Manuel Conthe, president of the National Stock Market Commission, has made a historic bet with the Spanish government. He has promised to resign – due to his discrepancies regarding the interventionist position of the Government in the final stages of the bidding war for Endesa if he can first explain his motives in front of the country’s Parliament. His confessions could lead to a great deal of criticism in the controversial takeover, and could reveal all sorts of political pressures that have been aimed at preventing Germany’s E.On from buying Endesa, the largest utility in Spain. The denouement could mark another major turn in the interminable battle for taking control of Endesa. Is Conthe’s behavior correct?


Those who defend Conthe, who is still president of the CNMV, stress that there is a lesson in Conthe’s independent stance against the powers that be. In contrast, his detractors accuse him of having damaged the image of the institution by announcing his resignation, but not having left his position immediately. The CNMV, they say, is right now in a state of limbo. Among those who have taken a position against Conthe are the leaders and the administrative council of the CNMV. On April 13, they accused him of “serious non-compliance with his obligations.” In addition, they requested the “institutions and people who are responsible for managing them to urgently reestablish the normalcy required for dealing with the goals that he is legally responsible for.”


With these words, the directors of the CNMV are throwing a poison dart at Conthe, accusing him of the only sin for which he might be removed from office. However, this is an option that the legal staff of the CNMV seems to have discarded because they consider it unclear and, in addition, it could wind up lengthening the crisis until the summer. Another factor is that Pedro Solbes, the economics minister, doesn’t think much of this option. It was up to him to take the necessary measures for starting the dismissal process.


Despite the fact that Solbes and Conthe are old friends (Solbes was the one who proposed that Conthe become president of the CNMV), the crisis at the top of the stock market’s administrative body made an impression on both. On several occasions, Solbes has asked Conthe to present his resignation. He has also accused Conthe of having lost the confidence of the executive board because of his behavior.


Conthe has offered several explanations for his decision to appear in Parliament. First, he appealed to article 33 of the Code of Good Governance (for which he was responsible), in which he recommends that “all directors clearly express their opposition whenever they consider that a proposal submitted to the Council might be contrary to the social good.” In addition, he said that when it is time for a director to leave, he must “explain the reasons.”


“I have no doubt that the reasoning (that motivated Conthe to act the way he is acting) is same as what he himself mentioned: He wanted to follow recommendation number 33 of the Unified Code, approved in May 2006, which requires a transparent process and feedback of opinions,” notes Joaquín Garralda, professor of strategy at the Instituto de Empresa in Madrid.


That view differs a great deal from the opinion of Juan Antonio Maroto Acín, professor of financial economics at the Complutense University. Acín believes “this is a way [for Conthe] to vindicate his role at the CNMV as a technician independent of the executive branch. He conceived of the CNMV as an independent supervisory agency in the Anglo-American style, but his conception was shattered because of our hard, stubborn Latin reality, where anyone who can interfere in the functioning of the market does not resist the temptation to do so. In part, it is clear that our market is very far from the ‘almost perfect’ competition found in the U.S. and British markets.”


Maroto defines Conthe’s position as the “Sampson syndrome: Let the temple fall on me and on the Philistines,” he says metaphorically. He recalls that there “even the slightest possibility is considered too risky for the government during an electoral campaign.” Elections for municipalities and autonomous regions will take place in May. But this mention of his independence and integrity, taken to its ultimate consequences, can also be criticized. “Why didn’t he resign a lot earlier before laws that, in the great majority of big companies including banks, now restrict the political rights that are inherent to share ownership?” wonders Maroto.


Endesa, the Result of a Disagreement


Before becoming president of the CNMV, Conthe achieved his own measure of fame by withstanding all sorts of pressures. As vice-president of the World Bank, he also accepted the ultimate consequences that came from pursuing his ideals. In 2001, he was demoted after he criticized the functioning of that institution and the attitude of his superiors, James Wolfenson and Jeffrey Goldstein, respectively president and managing director of the institution. Always ready to shine light on the serious mistakes of the system, Conthe abandoned the institution a year later after writing an extensive, 15-page document that explained why he was leaving. He is following a similar approach now that he has decided to leave the CNMV.


