BITTER PILL

Help Wanted: Investors With Bite

deutsche börse-dpa-CHANGED
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  • Why it matters

    Why it matters

    If German companies don’t change the rules for dealing with investors, they could lose their ability to compete globally.

  • Facts

    Facts

    • German business has a skeptical attitude toward activist investors.
    • Once a year in Germany, investors can let off steam at annual stockholder meetings, but don’t have much voice otherwise.
    • Direct contact between investors and a company’s management board is frowned upon in Germany — even when investors hold a major interest in the firm.
  • Audio

    Audio

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Nelson Peltz, Daniel Loeb or Carl Icahn — almost no one knows these names in Germany. In the United States, however, all three enjoy renown as activist investors.

They put pressure on U.S. businesses and show no mercy to companies that don’t meet profit targets. They are sworn enemies of salaried management boards that enrich themselves without delivering performance. They are masters at identifying undervalued companies on the stock market, getting deeply involved in management issues and then selling their shares at a big profit.

Over the last two years, activist investors are once again tilling the U.S. business landscape. The splitting up of Hewlett-Packard, the restructuring of Dow Chemical and the recent share buyback at Apple would never have happened without activist investors. Their methods are not always gentle and are sometimes even brutal. But all in all, they are helping corporate America compete globally again after years of stagnation.

In general, investors are much more restrained in Germany than their counterparts in the United States

Germany lacks this sort of  investor. It is true that foreign investment firms and hedge funds are busily trying to play a similar role in the country. In a few cases, most recently at Bilfinger, their impact can clearly be seen.  The German construction firm  ­— where Swedish investor Cevian Capital has built a 25 percent stake — is in the midst of reorganization after repeatedly cutting profit forecasts this year.

In general, though,  investors are much more restrained in Germany than their counterparts in the United States.

German business has a skeptical attitude toward activist investors. Its laws on stocks and corporate-governance regulations get in the way of their work. Once a year in Germany, investors can let off steam at annual stockholder meetings. Otherwise, only a company’s supervisory board monitors management — or in many cases, doesn’t monitor it.  Investors without a mandate on the supervisory board don’t have a voice in the long period between annual meetings. Direct contact with the management board is frowned upon — even when investors hold a major interest in the firm. A few German supervisory boards even defend their  monopoly on contact at any price.

Of course, investors get involved with German companies, nonetheless. But they have to engage in contorted maneuvers to do so, for instance, by using the news media to indirectly pressure companies. Even that doesn’t work well in Germany, where anyone considered to be a profit-seeking  “locust” is usually opposed by the media.

In the long term, Germany won’t be able to avoid cautiously changing the rules for investors. If we don’t, we will lose more than a lot of capital: The competitiveness of large German companies will suffer.

 

To contact the author: gastautor@handelsblatt.com

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