Henning Gebhardt

VW Needs a New Culture: Deutsche Exec

Clouds overhead.
Volkswagen is stuck in the past, and needs to change its corporate culture, a senior Deutsche Bank executive said in an interview with Handelsblatt.
  • Why it matters

    Why it matters

    VW’s appointment of its finance chief, Hans Dieter Pötsch, to head its supervisory board risks further damaging the confidence of investors.

  • Facts


    • VW’s supervisory board on Wednesday elected Chief Financial Officer Hans Dieter Pötsch as supervisory board chairman.
    • A senior asset manager at Deutsche Bank said the appointment highlights problems with VW’s corporate culture.
    • An investigation by U.S. law firm Jones Day into VW’s emissions-rigging scandal could take six months or longer to complete.
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One is the top German bank, the other is meant to be the top German car maker. Volkswagen has for years considered Deutsche Bank to be its main bank. It may work with some 50 financial institutions around the world, but its relationship with Deutsche Bank was special. Until now.

In an interview with Handelsblatt, Henning Gebhardt, the global head of equities at Deutsche Bank’s Asset & Wealth Management unit, criticized the Volkswagen board and took the company to task for failing to address the dysfunctional corporate culture at the heart of the emissions scandal.

Mr. Gebhardt is particularly unhappy with VW’s decision to appoint the chief financial officer, Hans Dieter Pötsch, to head the supervisory board. Mr. Pötsch and other management board members waited more than two weeks before informing the supervisory board of the U.S. investigation.

“Moving Hans Dieter Pötsch into the supervisory board isn’t compatible with an environment of good corporate governance,”  Mr. Gebhardt said, warning that a poor corporate culture can cause “deep damage to the brand.”

Mr. Pötsch, a member of VW’s management board since 2003, has been accused of failing to inform investors soon enough about the scandal that has plunged VW into its biggest crisis. The crisis has shaved 40 percent off Volkswagen’s share value.

The management board told U.S. authorities about the manipulation of engines on September 3, but only informed the supervisory board, the senior panel that sets policy and appoints the chief executive and other top officers, on September 18.

At a Wednesday board meeting, Wolfgang Porsche, a member of the Piech-Porsche families that own the majority in VW, backed Mr. Pötsch while other supervisory members representing employees and the state of Lower Saxony, which owns 20 percent of VW, heaped criticism on the finance chief.

Despite their close relationship, Deutsche Bank has long been slightly wary of Volkswagen and holds fewer VW shares in its portfolio than the carmaker’s weighting in the DAX Index of top German stocks would warrant.

“We have been viewing VW critically for years because of its corporate governance,” said Mr. Gebhardt, who’s in charge of managing €100 billion, or $113 billion, worth of equity.

He said Deutsche Bank’s concerns dated back 10 years to a previous high-profile scandal in which managers using company funds to ply VW labor leaders with perks and prostitutes.

Then came VW’s controversial takeover of insolvent car components supplier Karmann in the constituency of the Lower Saxony governor at the time, Christian Wulff, who was also a member of the VW supervisory board.

Conflicts of interest among the Piech family were also a source of concern, said Mr. Gebhardt.

“Not a single VW supervisory board member is independent — that can backfire at some point,” he said.

He added that the appointment 13 days ago of Matthias Müller, the former chief executive of VW subsidiary Porsche, to head VW “raised questions” and that while it had been important to find a new chief quickly after Martin Winterkorn resigned, it would have been possible to find a successor from outside the company.

He also criticised VW’s practise of linking remuneration of supervisory board members to the dividend payout. “I know of no other German company in which the supervisory board still decides on its own payout in this way. It’s common today to have a fixed salary which is best linked to operating profits.”

He added that the so-called “VW law,” which gives Lower Saxony the right to block takeovers and other key decisions such as factory closures, was unique in Germany. “From that you can see that VW has stood still on corporate governance.”

Asked if other automakers were cleaner in this regard, he said: “Definitely.”

Analysts estimate that the scandal could end up costing VW €40 billion. Some put the figure even higher.

VW’s share price recovered a little on Wednesday but is still down by a third from before the scandal was revealed. The impact on the DAX is so great that Landesbank Baden-Württemberg reduced its forecast for the index by a full 500 points.

While big institutional investors are angry, small private investors appear to be keeping the faith in VW. In fact, the customers of German online brokers have been diving into VW shares since the scandal came to light on September 18.

