Old boys’ club still rules in German boardrooms
IF YOU put the CVs of Martin Winterkorn and Matthias Müller side by side, it would be hard to spot the difference.
After early positions at Audi, the outgoing and incoming Volkswagen (VW) CEOs spent 20 years hopping between development roles in the car maker’s 600,000employee empire. Winterkorn became Audi chief before graduating to head the whole group, while Müller made his penultimate stop at Porsche.
The supervisory board of the troubled parent company named Müller to replace Winterkorn, who stepped down amid a widening scandal over rigging emission test results.
That someone with such a similar background was picked to clean up the mess shows the insularity and clannishness of Germany’s corporate governance structure, says Charles Elson, director of the University of Delaware’s Weinberg Centre for Corporate Governance.
“I’m not surprised they went with an insider,” he says. “The company may say ‘who else can take charge?’ and that’s a fair point. But given what’s happened at VW and the breadth of it, they would be wiser to make a real break” and go outside the company for a new leader.
Berthold Huber, interim chairman of the company’s supervisory board, described Müller as “a person of great strategic, entrepreneurial and social competence. He knows the group and its brands well and can immediately engage in his new task with full energy”.
Müller was picked by the company’s 20-member supervisory board, 17 of them German or Austrian. Of the nine members of VW’s all-male management board, all but one are German or Austrian.
Lack of a broad international mix on that board, especially an executive with US experience, may have compounded VW’s problems in North America, according to Stefan Bratzel, director of the Centre of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “They never really had anyone on the board in Germany who had any sort of clout when it came to the US.”
Boards at most big German companies are predominantly male and lag behind companies in countries such as the UK and Sweden, which don’t have quotas for women, as well as Norway, which does.
While Europe’s largest economy is headed by Chancellor Angela Merkel, just 6% of management-board positions and 22% of supervisory-board seats are held by women at companies in the benchmark DAX Index, according to the German economy ministry.
In addition to its lack of gender diversity, Germany’s corporate-governance system is held back by its cliqueishness, says Henrike von Platen, president of the Business and Professional Women advocacy group in Berlin.
“If you meet someone on the board at one company, you happily take them with you to another one,” Von Platen says. “Trying to break into that and improve diversity is tough.”
Supervisory boards in Germany are supposed to act as a check on management boards and look broadly when seeking top talent. While they’re changing, they still have plenty of directors who have overlapping business interests and they tend to choose insiders for the CEO spot.
At VW and other German companies, supervisory boards consist equally of shareholder and employee representatives, although the chairman, usually from the shareholder side, votes in the event of a tie. The shareholder representatives are often executives at other big German firms, a legacy of the era when financial institutions held big stakes in German companies.
“It’s still an old boys’ network, and when it comes to top appointments, there’s more focus on who knows whom than on doing a broad search” that includes outsiders as well as insiders, says Bob Benson, head of RL Benson Associates, a consultant to executive search firms.
Change is coming. German MPs earlier this year voted to require more than 100 of the largest listed companies to allocate 30% of vacant supervisory board positions to women starting next year.
The hope is that as supervisory boards become more diversified, so will executive ranks. At Siemens, before American Lisa Davis was named head of energy operations last year, all of the company’s seven managementboard members were male. All but one of them was born within a 160km radius of Nuremberg, the Bavarian city that’s one of its major manufacturing hubs.
A second woman was named to the management board this year. CEO Joe Kaeser, who counts Daimler and Allianz among his supervisory boards, has worked at Siemens for 35 years.
Another firm that has been undergoing a board and management makeover is Deutsche Bank. After Paul Achleitner, a former executive at Allianz and Goldman Sachs, was named chairman in 2012, the bank announced the promotion of Anshu Jain and Jürgen Fitschen to co-CEOs. They replaced Josef Ackermann.
Eight of the 19 directors on the bank’s supervisory board have joined in the past three years, including two American women: former JP Morgan Chase chief financial officer Dina Dublon and attorney Louise Parent. The board has played an active role, replacing Jain with John Cryan and announcing that Fitschen will step down as CEO next year.
“This shake-up at Deutsche Bank is among the first signals I’ve seen that a new form of corporate governance is taking hold in Germany,” says Benson, the consultant to executive search firms.
Such changes are a way off at VW, where the Porsche and Piëch families hold a majority of voting shares and five seats on the supervisory board. Two of the family board members are women; other women include Annika Falkengren, CEO of Sweden’s Skandinaviska Enskilda Banken.
VW had said before the diesel scandal broke that chief financial officer Hans Dieter Poëtsch would take on the chairmanship of the supervisory board, pending approval by shareholders at a meeting set for November 9. He joined VW in 2003.
“The supervisory board’s choice of corporate insiders as CEO and chair-elect also raises some real doubts whether the key shareholders have recognised the need for fundamental reform and a real new beginning,” says HansChristoph Hirt, a Londonbased fund manager at VW shareholder Hermes Investment Management, adding that there might have been little alternative to new incumbent Müller.
Müller, whose contract as CEO goes until 2020, had run the maker of the 911 sports car since October 2010. He boosted Porsche profit 62% over four years.
Deliveries are on track to surpass 200,000 vehicles for the first time this year, with the addition of new models such as the Macan.
“My most urgent task is to win back trust of the VW Group by leaving no stone unturned and with maximum transparency, as well as drawing the right conclusions from the current situation,” Müller, 62, said.
If you meet someone on the board of one company, you happily take them with you