal sparring partner for the Lufthansa CEO."
Under Germany's two-tier corporate governance system, the supervisory board controls a separate management board. Its members have non-executive functions.
As chairman, Mayrhuber will be vetting the strategy of his successor Franz, who has launched a major revamp to cope with rising fuel costs and cut-throat competition from discount carriers and Middle East rivals.
Franz, who urged shareholders at the meeting to back Mayrhuber for the board, has sold some of the companies acquired during his predecessor's aggressive expansion campaign.
The restructuring plan, dubbed SCORE, includes 3,500 job cuts and merging loss-making European short-haul flights with discount carrier Germanwings.
On Tuesday, Franz told shareholders that the management board would take a 5 percent pay cut for the 18-month period ending December 2014 as its contribution to SCORE.
(Additional reporting by Edward Taylor; Writing by Noah Barkin; Editing by Maria Sheahan)