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Financial Times, January 26, 2010 column


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Finance & governance

Shareholders are not quite storming Germany’s clubby boardrooms, but they are firing shots overhead.

The attempt to replace an incoming chairman at Infineon, the struggling chipmaker, is the first proxy fight by institutional investors at a Dax-30 company. Siemens shareholders on Tuesday were also among the first to take advantage of legislation allowing a non-binding vote on non-executive pay, even if no large rebellion materialised.

Even the $1bn lawsuit by hedge funds burned by the 2008 short squeeze on Volkswagen shares, claiming they were misled by Porsche, highlights increasing assertiveness. It follows complaints from foreign institutions, including Hermes and Norway’s sovereign wealth fund, over treatment of VW’s minority shareholders.

All this reflects an important shift. Gone is the old model – if not the mentality – of Deutschland AG, where companies were largely owned by other German groups; foreign shareholders now own much of the free float in Dax companies.

That does not remove all obstacles – especially where, as at VW, the voting free float is small and big familes dominate. But it is, gradually, bringing pressure to move towards international best practice on governance – like, for example, the “say on pay” law. Revolts are no longer coming from small domestic shareholder associations but from international investors and proxy advisers.

The Infineon case could be significant. If it establishes the principle that shareholders should be consulted during the selection of members of supervisory boards, it could help refine how Germany’s two-tier board system works.

Shareholders may still lack direct input into management board appointments, but they would at least have a greater indirect say via influence over the supervisory body. And they might be emboldened to make greater use of the long-established “vote on discharge” of individual members of both boards as a form of confidence vote.

German boards should heed the warning fire.

© Copyright The Financial Times Ltd 2010.



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