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Note: Hermes, the U.K. institutional investor reported to be leading the activist campaign referenced in the editorial below, had supported the organization of the Forum's 2006 program addressing executive compensation issues, and is now represented on the Forum's current Program Panel addressing "Say on Pay" issues that developed from the earlier program.


Financial Times, January 22, 2010 editorial


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The German language has no commonly used phrase for “corporate governance”. Instead of a somewhat awkward and bureaucratic term, the English expression itself is generally employed. Now German companies are beginning to face a degree of shareholder activism that is more familiar to groups listed in the UK. It is a welcome development.

Infineon, a lossmaking chip-maker that almost went bankrupt, is at the sharp end. Some of its shareholders, led by UK fund manager Hermes, are putting forward their own candidate to be chairman of the group. They want to replace Klaus Wucherer, who is due to become chairman at the annual general meeting next month, with Willi Berchtold, finance director of ZF Friedrichshafen, a large private company. They argue that Infineon needs a fresh start, not someone who has been a board member since 1999.

There are three notable aspects to this campaign. First, the identifiying of a rival candidate is a significant advance on the hostility expressed by investors towards supervisory board members at last year’s meeting, when the directors scraped just enough approval for their reappointment. Second, a serious figure from the German establishment has been prepared to put his head above the parapet to become that candidate. Third, that although it is led by a UK shareholder, some German institutions are rallying to the cause.

This outbreak of activity deserves support. It would be better if investors could vote on appointments to the management board as well and were not confined to expressing their views indirectly through votes on the supervisory board. But, where shareholders are unhappy with a company, readiness to use this power can still be a more effective mode of engagement than anonymous mutterings or simply selling the shares.

There are other signs of greater activity among shareholders too. A law change last year set up the possibility for investors to take part in a non-binding vote on directors’ remuneration. The AGM season now getting under way is the first chance to see how aggressively the “say on pay” is used.

In response, German companies must get better at heeding shareholders’ concerns and showing that they have done so. The sea-change that has internationalised the share registers of some larger German companies should prompt a sea-change in investor scrutiny and in corporate behaviour. Infineon could be just the beginning.

© Copyright The Financial Times Ltd 2010.




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