Title of the Case –Volkswagen-The Emissions Scandal
Volkswagen – The people’s car
Volkswagen is a car manufacturing company headquartered in Wolfsburg, Lower Saxony, Germany.To date, it is the second-biggest automaker in the world, boasting sales in over 150 countries, with 119 production plants in 31 countries all over the world. In 2014, Volkswagen made profits of over
11 billion and produced 10.2 million vehicles worldwide. Notable brands under the VolkswagenGroup include Bentley, Bugatti, Lamborghini, Audi, Porsche and Škoda.
Home of Volkswagen: The German state of Lower Saxony
Lower Saxony, the German state where Volkswagen’s Wolfsburg headquarters was located, was a significant shareholder of Volkswagen. The state held the second largest stake in Volkswagen in
terms of voting power (20.2%).Despite not being a majority shareholder, Lower Saxony was granted various privileges, including theability to veto decisions such as shutting down or relocating assembly plants as well as business acquisitions. This was because the Volkswagen Law stipulated that voting on major shareholder meeting resolutions required 80% agreement. In 2008, Porsche, which owned 31% of shares, wanted to gain the majority stake in Volkswagen. They sought to amend the statutes to have a freer hand over Volkswagen. However, even though Volkswagen’s directors welcomed Porsche’s interest in increasing their stake in Volkswagen, Porsche’s plans were thwarted due to Lower Saxony’s
opposition. In 2005, the European Commission took action against Germany on grounds that the Volkswagen Law restricted the movement of capital across European borders, and the Law was amended in 2008. However, the rule requiring 80% majority support was maintained and Lower Saxony’s 20% stake remained high enough to block any decision that needed shareholder approval, such as a takeover. Under normal German corporate law, companies needed at least 25% of votes.
Despite further attempts by the European Commission to revoke the Volkswagen Law, Ferdinand Piëch, the chairman of Volkswagen’s supervisory board at that time, managed to obtain the support
of Chancellor Angela Merkel. She made sure that 80% majority rule was preserved even with the amended Volkswagen Law. The maintenance of the 80% majority rule resulted in a win-win situation, with Piëch remaining at the helm of the board and Lower Saxony retaining influence in
Volkswagen through its veto power.
Ferdinand Piëch: Dominance or doom-inance?
Prior to becoming the chairman of the supervisory board in 2002, Piëch, a stellar automotive engineer, was the CEO of Volkswagen since 1993. During his nine-year tenure as CEO, he guided Volkswagen to overcome its inefficiencies and turned a loss of 1 billion into a profit of 2.6 billion. He
had also spearheaded Volkswagen’s expansion into a 12-brand entity that produced a wide range of vehicles such as fuel-efficient cars and 40-tonne trucks. Piëch’s vision was to transform Volkswagen into the world’s biggest and best carmaker. Being a member of the Porsche-Piëch family – which controlled 51% of Volkswagen’s voting rights – Piëch was able to hand-pick executives he favoured and terminate those he disliked. Piëch’s autocratic
management style made many engineers and executives in Volkswagen fear him, as they knew that they might be fired instantly if he was displeased. In 2012, Piëch succeeded in installing his fourth wife, Ursula Plasser, previously a kindergarten
teacher, to the company’s supervisory board. Although many shareholders protested her lack of competence and independence, they had minimal influence as the Porsche-Piëch family held a majority of the voting shares. Furthermore, the appointment was supported by David McAllister,
the state Premier of Lower Saxony, who mentioned that Plasser was well versed in Volkswagen’s inner workings and had close ties with Lower Saxony after living there for a decade.
Comment on the composition of the supervisory board in Volkswagen. Piëch became the chairman of the supervisory board right after he stepped down from his position as CEO. Are there any corporate governance issues that could arise from such a transition? Explain