At broker Comdirect, an Internet banking unit of Commerzbank, the share of VW stock in customer brokerage accounts has almost trebled.

“Investors evidently believe in Volkswagen,” said Jan Enno Einfeld, head of trading at Comdirect.“They’re using the price falls as an opportunity to buy more shares in the company.”

It’s a similar story at other online brokers. Ralf Zimmermann, equity strategist at independent private bank Bankhaus Lampe, said he was surprised at the popularity of the stock.

“Normally private investors don’t grab a falling knife,” he said. “They tend to act more pro-cyclically, buying when stocks have been rising for a long time and selling when they’ve been dropping for some time.”

Carsten Mumm, head of asset management at private bank Donner & Reuschel, said: “The Volkswagen group has been beyond all doubt until now and VW’s stock was seen as very expensive. So a lot of people are wondering whether to invest in it now.”

Analysts estimate that the scandal could end up costing VW €40 billion. Some put the figure even higher.

Meanwhile, the search for those responsible for the scandal continues. At Wednesday’s meeting, the supervisory board received an interim report from the automaker’s internal auditors, but hopes that the culprits had been found were quickly dashed.

The report provided some further details and a list of names of employees involved in the development of the EA 189 diesel engine equipped with a so-called “defeat device” to cheat tests.

But that was just the start. Besides, a separate probe by U.S. law firm Jones Day will be far more important. VW hired Jones Day to demonstrate its willingness to cooperate with U.S. authorities, who are demanding the most rigorous possible investigation.

“If VW acts credibly, the fine will be smaller,” said one lawyer who has worked on several similar cases. If it disappoints the U.S. regulators, the fines will likely soar.

In that sense new Chief Executive Matthias Müller may have been naive to tell a newspaper in an interview on Wednesday that only “a few” developers had made themselves culpable. The legend of a small cabal of staff plunging an entire company into trouble isn’t new.

The managers of engineering companies Thyssen-Krupp and Siemens adopted the same stance when their firms were embroiled in corruption scandals — but in vain. Both firms ended up replacing entire management levels, more or less.

It remains to be seen whether that will happen at VW. The Jones Day lawyers are working their way down the corridors of VW’s headquarters in Wolfsburg.

Informed sources said they started their interviews last Thursday and spoke to managers including Ulrich Hackenberg, who has been suspended as head of research and development at premium brand Audi.

“Nothing concrete came out of it,” said one insider. Mr. Hackenberg denies any involvement in the fraud and has hired a defense lawyer to challenge his suspension.

The lawyers have yet to interview Mr. Winterkorn and the two other suspended development chiefs, Hans-Jakob Neusser of core VW brand and Wolfgang Hatz of Porsche.

In the coming days and weeks the team of Jones Day investigators will expand. At present, three Americans and two Germans are conducting interviews. The probe is expected to take six months or more.

Volkswagen’s main shareholders will certainly want answers by April 21, when the company holds its AGM.

Shareholders are not the only ones waiting to see how the Volkswagen saga unfolds.  VW bankrolls soccer club VfL Wolfsburg, which plays in Germany’s top division, the Bundesliga, alongside the likes of Bayern Munich and Borussia Dortmund.

VW pays the club a high double-digit million sum each year, but may now have to cut back on its sponsorship to cover the cost of the scandal.

The club’s managing director, former player Klaus Allofs, sought to play down the implications on Wednesday, saying “There’s no reason to worry about it now.”

But Mr. Müller, VW’s chief executive, made clear in his address to 20,000 workers at VW’s main plant in Wolfsburg on Tuesday that all investments would have to be reviewed in light of the scandal.

With VW intent on saving money, it’s doubtful whether VfL Wolfsburg will be able to go on investing in top players such as World Cup winners André Schürrle and Julian Draxler, who were bought for a total of €70 million this year.

Musicians too may miss out on a source of revenue. The company regularly books stars like Robbie Williams or the Pet Shop Boys for their events. Lenny Kravitz played in late September when the company unveiled its new Passat, in an uncomfortable launch just hours after the company admitted to cheating on emissions test.

Concerts like that are likely to be put on hold for some time to come.


Anke Rezmer, Christian Schnell, Martin Murphy, Alexander Möthe, Lukas Bay and Jessica Schwarzer all contributed to this report. To contact some of the authors: rezmer@handelsblatt.com and schnell@handelsblatt.com


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