By Jesús Aguado
MADRID – Santander plans to challenge a court ruling it must pay Andrea Orcel 68 million euros ($77 million) for changing its mind over making him CEO, though lawyers say the bank has a slim chance of clawing back much in a battle that has damaged its reputation.
In one of banking’s most high profile employment disputes, a Madrid judge ruled this month a four-page offer letter sent by the Spanish lender to Orcel in September 2018 was a contract, which the bank breached four months later when it decided to scrap his appointment.
Santander had said an unforeseen requirement that it pay Orcel deferred pay he was losing on leaving UBS had made his appointment too expensive.
The ruling – while affordable financially – was a blow to Santander Chairman Ana Botin who had personally courted the Italian executive and then appeared in court to defend the bank’s change of course.
Now Santander says it is preparing to file an appeal – a step that must happen within 20 working days of the publication of the Dec. 10 ruling.
Legal experts, bankers and academics believe there is little scope to overturn judge Javier Sanchez Beltran’s main finding that the offer letter was legally binding.
“Santander can indeed appeal but they have all the odds against them. In my opinion the offer letter showed there was an agreement and therefore it may just be an attempt to save face,” said Enrique Quemada, chairman of Spanish investment bank ONEtoONE.
A lawyer not related to the case who did not want to be identified also said he believed the offer letter was a valid pre-contract, given there had been an approval by the bank’s nominations and remuneration committee with the chairman on board, and that the announcement had been made public.
Botin had told the court the offer letter was not a contract as Santander’s board had not approved his final pay package.
But the judge referenced tweets by her and media interviews in which she said Orcel’s appointment would be “effective from the beginning of 2019.”
No new evidence can be brought forward in the appeal, meaning Santander will be left to revamp its argument that the letter was not a contract. The appeal could go all the way to Spain’s Supreme Court, court sources said, meaning it could be years until the matter is finally resolved.
Both parties can reach an out-of-court settlement at any time during the process.
Orcel did not reply to messages and calls for a comment.
Lawyers and sources close to the matter believe Santander’s best chance will be contesting the 10 million euros of compensation for “moral damage” Orcel was awarded by the Madrid court, rather than his 17 million euro sign-on bonus, the 35 million buyout clause and 5.8 million for two years’ salary.
Although the judge said it was difficult to prove how much “moral damage” Santander’s volte-face caused Orcel, he said the bank’s withdrawal created “considerable frustration, uneasiness, uncertainty and a certain discredit in the banking world.”
“The 10 million euros in moral damages is something that can be contested as it is quite high, although it is discretionary and up to the judge,” the independent lawyer said. Though sources close to Santander believe the appeal will be an opportunity to overturn the court ruling, one said “reducing the amount would also be a better scenario than the one the bank currently has.”
Santander declined to comment.
Orcel originally sought as much as 112 million euros from Santander for breach of contract and damage to his career. In May, he dropped part of his claim after he was appointed UniCredit CEO.
Analysts and academics said the court ruling highlighted potential flaws in the way Santander is run.
“It is not a good ruling in terms of corporate governance (…) and my concern is how this ruling is going to affect investors’ perception of governance,” said Jose Carlos Diez, an associate professor of economics at the University of Alcala de Henares.
In April 2019, some investors criticised the bank’s handling of the aborted hiring of Orcel at the first shareholder meeting after Santander’s U-turn.
Santander maintains the appointment was made in good faith and after a proper governance process that involved the entire board, specifically its nominations and remuneration committees, which met 13 times during the process.
Analysts, bankers and academics don’t see a big financial impact for Santander and believe the bank will be wary of making the same mistake twice.
“In the future the bank will be more careful when potentially searching for a new CEO or a high senior manager,” Quemada said.
($1 = 0.8873 euros)
(Reporting by Jesús Aguado Additional reporting by Emma Pinedo and Pamela Barbaglia in London; Editing by Rachel Armstrong and Mark Potter)