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Siemens – Taking action on governance and strategy

Our engagement with Siemens has been longstanding and constructive, with the company as a rule receptive to our input on the management of its compliance crisis, refreshment of its supervisory board in 2008 and overhaul of its management and supervisory board remuneration systems. In recent years, our focus has been on succession of the chair and the effective implementation of the company’s strategy, with a focus on portfolio optimisation and strengthening project management.

What we did
At the 2014 AGM, we raised strong concerns about the composition and work of the supervisory board on behalf of our clients and a group of institutional investors from around the world, following intensive private engagement with Siemens at all levels, including the chair. We questioned the ability of the supervisory board to challenge and support the management board on key strategic issues. Our criticism was primarily directed at the CEO change in 2013, which appeared ill-prepared and poorly executed. It also related to the implicit understanding of major shareholders in the company that the chair would not serve a full term following his re-election for a third term in 2013.

The company has reacted decisively to our criticism at the AGM in 2014, which was shared by the largest German institutional investors. It carried out an externally facilitated board evaluation, revamped a key committee and proposed to replace two supervisory board members at the 2015 AGM – three years prior to the expiry of their mandates.

The replacement of two members of the supervisory board at the 2015 AGM, following another change to its composition in late 2013, is remarkable, given that all 10 shareholder representatives were elected for five year terms in January 2013. Even though the chair now seems likely to stay until 2018, we are pleased with the progress we have seen since the 2014 AGM, as the supervisory board’s technology and innovation experience and skills have been significantly strengthened by its new members. Although one of the candidates elected at the 2015 AGM highlighted that he is not available to take over from the current chair due to the board’s refreshment since late 2013, there now appear to be potential successors for the chair.

At the 2015 AGM, we welcomed the progress the company has made in refreshing its supervisory board while seeking more detailed information about its board evaluation. We also challenged the new strategy and the acquisition of US company Dresser-Rand. Furthermore, we urged the management board to focus on executing the portfolio optimisation plan and strengthening project management.

We will concentrate on both topics in our future engagement with the company.

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