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Hermes EOS to raise investors’ concerns at the Volkswagen AGM

2 May 2018

Ahead of the Volkswagen AGM on Thursday 3 May, Dr Michael Viehs, Associate Director of Responsibility, comments on Hermes EOS’ voting recommendations and highlights the issues the company urgently needs to address:

Recommendation to vote against the candidates proposed for election to the supervisory board

  • A call for an external supervisory board and corporate culture review
  • A commitment from the company to enter into a dialogue about the effects of climate change on its business model

Supervisory board elections

“Volkswagen has nominated Marianne Heiß and Wolfgang Porsche for election to its supervisory board. We recommend our clients vote against both of these nominations. The election of the candidates will result in a board with almost zero independent representation, which clearly goes against good corporate governance practice.

“The company’s choice of the two candidates is disappointing. The supervisory board has yet again missed another chance to enhance its independence and fill the – in our view – obvious experience and skills gaps. For us, as shareholder representatives, this casts doubt on whether the supervisory board has really understood that a governance overhaul remains paramount in the light of the emissions scandal.

“It has been nearly three years since the emissions scandal broke and we urgently need to see tangible and credible evidence of improving governance. We urge the company to conduct and report on an externally-facilitated supervisory board evaluation to identify experience and skills gaps and confirm the need for more independent expertise.”

Review of corporate culture

“We recognise that Volkswagen is working towards improving its culture, integrity and compliance systems. However, we believe that the efforts to date lack an analytical basis, are insufficiently focused on a broad definition of corporate culture and remain vague on key performance indicators. We urge the company to undertake a systematic, independent review and analysis of the role corporate culture played in the emissions scandal.

“This independent review should take a similar form to the so-called “Salz Review” that Barclays Plc commissioned in 2013 to analyse weaknesses in the behaviour of employees and the culture of the bank following the Libor-rigging scandal. For further guidance on conducting an effective review, the management and supervisory boards can also look to the “Woolf Committee Report” that BAE Systems Plc commissioned in 2008 to report on the company’s ethical policies and processes following bribery and corruption allegations.

“We believe that a demonstrably changed corporate culture and appropriate transparency around the issues are key prerequisites for Volkswagen’s successful transition towards becoming a leading provider of sustainable mobility.”

Climate change

“We support the newly launched investor initiative Climate Action 100+, which identifies the world’s 100 largest greenhouse gas emitters, including Volkswagen, based on estimations from the CDP. Therefore, we are calling on Volkswagen to commit to an enhanced dialogue with investors around climate-related issues. It has made some progress adjusting its business model to remain successful in a low carbon environment by emphasising electrified and autonomous vehicles. However, it has further to go and we strongly encourage the company to extend its reporting on climate change to be consistent with the final recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).”

The views and opinions contained herein are those of the author and may not necessarily represent views expressed or reflected in other Hermes communications, strategies or products. 

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