VW faces backlash over corporate governance and pay

来源:financial times 更新时间:2017/05/12 阅读次数:39

Volkswagen faces a backlash over corporate governance and pay at its annual shareholder meeting on Wednesday as critics accuse the group of allowing standards to deteriorate since the 2015 diesel emissions scandal.

Three leading investor advisory groups are recommending votes against the German carmaker’s new compensation scheme, which attempts to align pay more closely with company performance.

Institutional Shareholder Services, a UK-based proxy adviser, Deminor, a Brussels-based firm specialising in shareholders’ rights, and Hermes Equity Ownership Services, which advises 20 VW institutional investors, are also recommending votes against members of both the management and supervisory boards.

The company will not suffer shareholder defeats as VW is in effect a family-owned business, with the Porsche and Piech families owning 52 per cent of the voting rights.

Lower Saxony owns 20 per cent and the state of Qatar owns a further 17 per cent. This gives other shareholders just 11 per cent of the voting rights.

However, it is still a setback for the group as it attempts to put the emissions scandal behind it.

The three advisory groups say senior individuals have not been held accountable for the cheating, a long-promised report on the scandal never surfaced, and efforts to revamp culture have been weak. 

ISS has given VW its worst possible rating on corporate governance, Hermes says the group’s progress has “underwhelmed”, while Deminor is highly critical of the company’s culture.

The culture has “worsened” with management “collect[ing] its bonuses or variable pay as if nothing has happened,” Deminor says. 

The criticism paints a damning portrait of VW, given that the company acknowledged in 2015 that a certain “mindset” contributed to the scandal, in which up to 11m cars were equipped with emissions test-cheating software.

“We are talking here not about a one-off mistake but a chain of errors,” said Hans Dieter Pötsch, chairman of VW’s supervisory board, in December 2015. 

The three groups said transparency deteriorated when VW refused to make public a report from Jones Day, a US law firm it hired to investigate the scandal, after months of promising that it would be published. 

Moreover, the abrupt departure earlier this year of Christine Hohmann-Dennhardt — a management board member hired after the scandal to lead integrity and legal affairs — “raises concerns about VW’s internal investigations . . . and engenders a sense of further mistrust in the management and supervisory boards’ ability to effectively handle the crisis,” ISS said. 

Edouard Fremault, partner at Deminor, said the first rule of corporate governance is to hold people accountable for their actions and restore trust with the market. “Here,” he said, there is “not the slightest indication that the top management or board of directors is even thinking about getting top guys accountable.” 

Dr Hans-Christoph Hirt, head of Hermes EOS, recommended VW take a cue from Barclays, which after the Libor-rigging scandal undertook “a systematic, independent review and analysis of what went wrong and the role corporate culture played in the scandal”. 

Ingo Speich, a portfolio manager at Union Investment, one of Germany’s biggest investment groups, also added: “We don’t see any significant improvement in VW’s corporate governance. On the contrary, we are very disappointed about Mr Pötsch’s broken promise to investors that the Jones Day Report would be published.” 

The biggest action VW has taken to date has been to revamp its pay package for executives. But the low hurdles have been met with criticism, particularly as limits on bonuses were coupled with increases in base pay. ISS complained of “unexplained and drastic increases in the base salary”.