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Hermes EOS to provide qualified support for the Chair of Deutsche Börse

Ahead of the Deutsche Börse AGM on Wednesday 16 May, Dr Michael Viehs, Associate Director of Responsibility, comments on Hermes EOS’s voting recommendations and the qualified support for the re-election of Joachim Faber, the Chair of the supervisory board.

Specifically, Hermes EOS recommends its clients and other investors to:

  • Vote against the discharge of the company’s former CEO Carsten Kengeter and the Chair of the supervisory board, Joachim Faber
  • Provide qualified support for the re-election of Joachim Faber, the Chair of the supervisory board, and call for clarity around his succession by the time of the AGM in 2019
  • Vote for the supervisory board nominees

Votes against the discharge of CEO and Chair
We recommend our clients to vote against the discharge of the former CEO Carsten Kengeter1. In light of the external investigation into his alleged insider trading relating to an ill-designed remuneration system, Mr Kengeter stepped down as the CEO in the second half of 2017. We question Mr Kengeter’s role in the proposed merger with the London Stock Exchange (LSE). In interviews following the failed merger deal, he openly admitted that the preparation for the proposed merger has not been “ideal” and that the company communicated poorly with its key stakeholders about the benefits of the merger.2 In our view, this raises concerns about the proper execution and planning of the proposed deal by the executive management team.

We also recommend to vote against the discharge of the Chair of the supervisory board, Joachim Faber. He played an active role in the proposed merger negotiations with the LSE. As Chair, together with Mr Kengeter, he is thus ultimately responsible for apparent mistakes in the communication with key stakeholders and in the preparation and execution of the proposed merger with the LSE. We also believe that the company’s questionable executive remuneration system, designed by the supervisory board under the leadership of Mr Faber, played a key part in the alleged insider dealing of the former CEO, as it required him to make significant investments into the company’s shares at a specific point in time – allegedly when the negotiations with the LSE were already ongoing. Finally, the Chair bears ultimate responsibility for the way the ongoing investigation was handled and given the circumstances, allowed Mr Kengeter to remain in position for too long.

Qualified support for re-election of Joachim Faber
Despite our recommendation to vote against the discharge of Mr Faber, we support his re-election for a three-year term as part of an orderly transition of the supervisory board Chair. Given the aforementioned concerns, we have some reservations about his re-election but the current transition phase of the company with a new CEO and no candidate for Chair succession requires the company to have some continuity in the leadership of the supervisory board.

At the same time, we request Mr Faber to not serve for the full three-year term. We expect him to provide clarity on his succession by the time of the AGM in 2019. This should also involve a dialogue with investors and a discussion about the suitability of incumbent supervisory board members for the Chair’s role. The company needs to move on from the failed LSE merger and the insider dealing allegations and this requires further renewal in the supervisory board and a new Chair.

Supervisory board elections
Hermes EOS will support the election of the three new nominees to the supervisory board, Martin Jetter, Barbara Lambert and Joachim Nagel, as they will strengthen the supervisory board’s breadth of experience and expertise in financial services and technology. We also recommend to vote for the re-election of the incumbent supervisory board members Ann-Kristin Achleitner, Richard Berliand, Karl-Heinz Flöther, and Amy Yip.

1The annual formal vote of discharge for the management and supervisory boards gives shareholders the opportunity to approve or disapprove the boards’ actions taken in the last fiscal year. It is effectively a vote of confidence but has no legal consequences.

2Handelsblatt (19 April 2017): “Deutsche Börse-Chef Kengeter gibt Fehler zu”, and Handelsblatt (7 September 2017): “Es war meine moralische Pflicht, dieses Angebot anzunehmen”.

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