© Reuters. A new logo for German automaker Volkswagen is unveiled at Volkswagen’s headquarters in Wolfsburg, Germany on September 9, 2019. REUTERS/Fabian Beamer/
Written by Jan Schwartz and Victoria Waldersee
HAMBURG/BERLIN (Reuters) – As Volkswagen (ETR) returns to its strategy of boosting stock market value, investors have warned that its efforts will be wasted if it does not address the real problem in the room: the lack of a succession plan for its supervisory board.
The market needs to see who will take over when the octogenarian bosses of the controlling shareholder — the Porsche-Pisch family — retire, according to Deka, Union Investment and DWS, three of the automaker’s 20 largest shareholders.
The company plans to run a series of capital markets days in the coming months for each of its brands, which it hopes will boost valuations in freefall from mid-2021.
When the presentation of their strategy at the company’s Capital Markets Day in June failed to impress investors — shares fell 2.5% on the day — company representatives said future capital market days would turn the tide.
But multiple sources were skeptical of that, unless Volkswagen’s governance issues were addressed.
The luxury carmaker’s listing in September was the right time to hand over power, Hendrik Schmidt, corporate governance expert at DWS, the asset management arm of Deutsche Bank (ETR:) he said.
“We have repeatedly asked for a long-term transition plan for the Supervisory Board and encouraged a generational change,” Schmidt said.
The stake suffers from a ‘governance discount’, said Ingo Spisch, head of sustainability and corporate governance at Deka Investment, a Volkswagen shareholder.
There are certainly other issues weighing on Volkswagen’s stock market performance, from high capital costs and risks in China to concerns about its ability to maintain market dominance in the age of electrification.
“In almost every criterion, investors have a better alternative to investing in the automotive sector than Volkswagen,” said Arndt Ellinghorst of Quantco.
“Not perfect, it takes a long time”
Wolfgang Porsche and Hans-Michael Piech, both over 80, are the oldest successors to the Porsche and Piech families that founded the Volkswagen Group.
The two men sit on the boards of both Volkswagen and Porsche SE, the holding company that owns 31.9% of Volkswagen and has 53.3% voting rights, essentially controlling Europe’s largest automaker.
“If a stone fell on my head, the question of the heir would be taken care of,” Wolfgang Porsche said in a recent interview with the Stuttgarter Zeitung, without giving further details.
A source close to the matter, who asked not to be named, said, however, that the families understand the need for clarity.
One of the possible successors as head of the Porsche family is 62-year-old Ferdinand Oliver Porsche, who is currently a member of the board of directors of Porsche SE, Volkswagen, Audi and Porsche AG.
“Oliver Porsche will certainly represent and take over Wolfgang Porsche at some point,” the source said.
On the Bish side, Sophie Peach, 29, and her brother Stefan Peach, 52, are both potential candidates to succeed the role of boss of the Pish family, the source said.
“It’s not ideal for it to take so long,” the source said.
Beyond the issue of the succession plan, analysts pointed to weaknesses in the board’s impartiality and qualifications.
Eight out of ten members are direct representatives of the three largest Volkswagen shareholders: the Porsche and Piech families, Lower Saxony, or Qatar.
Analyst Daniel Schwartz of Stifel noted in a recent report that four of them are lawyers and none of them have professional qualifications, which limits the extent to which they can advise management on issues such as digitization and electrification.
“When you compare the situation at Volkswagen with other companies, Volkswagen comes out poorly,” Schwartz said, referring to the Mercedes-Benz board of directors where many members have expertise in chemistry, software and luxury goods.