Europe’s the majority of aggressive activist investor has actually called for a radical overhaul of executive pay at Volkswagen, arguing “corporate excess on an epic scale” encouraged risk taking that contributed to the diesel emissions scandal.
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TCI, the hedge fund run by Sir Chris Hohn, has actually built up a €1.2bn stake in VW and has written to the company’s management and supervisory boards demanding reform of executive remuneration.
The German carmaker is reeling from the diesel emissions fraud, the worst crisis in its 79-year history, in which it accepted last September to installing defeat equipments in up to 11m diesel powered vehicles that offered to understate emissions of harmful nitrogen oxides in official tests.
VW reported a €1.6bn net loss for 2015 — its worst ever result, mainly as a result of costs stemming from the scandal. VW was additionally criticised by investors after it emerged that members of its management board secured bonuses for last year. Despite the fact that some remuneration was withheld, 12 current and former board members were paid €63.2m in total for 2015.
“The dirty secret of Volkswagen group is that for years management has actually been richly rewarded along with massive compensation despite presiding over a productivity and profit collapse,” Sir Chris told the Financial Times.
“We believe that this excessive top management compensation . . . has actually encouraged aggressive management behaviour contributing to the diesel emission scandal.”
VW declined to comment on TCI, which has actually amassed a 2 per cent stake in the company’s taste stock.
The relocate versus VW ranks as among the highest profile assaults by an activist investor on a European firm because the financial crisis.
TCI accomplished notoriety along with campaigns that resulted in the resignation of the chief executive of Deutsche Börse, and the Dutch lender ABN Amro placing itself game sale.
In its letter to VW, TCI argued excessive executive compensation at the firm resulted in bad management performance, which in transform meant its firm had underperformed compared to European rivals.
“We impulse the introduction of a brand-new management remuneration system,” said TCI. “It ought to be submitted to a shareholder vote every year for formal approval. This will certainly demonstrate a respect for investors and instil essential alignment of shareholders and management.”
Among others things, TCI highlighted exactly how VW had double the lot of employees as Toyota however made comparable numbers of cars each year.
The hedge fund additionally said that because 2011 VW’s sales volumes, excluding its Chinese joint venture, had increased 8 per cent, while its overall wage bill had risen Much more compared to 50 per cent over the exact same period.
Investors have actually long complained concerning VW’s corporate governance.
The company’s 20-member supervisory board, which is meant to hold management to account, is split evenly in between workers and shareholders. However, critics said there were no really independent shareholder representatives.
The dirty secret of Volkswagen group is that for years management has actually been richly rewarded along with massive compensation despite presiding over a productivity and profit collapse
– Sir Chris Hohn, TCI
Less compared to 11 per cent of VW’s voting shares are freely traded. According to VW’s annual report, at the end of last year the Porsche and Piëch families owned 52.2 per cent of the company’s voting stock, while the state of Lesser Saxony — house to the carmaker’s Wolfsburg headquarters — had twenty per cent, and Qatar had 17 per cent.
By taking on VW as a minority shareholder, TCI is wanting to convince others investors to spine its campaign.
TCI argued that VW’s “abuse” of its minority shareholders meant numerous had sold their stock, leaving the firm significantly undervalued.
Christian Strenger, a German corporate governance expert, said that also prior to the emissions scandal VW shares historically traded at a 25 per cent discount to its peers, specifically as a result of investors’ pertains to concerning its board structures.
“The supervisory board is the main point of stress for all of substantial lasting shareholders and debtholders from outside Germany,” he said. “all of the big ones say, ‘This ought to not go on’.”
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