VW’s problem is one of independence — or rather the lack of it. Its supervisory board — like those at all larger German companies — is made up of 10 worker and 10 shareholder representatives. Of the latter, four are members of the Porsche and Piëch families, two represent Qatar’s sovereign wealth fund, and two the state government of Lower Saxony. Together, these hold nearly 90 per cent of the voting rights.
There is only one outside board member: the chief executive of Swedish bank, SEB, which advises Scania, VW’s truck brand.Not only do these shareholders have a stranglehold on half the board, but one — Lower Saxony with 20 per cent of the voting rights — also has a blocking minority normally reserved for investors with at least 25 per cent.
It is not clear that the state government even acts like a shareholder. Given one of its priorities is to protect jobs, it sides more naturally with the 10 employee and trade union representatives who make up the other half of the board.Here, too, it is unclear that board members focus on the correct priorities. For the employee and union representatives, protecting German jobs seems to be top of the list. The head of the IG Metall union has long held a seat, and even served as interim chairman when the diesel scandal first broke.
One of the consequences of this supervisory board structure is that job losses in Germany are taboo. VW produces about the same number of cars as Toyota, but with double the staff.Yet VW’s corporate governance arrangements — despite scandal after scandal — seem impervious to change. In 2005, after executives hired prostitutes and bought Viagra for staff representatives, the management tried to reform the system, without success. Norway’s sovereign wealth fund — the largest shareholder not on the board — has turned to the courts after unsuccessfully raising concerns since 2008.