With 295,000 employees in Germany and 24 plants across its home country, it is hard to overstate Volkswagen’s importance for Europe’s largest economy. The Wolfsburg-based conglomerate is one of Germany’s biggest industrial employers and a centre of gravity for a network of suppliers.
From a short- to medium-term perspective, the Volkswagen empire has just become much more stable. Last month’s listing of a minority stake in sports car maker Porsche generated a high-value currency in case it needs to raise funds. Volkswagen still owns 75 per cent of Porsche’s voting and non-voting stock. It could easily raise billions of cash should the group need it for something like paying for the transition to electric vehicles.
However, the Porsche initial public offering could prove a major headache in the long run, as it makes the conglomerate’s already cumbersome corporate governance even more complex. Is that good for Germany?
After the listing of Porsche AG, investors seeking exposure to the Volkswagen empire can now choose between buying equity in four different listed entities: the overall group (Volkswagen AG), its sports car brand (Porsche AG), its trucks business (Traton SE) and a holding company that owns the Porsche-Piëch clan’s voting stock in Volkswagen AG and Porsche AG (Porsche SE).
These are bound together in a web of cross-shareholdings effectively controlled by the Porsche-Piëch family through its grip on voting shares. The listed companies are notionally independent and run by separate executive boards overseen by their respective supervisory boards. But be in no doubt — the shots are called by the Porsche-Piëch clans.
An overlap in personnel across the group’s eight different boards highlights and reinforces this grip. Eleven individuals — nine of them men — hold positions on boards of at least two different companies.
Five of them are even on at least three different boards. Key man Hans Dieter Pötsch chairs the supervisory boards of Volkswagen and Traton, is the chief executive of Porsche SE and sits on the supervisory board of Porsche AG. Oliver Blume doubles up as CEO of Volkswagen and Porsche AG. Volkswagen’s head of legal Manfred Döss is also in charge of compliance at Porsche SE while being a member of Traton’s supervisory board.
This complex web of crossholdings, share listings and individual responsibilities does more than just create additional overhead costs. It can raise questions over conflicts of interest.
Just take a look at the roles of Lutz Meschke, chief financial officer of Porsche AG. It might be in Porsche AG’s interests to keep dividends low to preserve cash. But as head of investment management at Porsche SE, he might want to receive as much payments from Porsche AG as possible.
Advisors to the group state that the relationship between Volkswagen, Porsche and the other entities is clearly legally defined. Prior to the Porsche AG IPO, a legal agreement that gave Volkswagen full control over the cash flows and day-to-day decisions at Porsche AG was cancelled. Without such a pact, the management is required under German law to pursue the best interest of the whole corporation.
However, the Porsche-Piëch clan and VW could put a new agreement in place with the stroke of a pen given its voting rights. This might be a purely theoretical option as such a move would be likely to hit investor confidence. But should the preferences of the family change, there might be little external shareholders can do against it.
External investors basically have a limited voice. In Porsche SE and Porsche AG, the voting shares are not publicly traded at all. In VW’s case, the state of Lower Saxony and Qatar’s sovereign wealth fund also have significant holdings of voting shares. Lower Saxony’s government wields special veto rights on issues such as takeover offers. And the feisty IG Metall metal workers union has a big influence at VW.
Owning stock in Porsche AG requires faith in the management capabilities of a corporation that has a spotted record in areas such as compliance with emissions rules as well as capital market communication. For now, investors have chosen to ignore the potential pitfalls, lured by Porsche’s growth and profitability. Should this bet go wrong, it would not just be painful for them. Given Volkswagen’s sheer size and scope, it would be a blow to the wider German economy.
olaf.storbeck@ft.com
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