Martin Winterkorn

VW CEO Prevails in Board Dispute

Winterkorn
VW CEO Martin Winterkorn came out the winner on Friday in a rare public dispute with Volkswagen patriarch Ferdinand Piëch.
  • Why it matters

    Why it matters

    Volkswagen’s future took an unexpected turn Friday when its board backed the CEO in a public dispute with controlling shareholder Ferdinand Piëch.

  • Facts

    Facts

    • The endorsement of CEO Martin Winterkorn was seen as a rare public setback for Mr. Piëch, who turned 78 today.
    • Mr. Piëch last week told a magazine he was “distancing himself” from Mr. Winterkorn.
    • The board’s endorsement suggested that unions, the state of Lower Saxony and Mr. Piëch’s own cousins, the Porsche family, had overrruled the patriarch.
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In an unexpected development, the policy-setting board of Volkswagen, Europe’s largest automaker, said Friday it was siding with the company’s embattled chief executive, Martin Winterkorn, in his dispute with the company’s patriarch.

In a statement, the automaker said it would move to extend the contract of Mr. Winterkorn, the 67-year-old German engineer who since 2007 has built VW into the world’s No. 2 automaker, second only in sales and profit to Toyota.

Mr. Winterkorn’s contract had been set to expire in 2016. The board said it would recommend extending his employment, without providing details.

Mr. Winterkorn had become a public target of Ferdinand Piëch, the VW patriarch and controlling shareholder who has single-handedly ruled the German automaker for much of the last two decades.

But in a statement, the board, which Mr. Piëch chairs, gave a full-throated endorsement to Mr. Winterkorn.

“The Executive Committee of the Supervisory Board of Volkswagen AG states that Prof. Dr. Martin Winterkorn is the best possible Chairman of the Board of Management for Volkswagen,” the company said. “The Executive Committee places great importance on the fact that Prof. Dr. Winterkorn will pursue his role as Chairman of the Board of Management with the same vigor and success as before, and that he has the full support of the Committee in doing so.”

The committee said it would propose to extend Mr. Winterkorn’s contract at a meeting next February.

One expert, Stefan Bratzel, the managing director of the Center for Automotive Management in Bergisch Gladbach, said despite appearances, Mr. Piëch, the largest single shareholder, had only suffered a temporary setback.

“Piëch has suffered a small defeat, but he has not yet lost the war. It is to be seen whether Piëch will not refrain from further attempts to assert his will,” Mr. Bratzel said.

 

Ferdinand Piech has a stake in Porsche Holding. Source: DPA
Ferdinand Piech, Volkswagen’s largest shareholder, may have suffered a setback on Friday in his dispute with the VW CEO, but it is only temporary and he will ultimately prevail, some German analysts said. Source: DPA

 

Last week, Mr. Piëch called German magazine Der Spiegel to say he no longer supported and was “distancing” himself from Mr. Winterkorn. The dispute apparently centers around the successor to Mr. Piëch as chairman of VW’s supervisory board, which sets major policy and hires the top managers.

Mr. Piëch, together with the family of his cousins, the Porsches, control 50.7 percent of VW shares. But the board’s statement today suggest the Porsches split with their cousin, siding with unions and the state of Lower Saxony, which had backed Mr. Winterkorn in the public dispute.

Mr. Piëch had used similar heavy-handed tactics in the past to remove or pave the way for the departure of other CEOs who had fallen out of his favor. The apparent palace revolt at the top of Volkswagen was welcomed by investors.

VW shares rose 3.7 percent in Frankfurt trading after the automaker announced the contract extension at noon in Germany.

One of Germany’s leading auto experts, Ferdinand Dudenhöffer, said Mr. Piëch’s position had not been significantly weakened by the dispute.

Mr. Winterkorn remains in a weakened position but the company will try to disguise it, Mr. Dudenhöffer, a business and economics professor at the University of Dusiburg-Essen, said in an interview.

The victory by Mr. Winterkorn is likely temporary, Mr. Dudenhöffer said, and Mr. Piëch, whose family is VW’s largest single shareholder, will ultimately have the final say in the matter.

Mr. Piëch has been instrumental in elevating key managers to top positions in the company, and that will not change, Mr. Dudenhöffer said.

Matthias Müller is chief executive of VW sports car maker Porsche, while Herbert Diess, a former BMW top executive until last December, will lead the Volkswagen brand starting on July 1. Both moves were made with Mr. Piëch’s blessing.

“Mr. Piëch will make the next move and defend his position. He is the biggest shareholder and someone who plans and executes very strategically. Everyone in the supervisory board knows this. His position has rather strengthened,” Mr. Dudenhöffer said.

Volkswagen operations should not suffer, Mr. Dudenhöffer said.

“It can continue its strategy. The most important thing is to position its brands and improve margins. The supervisory and executive boards will continue to do what they have to do,” Mr. Dudenhöffer said.

Mr. Piëch had never publicly explained the reason for his displeasure with Mr. Winterkorn, who he’s known for 35 years.

But sources told Handelsblatt Mr. Piëch might still be smarting from Mr. Winterkorn’s ambitions made public last year to replace him as supervisory board chairman.

