After a decade-long engagement with the automotive manufacturer, Hermes has initiated a counterproposal, urging investors to vote against the discharge of the management and has initiated a request for a special audit of the supervisory board.
The investment management company cited VW’s “continuous disregard of fundamental governance principles” as one of the chief factors that led to VW’s emissions scandal and allowed it to remain undetected for years.
“The board is, in our view, short of people with the relevant experience and skills and – significantly – independence from the key shareholders, which would enable it to function as an effective control and advisory body,” stated Hermes EOS co-head, Dr Hans-Christoph Hirt. “Given the size and global presence of Volkswagen, we do not believe its current supervisory board can adequately protect the interests of all stakeholders, including those of investors.”
The emissions scandal, which came to light on 18 September 2015, resulted in losses exceeding €4bn in the fiscal year 2015 and sent VW’s share price downward by approximately 23%.
In a letter to shareholders, new chairman of the board of management, Matthias Müller, announced that even during this time of crisis, the company would propose a dividend of €0.11 per ordinary share and €0.77 per preferred share during the AGM on Wednesday. “Without the negative special items, we would once again have been able to talk about a successful year overall,” he said.
Porsche Automobil Holding SE, which owns 52% of VW’s shares, recently reversed its position and came out in favour of VW’s plan to reward shareholders with the proposed dividend. At the time, several interested parties were cited as saying the move was short-sighted as the automotive manufacturer should maintain its reserves for the oncoming onslaught of lawsuits and losses.
Hermes has also criticised VW’s current remuneration system: “The plan lacks transparent, meaningful and challenging performance criteria and a sufficient long-term orientation aligned with the time it takes to devise and implement a strategy in the automotive sector. As such, it fails to adequately align the interests of the management board with those of long-term shareholders interested in sustainable value creation,” Hirt said.