On this occasion, the straw that broke the camel’s back was the unending takeover war for Endesa, and the different political pressures imposed in order to prevent that Spanish company from falling into the hands of E.On, a German utility. This interventionism was backed by a large part of CNMV’s administrative board and, above all, by Carlos Arenillas, its vice-president.


More specifically, Conthe seems to have been in the minority when it came to the decision. He defended the joint efforts by Acciona, the Spanish construction firm, and Enel, the Italian utility, to take over Endesa. The two companies announced an offer when the time period had already expired for presenting acquisition offers. Until those two companies jumped onto the scene, E.On was the only company that was moving toward taking control of Endesa, which was the first-ranked Spanish electricity company, having ousted Gas Natural.


Surprisingly, the stock market’s advisory board allowed Acciona and Enel to make a takeover offer. This would mean announcing a takeover offer but not presenting it according to the rules. In Spain, there had been only one precedent for that, dating back 13 years, when the current BBVA bank made a takeover offer for Encinar del Rey, a real estate firm.


The difference between that deal and this one was that Acciona and Enel sent official messages to the CNMV, announcing that they were even going to present guarantees that would convince the stock market that their offer was a serious one. In reality, however, the goal of the two companies was to drive out E.On by promising to pay at least 41 euros a share, in comparison with the 38.75 euros per share that E.On was offering.


De facto, the move by Enel and Acciona had the impact of a real takeover offer when the law did not permit any other offers to be presented. When the offer was announced, the CNMV prohibited the two companies from launching another offer within six months, until September. Both companies thought that they would not have to wait that long, but they were wrong.


In a controversial meeting, the administrative board [of the CNMV] asked for sanctions against the two companies. Nevertheless, Conthe was in the minority. After spending a week trying to convince his colleagues, Conthe threw in the towel and announced that he was quitting. However he did so not before making a request to give an explanation to legislators last April 2. That’s when the scandal broke out.


“In my opinion,” notes Juan Mascareñas, professor of financial economics at the Complutense University, “the public image of the CNMV … has deteriorated even further. This could seriously damage the credibility of the Spanish financial system. People already knew that it lacked independence from political power (from the very moment when it was created), and that this has become more and more serious as time went on. The prevailing feeling was that the CNMV would find out about certain things too late and only incompletely, and that it could do little when it did hear about things. In short, people have the idea that there is an imbalance between the way CNMV deals with cases and the political muscle of the company [in such cases]. Financially speaking, a distinguishing characteristic of modern countries is the credibility of their financial system and the absolute independence and professionalism of the regulatory organization in charge of making sure that it functions in accordance with laws and established rules.”


Despite the negative impact that Corinthe’s attitude has had on the image and reputation of the CNMV, Garralda has only praise for Conthe. He has great respect for his attitude “because I consider him a magnificent professional, with great judgment. The problem is that we have become used to the fact that politically motivated behavior is motivated by other goals. This makes us forget that originally they [the CNMV] were looking, above all, for the most suitable person – especially from a technical viewpoint. The argument that they make in that regard is that politicians have other rules, and if you get into the game, you must accept them.”


Maroto comments on the two different worlds of politicians and technocrats: “I believe that the government is guided by considerations about [the next] elections in municipalities and autonomous regions. Above all, it is concerned about the risk that Conthe’s appearance [in the Parliament] can influence voters’ decisions. In my opinion, they will postpone his appearance until the end of May [which is after the elections]. On the other hand, if the president of the CNMV could ask the government, ‘Why are you so concerned about the failure of the president to explain himself in front of the Parliament?’ The government’s way of thinking is based on how they expected things to be at the CNMV; not what the CNMV should have been or what Conthe probably expected when he accepted the job.”