Volkswagen's Governance and Labor Relations

By Christoph Steitz and Victoria Waldersee

Overview

Volkswagen's plans to close plants in Germany and dissolve labor agreements have highlighted its criticized governance structure.

Company Background

Volkswagen, established over 87 years ago, spans from SEAT to Lamborghini, including stakes in Porsche AG and Traton. Its expansion has faced scrutiny from investors.

The Volkswagen Law

The influence of workers dates back to before World War II. After the war, the British placed the company under public trusteeship, leading to significant union influence.

The Volkswagen law was enacted in 1960, protecting the business from external influence, granting Lower Saxony and workers substantial power:
– Voting Majority: Requires over four-fifths majority vote for crucial decisions.
– Production Decisions: Building/moving plants needs a two-thirds majority in the supervisory board, allowing labor representatives to veto major changes.

Ownership Structure

Volkswagen shares come in two classes: preferred (DAX-listed) and common (voting rights). Key ownership includes:
– Porsche SE: 31.9% stake (effective control at 53.3% voting).
– Lower Saxony: 11.8% stake (20% voting).
– Qatar: 10% stake (17% voting).

Governance Challenges

Volkswagen faces criticism due to its governance issues, linked to its complex ownership structure. Inconsistent leadership is seen as a detriment, particularly with Oliver Blume managing both Volkswagen and Porsche AG. This situation has resulted in a valuation discount and underperformance of Volkswagen stocks over the past five years amidst family succession uncertainties.