Can Volkswagen Overcome Board Opposition to Push Through Its Overhaul?
Volkswagen's Turnaround Plan: Challenges and Stakeholder Dynamics
BERLIN/FRANKFURT, Aug 28 (Reuters) - Volkswagen's supervisory board is meeting in a week's time to discuss its biggest ever turnaround plan that has pitted management against unions and the state of Lower Saxony, its second-biggest shareholder.
Much is at stake for Europe's biggest automaker, which is struggling to revive profits as it battles U.S. tariffs, falling sales in China and intensifying competition from Asian rivals in Europe.
What is the Plan and Who Gets to Vote?
Currently, there are three turnaround proposals.
Management's Proposal
Management wants to double job cuts, possibly close factories and spin off some company divisions, triggering labour representatives and the government of Lower Saxony to introduce their own plans, which essentially oppose layoffs and site shutdowns.
Supervisory Board Dynamics
The supervisory board, where labour representatives and Lower Saxony hold a majority, will convene on September 4 to discuss and vote on management's restructuring plan.
Potential for Extraordinary Shareholder Meeting
If the 40-point plan is rejected, as it was at the previous board meeting in July, management could call an extraordinary shareholder meeting as early as October and put the turnaround strategy directly to investors, people familiar with the matter said. Such a move would be highly unusual in Germany's consensus-driven corporate culture.
What's the Appeal of an EGM?
Board vs. Shareholder Power
The balance of power on Volkswagen's supervisory board differs from its shareholder structure, creating a unique governance system that analysts have said slows down decision-making at Europe's largest industrial firm at a time of crisis.
On the 20-seat supervisory board, where one position is currently vacant, Lower Saxony and the works council hold a majority of 12 seats and can block any restructuring plan. Board members are personally liable when failing to act in the interest of the company.
Shareholder Meeting Dynamics
At a general shareholder meeting, however, workers have no say and Lower Saxony has a 20% voting stake. The remaining 80% are held by Porsche SE, the investment vehicle of the Porsche and Piech families (53.3%), Qatar (17%) and other shareholders (9.7%).
Potential for Breaking the Impasse
That could leave Volkswagen within reach of a 75% majority usually needed for big structural decisions at listed firms in Germany, potentially breaking the impasse of continued resistance on the supervisory board.
Could It Be That Straightforward?
Legal and Structural Hurdles
Not necessarily. Under the so-called Volkswagen Law, major corporate actions such as business spin-offs typically require shareholder approval of more than 80%.
While that gives Lower Saxony an effective blocking minority, Volkswagen's management could invoke Article 111 of Germany's Stock Corporation Act to circumvent the hurdle, the people familiar with the matter said.
Article 111: A Possible Workaround
The provision states that if management convenes an extraordinary shareholder meeting against the wishes of the supervisory board, any resolution at the EGM need only secure a three-quarters majority of votes cast. It also specifies that companies cannot impose stricter voting thresholds through their articles of association.
This could trigger a drawn-out legal dispute between stakeholders.
Separate Votes on Carve-Outs
Volkswagen could also ask investors to vote separately on plans to eventually carve out its passenger-car and components divisions, the people said, as those proposals could face a higher risk of falling under the Volkswagen Law.
Is There Room for Compromise?
Ongoing Negotiations
Talks are ongoing. The board's executive committee, which includes VW's works council chief, Lower Saxony's state premier and members of the Porsche and Piech families, is set to convene on September 3, a day ahead of the supervisory board meeting, to see where things stand.
Possible Areas for Agreement
Any compromise could centre on the scale of job cuts and future plans for factories that are at risk, two separate sources familiar with the talks said, adding that the industry's deepening crisis had made reaching agreement more difficult.
(Reporting by Christoph Steitz, Rachel More, Christina Amann;Editing by Elaine Hardcastle)
