Volkswagen, Governance, Supervisory board composition and effectiveness

Details of engagement:

Volkswagen AG engages in the production and sale of passenger cars and light commercial vehicles, as well as producing vehicles and components for the brands of the group. EOS began engagement in 2015 around the lack of independence on the company’s supervisory board, raising significant concerns around the overall governance of the company and the culture it was encouraging, particularly in the wake of the ‘dieselgate’ scandal.

Over the course of the engagement, the company was asked to look at involving an external third party to carry out a review of governance and follow this up with a written request for a formal response. At the 2016 AGM EOS raised this as a question to the board and in the following years repeatedly asked for the company to outline what actions it was taking to improve independence and demonstrate appropriate governance mechanisms were in place. As the company took limited action EOS recommended votes against the discharge of the supervisory board and non-independent board directors up for re-election at each AGM.

Despite being given access to members of the supervisory board  EOS did not gain confidence that the company was going to make significant changes and the nature of it being a company controlled by the three biggest shareholders, with around 90% of the voting shares of which Porsche Automobil Holding SE holds a controlling stake of 53%, meant there was little leverage that could be brought by independent minority shareholders to change the structure to make it more independent, to bring more diversity and appropriate sector and thematic experience onto the board, and non-independent directors continued to get over 90% approval for their re-election from shareholders.

Outcomes and next steps:

In late 2023, after eight years of intensive engagement on the subject and almost no change to the independence of the supervisory board and how it was structured, EOS decided it was time to discontinue the engagement and to focus on other aspects of the company’s operations that would deliver more successful outcomes. EOS will continue to register our concerns at future AGMs through our voting recommendations.

At time of publication GSK is held in our Sterling Corporate Bond, Passive Developed Equities and Passive Smart Beta Equities portfolios.