German automotive company Volkswagen is to hold an annual general meeting on 3 May 2018, almost three years after the emissions scandal was rendered public.
London-headquartered firm Hermes EOS will recommend its clients to vote against proposed candidates, Marianne Heiss and Wolfgang Porsche, for election to the firm’s supervisory board. It will support an external supervisory board and a corporate culture review.
Hermes EOS also recommends a commitment from Volkswagen to enter into a dialogue about the effects of climate change on its business model.
Michael Viehs, associate director of responsibility at Hermes EOS, commented: “We recommend our clients vote against both of these nominations. The election of the candidates will result in a board with almost zero independent representation, which clearly goes against good corporate governance practice.
“The company’s choice of the two candidates is disappointing. The supervisory board has yet again missed another chance to enhance its independence and fill the – in our view – obvious experience and skills gaps. For us, as shareholder representatives, this casts doubt on whether the supervisory board has really understood that a governance overhaul remains paramount in the light of the emissions scandal.
“It has been nearly three years since the emissions scandal broke and we urgently need to see tangible and credible evidence of improving governance. We urge the company to conduct and report on an externally-facilitated supervisory board evaluation to identify experience and skills gaps and confirm the need for more independent expertise.”
While reckoning that Volkswagen was ramping up efforts regarding its culture, integrity and compliance systems, Viehs assessed that they are insufficiently focused on a broad definition of corporate culture and remain vague on key performance indicators.
“We urge the company to undertake a systematic, independent review and analysis of the role corporate culture played in the emissions scandal.
“This independent review should take a similar form to the so-called “Salz Review” that Barclays Plc commissioned in 2013 to analyse weaknesses in the behaviour of employees and the culture of the bank following the Libor-rigging scandal. For further guidance on conducting an effective review, the management and supervisory boards can also look to the “Woolf Committee Report” that BAE Systems Plc commissioned in 2008 to report on the company’s ethical policies and processes following bribery and corruption allegations.
“We believe that a demonstrably changed corporate culture and appropriate transparency around the issues are key prerequisites for Volkswagen’s successful transition towards becoming a leading provider of sustainable mobility.” Viehs further added.
Also Hermes EOS fosters the company to extend its reporting on climate change to be consistent with the final recommendations of the task force on climate-related financial disclosures (TCFD).