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No Confidence: Lower Saxony Declines to Support Former VW CEO

June 23, 2016
The state, which owns one-fifth of all VW stock, is now at odds with the Porsche and Piech families, who have half the company.

In an unusual public split among the carmaker’s close-knit owners, the German state of Lower Saxony, Volkswagen AG’s second-largest shareholder, refused to sign off on the actions last year of two of the carmaker’s board members.

At the first shareholder meeting since the emissions-cheating scandal erupted, Lower Saxony abstained from a vote to ratify the 2015 actions of then-CEO Martin Winterkorn and current VW brand chief Herbert Diess.

Lower Saxony representatives plan to speak today about their decision not to back the two. Both are under investigation by German prosecutors for possible market manipulation linked to the timing of the public notification of the scandal.

“During the current proceedings, the state of Lower Saxony doesn’t want to evoke the slightest impression that it positions itself in any way. That is solely the matter of prosecutors and potentially the courts later,” the German state said in an e-mailed statement. Lower Saxony will wait for investigations to be finalized and said “premature conclusions” should be avoided.

Though the vote is largely symbolic, Lower Saxony’s move puts it at odds with the Porsche and Piech families, which used their clout to ensure both men were backed by a majority of shareholder votes. Lower Saxony joined the controlling family in supporting the rest of the top executives and the supervisory board.

The rift caps a tumultuous annual meeting where Chairman Hans Dieter Poetsch, the chief financial officer when the cheating occurred, bore the brunt of investor dissatisfaction over the automaker’s handling of the scandal. The meeting dragged on for more than 12 hours, with many institutional investors encouraging owners with voting stock not to ratify the performance of the management and supervisory boards last year.

“You are a conflict of interest personified,” Markus Dufner, managing director of the German Association of Ethical Shareholders, said referring to Poetsch.

During the gathering, which often descended into shouting and arguing, shareholders tried twice to unseat Poetsch as meeting chairman. Investors also questioned when they would get full information about the origins of the crisis, bemoaned the job management has done reacting to it and expressed doubt about Volkswagen’s ability to turn itself into a leader in self-driving and electric-vehicle technology.

“The crisis is a crisis of trust,” said Gerd Kuhlmeyer, who represents a coalition of employee shareholders and described seeing tears in VW workers’ eyes over the scandal. “Customers’ trust has been lost and needs to be won back, and so must the trust of investors.”

While numerous institutional investors berated the company over the damages caused by the cheating, they have little influence because the widely traded preferred shares don’t hold voting rights. Meanwhile, the dominant owners of the common shares are usually aligned.

The Porsche and Piech families, descendants of the creator of the VW Beetle, own 52% of Volkswagen’s voting stock. Lower Saxony holds 20% and has special rights, along with workers, that are enshrined in Volkswagen’s bylaws. Qatar, which has 17% of the common shares, backed all of the measures.

Regular shareholders “have never fared worse compared to the other VW stakeholders,” Ulrich Hocker, a representative of German shareholder association DSW said in a speech. “I only have one description for this: total failure.”

The automaker has been hit in recent days by another barrage of negative news, with a settlement with U.S. authorities over the cheating delayed until next week, shareholders filing another suit against the automaker and the new allegations emerging in Germany.

On Monday, Braunschweig prosecutors opened a probe into whether Winterkorn and Diess were too slow to tell investors about the potential cost of rigging diesel cars to pass emissions tests. Volkswagen said the investigation doesn’t involve new facts or revelations and had previously argued that the company informed investors properly based on the information available at the time. 

The California State Teachers’ Retirement System claimed on Tuesday that VW misled investors about emissions, seeking damages that could reach as high as 700 million euros ($796.59 million) if other investors agree to join the action. Another 278 institutional investors sued in March, seeking 3.3 billion euros ($3.76 billion) in a lawsuit over the timing of market disclosures. Volkswagen has so far set aside 16.2 billion euros ($18.44 billion) for the scandal, including repairs, legal costs and fines.

“We had hoped to invest in a world market leader but invested in a world costs leader,” said Alexander Scholl, a representative for Deka Investment who speed-read his statement after Poetsch limited speaking time for each shareholder to 5 minutes. His comments elicited whoops of support from fellow investors.

By Christoph Rauwald and Naomi Kresge

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