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A veteran German asset manager has blamed Volkswagen’s “flawed” corporate governance for its share price underperformance and criticised its controlling shareholders for failing to address the issue.
“Ever since the diesel scandal, the flaws [in Volkswagen’s governance] have become clearly evident,” said Bert Flossbach, co-founder of Flossbach von Storch, which has €70bn of assets under management and is one of Germany’s most successful independent investment businesses.
The firm owns VW bonds but has not been an investor in its shares for years, Flossbach told the Financial Times in an interview. “We are aware of Volkswagen’s low [stock market] valuation but do not see any catalyst that could offset the discount to peers.”
Shares in VW have fallen more than 50 per cent over the past 18 months. Decision-making and controls at one of Europe’s largest industrial employers were “highly complex and tangled”, said Flossbach. This has weighed down on VW’s profit margins and share price, with investors concerned about the group’s transition to electric vehicles, its dependence on China for sales and profits and its governance.
Flossbach pointed out that Italian luxury sports-car maker Ferrari, which is more than 50 times smaller than Volkswagen by revenues, has a larger market capitalisation than VW. “This just beggars belief,” he said.
VW has a two-tier system of voting and non-voting stock, a significant governance problem according to Flossbach, because it gives disproportionate influence to the two dominant shareholders: the billionaire Porsche-Piëch family and the State of Lower Saxony. Between them, they control 73.3 per cent of the voting rights despite owning only 43.7 per cent of the equity.
“If the Porsche family announced tomorrow that it, jointly with the State of Lower Saxony, decided to convert all non-voting shares into voting stock . . . the share price would immediately sky rocket,” said Flossbach.
However, he added that the probability of this happening was “zero” because the Porsche-Piëch family was driven by “goals which are not of a financial character”. Control over the company appeared an end in itself for the family and they held on to their VW voting rights “like a petulant child in kindergarten clutching their toys”, according to Flossbach, adding that Lower Saxony’s goal was to have as many VW jobs as possible in its state.
He warned that the current governance meant that VW management was “basically handcuffed”, lacking the agency to make large cost cuts, move production overseas or break up a sprawling business that sells products ranging from motorcycles to ship engines.
VW, the Porsche-Piëch family and Porsche SE, which holds the family’s VW voting stock, declined to comment.
The State of Lower Saxony said that Flossbach’s criticism was “incorrect”, arguing that VW supervisory board members appointed by the state focused only on what was in the best interests of the company, as required by German law.
While VW sells about 12 per cent of its cars in Germany, 43 per cent of its workforce is employed in the country, where labour costs are significantly higher.
“As much as we like to see hundreds of thousands of Volkswagen jobs in Germany, this is probably unrealistic in the long term,” said Flossbach, adding that the company’s priorities were “a catastrophe for the firm in the long run”.
Cologne-based Flossbach von Storch was founded in 1998 by Flossbach and his former Goldman Sachs colleague Kurt von Storch.