VW Holders Seek Expanded Emissions Probe
Germany’s largest investor association, DSW; Hermes Investment Management, a London-based fund with $34.67 billion under management; and Deminor, a Brussels-based company that advises institutional investors, are calling for a special independent audit to investigate Volkswagen’s management and supervisory board for “potential breaches of duty" in connection with the emissions scandal.
Volkswagen hired the U.S. law firm Jones Day last year to conduct an internal investigation to determine who was responsible for rigging diesel engines on nearly 11 million vehicles to cheat on emissions tests, one of the biggest incidents of corporate fraud to hit the automotive industry. Investors seeking an independent investigation said Jones Day’s mandate is too narrow.
“We believe the Jones Day investigation is not independent," Edouard Fremault, a partner at Deminor, said. “They are only looking at the management board. We want them to look at the supervisory board as well, so the scope of an independent investigation will be larger than the Jones Day investigation."
Mr. Fremault said Deminor represented Volkswagen investors that include the City of New York’s pension funds and Swedish pension fund Andra AP-fonden. SdK, the German association representing retail investors, also backs the motion.
Hans-Christoph Hirt, co-head of the Hermes Equity Ownership Services fund, said in a letter to Volkswagen that the executive board failed to monitor lower-level management and informed the market too late about the emissions scandal.
He said that the supervisory board lacked independence and that executive compensation for 2015 probably violated German stock corporation law.
“We believe the management board has failed to ensure compliance with laws and regulations," Mr. Hirt said, adding that the supervisory board lacked a sufficient number of independent directors. “This may have contributed to the apparent deficiencies in its monitoring of the management board."
Shareholders likely represent enough shares to put the motion on the agenda at the annual general meeting in Hannover on June 22, but they will need the backing of Volkswagen’s core shareholders for it to pass. If the motion fails, investors can appeal in a German court, which can overrule the general meeting.
Three big shareholders–the heirs to Beetle designer Ferdinand Porsche, the state of Lower Saxony and the Qatar sovereign-wealth fund–own about 92% of Volkswagen’s voting capital. These three shareholders hold nine seats on the 20-member supervisory board, while labor representatives hold 10 seats, leaving one independent director, Annika Falkengren, CEO of Skandinaviska Enskilda Banken AG.
The three big shareholders in September backed Volkswagen’s decision to have Jones Day conduct an internal investigation. However, Volkswagen management and not Jones Day has the last word on publication of the results of that investigation, which is expected to be concluded by the end of the year.
A Volkswagen spokesman declined to comment on the shareholder allegations.
A spokesman for Porsche Automobil Holding SE, the Porsche-Piech family fund that holds 52% of Volkswagen’s voting stock, and the state of Lower Saxony also declined to comment. Qatar wasn’t immediately available for comment.
The move to force Volkswagen to launch an independent investigation into the Dieselgate scandal comes on the heels of growing shareholder activism.
Hundreds of Volkswagen shareholders including major investment funds such as Calpers, the California public employees retirement fund, and Norway’s sovereign-wealth fund have are seeking damages for losses suffered when the emissions fraud became public in September.
Chris Hohn, the activist investor who founded the Children’s Investment Fund, or TCI, wrote a scathing public letter to Volkswagen earlier this month, prompting the auto maker to pledge to overhaul the way it compensated top management.
Volkswagen said last month that it had set aside €8 billion ($9 billion) to repurchase tainted diesel-powered cars and around €7 billion more for potential legal claims, penalties and compensation. DSW said an independent investigation was needed to clarify whether those provisions were sufficient and to make sure that controls and checks have been put in place to prevent further scandals.
“That’s something that shareholders would certainly prefer to have established by an independent investigator rather than Volkswagen itself," DSW President Ulrich Hocker said. William Boston and William Wilkes/The Wall Street Journal