Green Is Excellent Camouflage for Corporate Spies
(Bloomberg Opinion) -- In the energy sector, ESG investors often focus on the “E” (environment); largely sidestep the “S” (social), and completely ignore the “G” (governance). In many cases, green trumps, or even obscures, murkiness. Iberdrola SA, the European utility that’s a champion in renewables, is a case in point.
The company, one of the world’s largest wind power generators, is embroiled in a murky case of alleged corporate espionage that’s now an official criminal investigation in Spain. Its chairman and chief executive officer, Ignacio Galan, will appear in court alongside other top executives on Jan. 18 as suspects, which in Spanish law refers to unindicted subjects of official probes. The probe is part of a broad scandal involving other blue-chip Spanish companies. According to investigators, several companies — including Iberdrola — allegedly hired a firm owned by a former senior police officer to spy on rivals and their executives.
The events under investigation date back to 2004 and include a couple of colorful corporate battles. According to court documents, Iberdrola allegedly asked the former policeman turned private investigator to dig up information on the chairman of a local competitor. It also allegedly asked for intelligence on a local tycoon Florentino Perez (better known as the chairman of the Real Madrid soccer club) and his family amid a takeover fight, according to the filing.
The investigation is still in preliminary stages. Iberdrola strongly denies the charges, arguing that hiring the former cop was part of normal business and all payments were for proper services.
So far, shareholders have taken Iberdrola’s legal troubles in stride. The company is trading at a price-to-earnings ratio of nearly 18 times, compared to the 13 times of Enel SpA, the Italian company that is its closer and larger rival, according to Bloomberg data. Iberdrola shares have outperformed too. Over two decades, Galan has turned a parochial coal-fired electricity producer in northern Spain into a global renewable giant, with subsidiaries from the U.K.. to Mexico. Its green credentials have won plaudits; and few investors have complained about governance.
That may change as the criminal probe starts to affect the company’s ability to grow in a key market. Iberdrola is trying to expand aggressively in the U.S. but its most recent attempt — buying a New Mexico-based utility called PNM Resources Inc. for more than $8 billion, including debt — failed when regulators blocked the deal citing the probe in Spain, among other factors. The U.S. regulators were not so much worried whether Ibedrola’s use of the ex-policeman was illegal. They were more concerned about what that says about the company’s governance. “Apart from whether the actions of Iberdrola S.A.’s executives and its subsidiary constitute crimes under Spanish law, their actions appear to represent methods of doing business that should raise concerns,” A report prepared for the New Mexican state regulators said in a report. “The criminal investigation is relevant as it may reflect the culture of Iberdrola.”
The company has taken some good actions to defend itself: It commissioned PwC to do a forensic report, which it sent to the court, for example. But it needs to go beyond that to shore up its reputation. Galan has been running the company, first as CEO, and then as both chairman and chief executive, for nearly 21 years. That’s a very long reign.
Controlling both management and the board is often a recipe for subpar corporate governance. Splitting the role would go a long way to improve the “G” in ESG. Iberdrola’s shareholders, led by the sovereign wealth fund of Qatar and BlackRock Inc, should press for an independent chairman at the earliest opportunity to revamp governance.
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Iberdrola hasfiled a notice of appeal before the New Mexico'sSupreme Court and also extended the longstop date for the acquisition of PNM until April 2023.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He previously was commodities editor at the Financial Times and is the coauthor of "The World for Sale: Money, Power, and the Traders Who Barter the Earth’s Resources."
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