Now, you might have been living under a rock if you have not noticed the on-going scandal, or perhaps disaster, at Volkswagen. Normally, a corporate scandal would not get me in enough of a bind to write a post about it, because it has become something of a regularity in one sector or another. So why have I merited this one for attention.
Well, it was after the comments from one of its directors, Olaf Lies, that I decided to write a short piece here. See here for a report and here for analysis. Yes, Mr Lies is one of VW's directors on the supervisory board. This is not the kind of stuff you can make up (albeit this BBC News reporter here humorously goes to great lengths to pronounce his surname how it should be, at around 1:20). It was his comments that particularly got me motivated.
My interest started when Martin Winterkorn, former CEO of Volkswagen, resigned in wake of the crisis stating that he was "not aware of any wrongdoing on my part" and was stepping down in the best interests of the company. He also noted he was "shocked" and the firm needed a "fresh start". Now I am pretty sure most articles on the subject of his resignation could have dispensed with such lengthy pieces to simply state: "shock horror! CEO denies knowing what is going on in the company...again". I for one have had enough of these CEO's claiming they knew nothing and desperately trying to cling to power! Remember Bob Diamond of Barclays anyone?
Many have commented on Winterkorn's attention to detail, so I would certainly agree that if he didn't know, he should have. He has also previously been VW's head of Group Quality Assurance and been in the car industry for over 20 years. But let's even say he genuinely did not know, what is he paid this much money for to do? (in case you were wondering, in 2014 Winterkorn received around 15m EUR in remuneration, see here and below). Selling cars is what VW do, and he did not know. When he found out, he described himself as shocked. At least stand up and acknowledge your own failings of not providing appropriate oversight within your company. It is the company you control and the buck stops there. The whole point of having separate legal personality for companies was to stop shareholders, who did not run the company, being personally responsible for the decisions of others. Yet here we have a controller denying responsibility for his own job and ultimately it is the shareholders feeling the pinch due to tumbling share prices.
Yet I get distracted. From Winterkorn then we get a statement from Mr Lies, claiming those responsible should be criminally liable. It might as well be an admission of guilt, or at least unlawfulness, because you as a board member are responsible for the company you control and the people you delegate to. It is you Mr Lies and other board members who must take responsibility for failing in providing that oversight. You are a supervisory board member, but where was the supervision for the 400,000 EUR that you receive? (NB: the majority of his fee does go to the state of Lower Saxony) Whilst others might have been complicit in the scandal it is another thing to try and shift all the blame on to the employees who were most likely working under onerous targets set by, yes, the board and senior managers.
Mr Lies openly admits to only having just found out about the problems in the "last board meeting". But Mr Lies is a well connected man as the economy minister of Lower Saxony where VW is based. Is it plausible for a man of his position not to have known. Perhaps he did not know because his workload is too demanding. Mr Lies hold 5 other directorships as well as being the economy minister and a board member at VW, see here. The German Corporate Governance Code permits a supervisory board member to have a maximum of 10 additional appointments but this must raise serious questions about that provision. Or perhaps the board was simply too large for anyone to do anything? The supervisory board has 20 members. If the company is forced to trim the fat surely it should start from the top? Perhaps I am optimistic in ignoring the fact the savings that will have to be made will be more likely borne by employees, shareholders, creditors and customers?
Sure Winterkorn has lost his position and Lies might lose his, but this is minor in comparison in respect of what will happen to these other groups of individuals. Lies still holds several other positions to supplement his income. Winterkorn is listed as a board member at Bayern Munich in VW's 2014 annual report. Not to mention his hefty remuneration again, is probably enough to keep him going, which I have copied here.
So in summation, corporate law and governance is exposed. Law in its failings to punish the right people, and governance for not incentivising people sufficiently.
Well, it was after the comments from one of its directors, Olaf Lies, that I decided to write a short piece here. See here for a report and here for analysis. Yes, Mr Lies is one of VW's directors on the supervisory board. This is not the kind of stuff you can make up (albeit this BBC News reporter here humorously goes to great lengths to pronounce his surname how it should be, at around 1:20). It was his comments that particularly got me motivated.
