Labor vs. Board

VW’s secret power struggle

main 122758205 sourcer Peter Steffen DPA – VW Volkswagen CEO Matthias Mueller left and works council head Bernd Osterloh Nov 17 2017 Wolfsburg HQ
A love-hate relationship: VW CEO Matthias Müller (l) and works council head Bernd Osterloh. Source: Peter Steffel / DPA

A conflict brewing between VW’s employees and management escalated last week to the point that the two camps could no longer be in the same room. The works council leaders boycotted a dinner traditionally held on the eve of a key meeting of VW’s supervisory board.

At the last minute, Volkswagen’s works council chairman Bernd Osterloh decided instead he would eat with his fellow employee representatives, who occupy half of the 20-seat supervisory board.

The supervisory board, a non-executive body, is powerful: able to hire and fire executives, set dividend and decide on strategy changes.

Both VW and the works council declined to comment on the changed dining arrangements and their implication. But sources told Handelsblatt Mr. Osterloh’s refusal to break bread with management was based on fears that VW bosses are trying to limit workers’ influence over key decisions at the carmaker. “We get the sense that there are plans to overturn our co-determination rights to a large extent,” said a source at IG Metall, Germany’s largest union.

By boycotting last week’s dinner, labor representatives wanted to send a warning to management. The dinner, hosted by company chairman Hans Dieter Pötsch, was a curtain-raiser for Friday’s supervisory board meeting, at which executives signed off on a five-year spending plan and strategic shift toward electric cars.

Thanks to Germany’s corporate governance laws and VW’s founding in Nazi Germany, employees have a big say in corporate decision making at the world’s largest carmaker. Works councils at VW Group and its subsidiaries, which include Audi, Porsche and MAN trucks, can affect how the business is organized and block lay-offs and labor representatives sit on VW’s supervisory board. In German corporate law, these rights are labeled “co-determination,” giving employees considerable sway over corporate decisions.

In the post-Dieselgate world Volkswagen’s works council has moved into a defensive crouch.

For another reason, labor’s voice in business decisions has been a sacred cow at Volkswagen. The carmaker was one of Adolf Hitler’s projects and he used confiscated money from labor unions to found the company in 1937. Workers’ representatives have punched above their weight in Wolfsburg ever since. They also have another companion on their side: the state of Lower Saxony, where VW has its headquarters in the city of Wolfsburg. As a result of its government-backed founding, Lower Saxony currently owns slightly more than 20 percent of the company and the state’s prime minister and a minister sit on the VW supervisory board. They care about employment and the fate of VW’s workers in their constituencies.

If, however, management succeeded in curbing employees’ influence, it could make the board and, ultimately, the Porsche-Piëch family shareholders more powerful. The descendants of Beetle designer Ferdinand Porsche own a majority of the carmaker’s voting rights, but have so far been forced to find compromises with employees, Lower Saxony and Qatar, the third big shareholder with decision powers.

Traditionally, all parties had been able to reach deals, but in the post-Dieselgate world Volkswagen’s works council has moved into a defensive crouch. VW, led by CEO Matthias Müller, was hit with almost €30 billion in penalties, settlements and repair and litigation costs after it emerged in 2015 that the company outfitted millions of cars with software that allowed them to beat emissions tests. In the aftermath of the scandal, restructuring and job cuts are inevitable.

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Employees have been aggrieved by two other attempts to curb their powers. At Audi, several investor-backed supervisory board members tried to block a board appointment seen as too union-friendly.

An audit of the works council’s 2016 finances heightened the concerns of labor representatives. Several people familiar with the confidential report told Handelsblatt that while it identified areas in need of improvement, it did not uncover any major violations.

Auditors did, however, scrutinize a 2012 agreement between VW and union IG Metall, which saw the carmaker pay more than two dozen union workers to serve as liaisons with workers at its production facilities in Wolfsburg and Kassel. The report concluded that there should have been a review to determine whether the arrangement was still necessary, according to people who had seen the document. Labor representatives were outraged by this finding. “They see it as interfering in co-determination,” a labor source told Handelsblatt.

Stefan Menzel writes about the auto industry focusing on Volkswagen. Martin Murphy covers the steel, car and defense industries for Handelsblatt. Amanda Price and Gilbert Kreijger adapted this article for Handelsblatt Global. To contact the authors: menzel@handelsblatt.com and murphy@handelsblatt.com

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