Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

VW's investors have paid a high price for their hands-off approach to owning the German carmaker. In the wake of the diesel emissions scandal, VW needs outspoken, activist shareholders to press it to change gear.

Engine Stalling
Volkswagen shares have tumbled in the wake of the emissions scandal

VW has long traded at a discount to other carmakers. That's in part due to governance risks, including an almost total lack of independent shareholders on the supervisory board. Excluding Qatar Holding, outsiders held only 12 per cent of VW's voting shares and had very little dialogue with VW's chairman. Yet so long as the share price rose, and the dividends rolled in, most investors saw little reason to lose sleep.

VW Shares Trade at Long-Term Discount to BMW

Now, with the bill for the diesel emissions scandal rising to 25 billion euros, according to Barclays estimates, and VW's share of the European car market shrinking, entrusting all that capital to the carmaker without properly holding its management to account looks, well, reckless.

It's never easy for outside shareholders to detect corporate wrongdoing. But VW's shareholders weren't even there: at the carmaker's annual general meeting in May, no major fund managers turned up. This absence was particularly odd given that VW had only weeks earlier gone through a bruising leadership battle which had threatened to topple then CEO Martin Winterkon.

Now, some VW investors are planning to sue VW for failing to inform them of the cheating before they bought shares. This is also wrong. Any compensation would need to be paid out of VW's cash -- investors' own money.

Instead of suing, VW's shareholders should provide more constructive suggestions on how to fix it and insist the reforms begin before they inject fresh capital, should this be required by VW in coming months.

Of course there are reasons why a traditional activist investor might dismiss acquiring even a small stake in VW, despite the stock's 46 percent fall this year.

An outsider focussed on shareholder value over protecting jobs would receive a frosty welcome from the state of Lower Saxony, which has a 20 percent voting stake, and VW's workers, who occupy half the seats on the supervisory board. The chances of an activist investor obtaining a supervisory board seat at VW are probably nil.

Yet, the traditional sources of power and influence at VW have been undermined by their failure to detect and expose the diesel cheating over a period of several years.

And when Ferdinand Piech resigned as chairman in April, the Porsche-Piech family couldn't find anyone from their ranks to take over as chairman. Instead, VW turned to Hans-Dieter Poetsch, VW's former chief financial officer. He is more likely to be receptive to investor concerns. Now is therefore the best opportunity in a generation for shareholders to press for change at VW.

Some investors have already shown they are willing to put their mouths where their money is. Union Investment, which owns about 0.4 percent of VW preference shares, called last week for VW's new CEO Matthias Mueller to go because it sees the four-decade VW veteran as an impediment to a fresh start.

Activist investors should think about taking VW for a spin.

 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net