Volkswagen needs to tear up its complex corporate governance structure in the wake of the emissions scandal that knocked a further 10 per cent off its share price yesterday, according to investors and governance experts.
Volkswagen needs to tear up its complex corporate governance structure in the wake of the emissions scandal that knocked a further 10 per cent off its share price yesterday, according to investors and governance experts.
They called for a radical overhaul that would involve the families, state government and sovereign wealth fund that are its biggest shareholders giving up seats on the carmaker’s supervisory board.
Their comments were underscored when US agency Moody’s downgraded VW’s debt rating, following a similar move by Standard & Poor’s last month.
Moody’s cited the risk to VW’s earnings from the latest revelations of issues with the carbon dioxide emissions of 800,000 cars and allegations from US regulators this week that cheating over nitrogen oxide emissions in 11m diesel-powered vehicles extended to some luxury cars, including a Porsche model.
“These new claims . . . heighten Moody’s concerns about Volkswagen’s internal control and governance issues,” said Yasmina Serghini-Douvin, Moody’s lead analyst for Volkswagen.
Only one member of VW’s 20-strong supervisory board is seen as independent. The Porsche and Piëch families have five directors. The state of Lower Saxony and a Qatari fund hold two each. The three shareholders together hold 90 per cent of voting shares. Workers and unions have 10 board seats.
“Looking at the people on the board would be a useful starting point [for reform]. Do you need the two politicians? Do you need four or five Porsche/Piëch representatives? Could you not get somebody with better experience?” said Hans Hirt, director at activist investor Hermes Equity Ownership Services.
Christian Strenger, a member of Germany’s corporate governance commission, said that the supervisory board’s control mechanism had been deficient. “Five out of the 10 shareholder seats should represent fresh blood. That is a prerequisite for a real return to normality,” he said.
The volume of revelations has raised serious doubts about VW’s insistence that only a rogue band of engineers were involved. “The latest revelations obviously suggest it is endemic and systematic across VW,” said Max Warburton, analyst at Bernstein Research. VW shares fell up to 10 per cent to just over €100 yesterday and other carmakers also saw their shares hurt as investors fretted that the CO2 issue could ensnare more manufacturers.
VW claims it is taking decisive action, ousting its chief executive in September and replacing him with Matthias Müller, former head of Porsche. It also appointed a new chairman, former VW finance director Hans Dieter Pötsch.
“The new people are probably better. But the fundamental problem is not really the CEO or the chairman but the culture, processes and the decision-making in the supervisory board,” said Mr Hirt.