Mr. Piëch’s unprompted vote of no confidence in the man he hired eight years ago went off like a bomb at VW headquarters in Wolfsburg, a factory town in north central Germany.

Mr. Piëch, who turned 78 today, had used similarly blunt judgements to run off two of Mr. Winterkorn’s predecessors, Bernd Pischetsrieder and Wendelin Wiedeking, the former chief executive of VW luxury car maker Porsche.

“I am distancing myself from Winterkorn.”

Ferdinand Piëch, Chairman, VW Supervisory Board

Mr. Piëch is the grandson of Ferdinand Porsche, who designed the Volkswagen Beetle, the original Volks Wagon or people’s car. Since then, the Piëch and Porsche families – initially Austro-Hungarian, then Czech, then German, then Austrian – have controlled the destiny of the automaker, now Europe’s largest.

The VW patriarch was reportedly displeased with VW’s weak sales in the United States and the poor profitability of VW’s core brand. But the weaknesses pale in comparison to the bigger picture, which for Mr. Winterkorn is largely positive.

Mr. Winterkorn is widely credited with turning VW into a profitable car maker and putting it on a path to overtake Toyota as the world’s largest maker of autos. On Thursday, the chief executive attended a special meeting of the supervisory board, which Mr. Piëch chaired near his home in Salzburg, Austria.

A steering committee of the supervisory board, which has the power to hire and fire exectives, included works council chairman Bernd Osterloh, who still supports Mr. Winterkorn, Lower Saxony’s minister president, VW’s second-largest shareholder and Wolfgang Porsche, the representative of the Porsche family who criticized the public rebuke of Mr. Winterkorn made by Mr. Piëch, his cousin.

Last weekend, Mr. Porsche had publicly criticized his cousin’s decision to publicly pull the rug out from under Mr. Winterkorn, but he had refrained from publicly supporting the chief executive.

The meeting in Austria ended around 7 p.m. last night without a public result until today at noon, when VW posted a statement on its website.

 

VW Shareholders and Their Voting Rights-01 (2)

Although VW’s core brand has issues, the rest of the vast group — the world’s second-largest automaker after Toyota — is doing record business.

With its 12 brands, including Audi, Porsche, Skoda and MAN, Volkswagen is bigger and more powerful than ever before. Under Mr. Winterkorn’s leadership, sales and revenues have doubled since 2007, when he became CEO.

Mr. Piëch came under fire in Germany on Thursday for publicly rebuking his CEO, which some experts suggested had violated German securities law that prohibit corporate executives from selectively releasing market-moving information.

“Piëch’s statement was insider information according to Paragraph 13 of the Securities Trading Act (WpHG), because it had a bearing on the stock prices,” said Klaus Rotter, an attorney who specialized in banking and capital market laws.

Many German market observers ahead of the vote had expected Mr. Piëch to prevail yet again, ousting Mr. Winterkorn for his next hand-chosen successor.

“Furthermore, Mr. Piëch himself is a major shareholder. Every investor knows that a leadership battle has erupted and that the chief executive cannot survive,” Mr. Rotter, the attorney, said on Thursday.

 

VW Volkswagen Martin Winterkorn CEO Ferdinand Piech non executive chairman seen through car windows Source DPA 43456172
Mr. Winterkorn, seen left, will take the driver’s seat for now. Source: DPA

 

Under German law, any information should be disclosed as soon as possibly by a company and its executives if it is expected to have a significant impact on operations or the stock price. These unscheduled announcements are known as “ad-hoc statements”.

From Mr. Rotter’s point of view, Germany’s Federal Financial Supervisory Authority BaFin should look at the matter.

“Insider information must be disclosed ad-hoc,” he said.

BaFin, however, is taking a calm approach to Mr. Piëch’s sleight of hand against Mr. Winterkorn, even if the organization keeps an eye on personnel changes in key positions, because of insider information under paragraph 13 and an ad-hoc announcement under paragraph 15 of the German securities trading act.

“In this case the personnel change must at least be very likely imminent and an effect on the shares can be deduced from this,” explained a BaFin spokeswoman. “The statement made by Mr. Piëch must allow for a prediction of the expected affect on the stock price. For BaFin, that is currently not evident.”

But that debate may now be moot. Mr. Winterkorn appears to be staying, for longer than expected. It is now Mr. Piëch’s future at the top of Volkswagen that is in question.

“It is positive for the company and the stock that these questions are being resolved for the next couple of years. Winterkorn did a great job,” said Frank Biller, an analyst at LBBW Bank in Stuttgart. “VW is a big company. It is successful. It is not so positive performing everywhere, but it has record earnings, record sales, record car sales figures.

“It has problems but it is aware of them and trying to solve them,” Mr. Biller said.
“I expect the company to stick to its strategy now.”

VW WTB 2014 Volkswagen

 

Kevin O’Brien is editor in chief of Handelsblatt Global Edition. Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. Martin Murphy specializes in the automotive, defence and steel industries. Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin. Meera Selva, a Handelsblatt Global Edition editor, also contributed to this story. To contact the authors:  votsmeier@handelsblatt.commurphy@handelsblatt.com and kreijger@handelsblatt.com, obrien@handelsblatt.com and selva@handelsblatt.com

 

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