My interest started when Martin Winterkorn, former CEO of Volkswagen, resigned in wake of the crisis stating that he was "not aware of any wrongdoing on my part" and was stepping down in the best interests of the company. He also noted he was "shocked" and the firm needed a "fresh start". Now I am pretty sure most articles on the subject of his resignation could have dispensed with such lengthy pieces to simply state: "shock horror! CEO denies knowing what is going on in the company...again". I for one have had enough of these CEO's claiming they knew nothing and desperately trying to cling to power! Remember Bob Diamond of Barclays anyone?
Many have commented on Winterkorn's attention to detail, so I would certainly agree that if he didn't know, he should have. He has also previously been VW's head of Group Quality Assurance and been in the car industry for over 20 years. But let's even say he genuinely did not know, what is he paid this much money for to do? (in case you were wondering, in 2014 Winterkorn received around 15m EUR in remuneration, see here and below). Selling cars is what VW do, and he did not know. When he found out, he described himself as shocked. At least stand up and acknowledge your own failings of not providing appropriate oversight within your company. It is the company you control and the buck stops there. The whole point of having separate legal personality for companies was to stop shareholders, who did not run the company, being personally responsible for the decisions of others. Yet here we have a controller denying responsibility for his own job and ultimately it is the shareholders feeling the pinch due to tumbling share prices.
Yet I get distracted. From Winterkorn then we get a statement from Mr Lies, claiming those responsible should be criminally liable. It might as well be an admission of guilt, or at least unlawfulness, because you as a board member are responsible for the company you control and the people you delegate to. It is you Mr Lies and other board members who must take responsibility for failing in providing that oversight. You are a supervisory board member, but where was the supervision for the 400,000 EUR that you receive? (NB: the majority of his fee does go to the state of Lower Saxony) Whilst others might have been complicit in the scandal it is another thing to try and shift all the blame on to the employees who were most likely working under onerous targets set by, yes, the board and senior managers.
Mr Lies openly admits to only having just found out about the problems in the "last board meeting". But Mr Lies is a well connected man as the economy minister of Lower Saxony where VW is based. Is it plausible for a man of his position not to have known. Perhaps he did not know because his workload is too demanding. Mr Lies hold 5 other directorships as well as being the economy minister and a board member at VW, see here. The German Corporate Governance Code permits a supervisory board member to have a maximum of 10 additional appointments but this must raise serious questions about that provision. Or perhaps the board was simply too large for anyone to do anything? The supervisory board has 20 members. If the company is forced to trim the fat surely it should start from the top? Perhaps I am optimistic in ignoring the fact the savings that will have to be made will be more likely borne by employees, shareholders, creditors and customers?
Sure Winterkorn has lost his position and Lies might lose his, but this is minor in comparison in respect of what will happen to these other groups of individuals. Lies still holds several other positions to supplement his income. Winterkorn is listed as a board member at Bayern Munich in VW's 2014 annual report. Not to mention his hefty remuneration again, is probably enough to keep him going, which I have copied here.
| MARTIN WINTERKORN | ||||
|---|---|---|---|---|
| Chairman of the Board of Management, Research and Development | ||||
| € | 2014 | 2013 | ||
| Fixed remuneration | 1,617,025 | 1,486,525 | ||
| Fringe benefits | 300,453 | 421,337 | ||
| Total | 1,917,478 | 1,907,862 | ||
| One-year variable remuneration | 3,148,000 | 3,001,000 | ||
| Multiyear variable remuneration | 10,796,000 | 10,097,000 | ||
| Business performance bonus (two-year period) | 6,296,000 | 6,002,000 | ||
| LTI (four-year period) | 4,500,000 | 4,095,000 | ||
| Total | 15,861,478 | 15,005,862 | ||
| Pension expense | 0 | 0 | ||
| Total remuneration | 15,861,478 | 15,005,862 | ||
So in summation, corporate law and governance is exposed. Law in its failings to punish the right people, and governance for not incentivising people sufficiently.
Very interesting insight David. I am amazed by these directors who do not seem to understand their responsibilities.
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