When shareholders gather in Hanover on Wednesday for what is sure to be a turbulent annual meeting, one of the executives they see on the podium is the official target of an investigation into criminal misconduct.
The charge levied by Germany's securities regulator is effectively lying to investors by omission about the existence of the U.S. probe into its diesel emissions – or “manipulating markets” in legalese. Theoretically that individual could face up to five years imprisonment if brought before court and convicted. While that’s three big hypotheticals in a row, the mere idea is highly unusual to say the least.
While his name has not been released to the press, at the end of the day it misses the point. In over 15 years as a business journalist, I cannot remember a single case where officials in Germany have investigated an alleged crime by a senior manager at a German blue chip who remained on the board. Just to be sure I contacted a corporate compliance expert, who said: "There are no statistics we have that captures that.”
Typically, those that come under the crosshairs of public prosecutors have already been fired or have resigned for political responsibility, including Volkswagen’s former CEO Martin Winterkorn.
Perhaps the best-known example in the industry is former Porsche CEO Wendelin Wiedeking, who was exonerated by a court in March on charges of manipulating markets in 2008 about his plan to acquire full control over VW Group. And while Volvo CEO Hakan Samuelsson had at one time been the target of a corruption investigation since dropped, it was related to his time as head of Volkswagen commercial vehicle subsidiary MAN SE.
Why is this distinction so important? These former executives were no longer in a position to make decisions on a daily basis that could potentially inflict further damage on the company, nor was there any way they might use their office to cover their tracks. That risk, however slight, cannot be entirely excluded in the case of VW now.
When I asked VW whether the individual in question would take a leave of absence until the matter has been clarified, the company declined to comment.
The timing of the investigation, which cannot have been coincidental, provides plenty of ammunition at VW's annual meeting to critics including Professor Christian Strenger, a corporate governance expert, whose views featured in our November cover story on the diesel scandal. Strenger has filed a motion to deny the company’s request that shareholders approve the actions of the management and supervisory board. He wants to force a special investigation.
Over six pages, he meticulously presents a case that “a ratification out of the blue without knowledge of the facts is neither sensible nor admissible,” citing ten separate reasons alone for senior executives.
“It’s scarely believable that the systematic manipulation of the engine management software remained hidden to the management board over years. If so, then it has massively failed in performing its organizational and oversight duties,” Strenger writes in his motion.
VW has never been considered to be an exemplary role model when it comes to corporate governance, but it once again dug in its heels even after Germany’s securities regulator BaFin found enough evidence to request public prosecutors launch an investigation into potential market manipulation.
“No serious and manifest breaches of duty on the part of any serving or former members of the Board of Management have been established that would stand in the way of granting formal approval at this time,” VW said in the face of the investigation.
Backtracking at this point on a decision that was already controversial at the time would be an outright admission of a mistake (which I argued at the time it was). Moreover VW says it can back up its claims with the full legal weight of a former chief justice of Germany’s highest court.
The fact that regulators believe they need to investigate a current senior VW executive adds a new dimension to the diesel scandal.