Demanding More

Sassy Shareholders

Scale balance Source Gary Waters-Ikon Images-Corb 45263397
Who holds the power over Germany's blue chip firms?
  • Why it matters

    Why it matters

    German blue chip companies may have to change their strategies if they can’t satisfy shareholders demands.

  • Facts

    Facts

    • Attendance at shareholders meetings has soared after a low level of participation in 2013.
    • Few companies have been immune from shareholder complaints including BMW, despite five straight years of healthy profits .
    • A stronger voice from stockholders is a positive development for Germany’s equity culture.
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    Audio

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Record earnings, record-challenging dividends, rapidly climbing share prices and bright prospects driven by booming demand in important foreign markets. If you own stocks in Germany these days, you’re experiencing the best of all possible stock market worlds.

This muscular performance suggests annual shareholder meetings should be love fests, where grateful stockholders pay homage to their executive directors and their supervisory boards. But that’s not what has happened.

Shareholders this year are not just keeping up the pressure on dividends. They’re demanding a voice in the company’s future direction.

The Bayer pharmaceutical group and Deutsche Post were the last of companies listed on Germany’s top stock exchange, the DAX, to hold their annual meetings on Wednesday. Like many other DAX companies before them, they proved to be tumultuous gatherings.

More shareholders are getting involved. Based on voting capital in attendance, fourteen of the thirty DAX companies saw more shareholders attend the annual meeting than last year.

According to Handelsblatt’s calculations, attendance was almost as high as last year, with an average of 54.9 percent. This proves the extremely low turnout of just 49.8 percent in 2013 remains a one-time occurrence. Even then, the low turnout was primarily due to foreign shareholders who stayed away for fear that their participation would prevent them from being able to trade for weeks, based on a misunderstood ruling by the Cologne higher regional court on registered shares.

The most heavily attended shareholder meetings this year were held by BMW, Beiersdorf, FMC, HeidelbergCement, Henkel and ThyssenKrupp, where about 75 percent of voting capital was present. Powerful anchor shareholders such as the Quandt family and the Thyssen Foundation helped boost attendance records with their huge voting share packages. Both Continental and the Schaeffler Group boasted 81 percent attendance, more than any other DAX listed firm. In contrast, the fertilizer producer K+S drew only 28 percent. All of its share certificates are free float shares.

Low attendance records did not translate to low participation and tedium, however.

At BASF, 6,300 shareholders gathered in the Congress Center Rosengarten in Mannheim, while Deutsche Bank hosted 4,000 predominantly angry shareholders in the Festhalle in Frankfurt’s financial capital.

“Most of the meetings turned out to be amazingly turbulent,” said Jürgen Kurz of the Deutschen Schutzvereinigung für Wertpapierbesitz, Germany’s oldest and largest association for private investors.

 

AGM attandences shareholders meetings DAX blue chip HV-Präsenzen 2015-01

 

Higher dividends were not the only item of interest to shareholders. Strategic decisions also sparked discussions and criticism.

For example, the utility firm Eon’s ambitious strategy of splitting into two groups generated heated debate among shareholders. Deutsche Bank investors also had harsh criticism for the management board, as only 61 percent of shareholders voted to approve the actions of co-chief executives Anshu Jain and Jürgen Fitschen and all their managers. Normally, the percentage is 95 percent or above.

The poor showing likely will have its consequences for Deutsche Bank. The ball now is in the court of the non-executive supervisory board, which has the power to hire and fire managers.

Even companies spoiled by success were not spared criticism. Shareholders and proxies at SAP complained about the unsatisfactory share price, which has risen by “only” 25 percent over the past 12 months. Meanwhile, Bayer was the scene of a demonstration by people charging that its insecticides endangered bees.

Even some of BMW’s shareholders were grouchy, though the carmaker is breaking one record after another and has generated high profits for the fifth consecutive year, thanks largely to booming sales in Asia.

The criticism at BMW was ignited by the influential Quandt family’s plan to ask its former chief executive officer, Norbert Reithofer, to lead the supervisory board without the traditional two year “cooling off period,” an uncommon and controversial practice, particularly in the U.S. and Great Britain.

A supervisory board leader elevated so quickly would “not be able to impartially and neutrally watch over what he had created,” said Ingo Speich of Union Investment, an outspoken investor who attended a number of the shareholder meetings across the country.

Still, some shareholders are prepared to accept lower dividends in exchange for more aggressive restructuring, as was demonstrated at utility firm RWE, which like many traditional energy companies in Germany is struggling to adapt to the country’s move to renewable alternatives. Company management wasn’t the target of criticism as much as the chronically cash-strapped municipalities in the Ruhr Region, which are demanding high dividends despite hard times for the company.

“Securing the company’s future sustainability is more important to us in this difficult phase than the dividends,” Mr. Speich said.

It is easy to suspect investors are using general meetings whenever possible as a stage to market their personal agendas. But even such narrow motivations that can have a positive effective, according to DSW spokesperson Jürgen Kurz.

“When shareholders are no longer simply providers of capital, but have an active influence in determining strategic direction, then it is a very good development for the equity culture in Germany,” he said.

 

Ulf Sommer reports for Handelsblatt on companies and financial markets. To contact the author: sommer@handelsblatt.com

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