From the FT,
There is one group of people who lost very little as a result of Volkswagen’s cheating on emission tests — namely German institutional investors, who at the end of last year held just 2.1 per cent of the capital. That makes an interesting comparison with the 26.3 per cent stake held by foreign institutions. Clearly German investors were more sensitive to the governance issues for which VW had long been notorious than their foreign counterparts.
This was not just a matter of the boardroom warfare earlier this year that led to the departure of chairman Ferdinand Piëch and cemented the position of chief executive Martin Winterkorn, now forced to resign last week after admitting that the company had programmed diesel vehicles to subvert emissions testing. In his long reign Mr Piëch appeared to regard VW more as a family fiefdom than a quoted company.
He could do this because the ownership structure protected incumbent management and will continue to protect Mr Winterkorn’s successor, Matthias Müller, since Porsche Automobil Holding currently has more than 50 per cent of the votes despite having only 31.5 per cent of the capital. This underlines an important truth with important investment consequences: at the root of most corporate scandals lie governance failures. And while the focus of much governance comment and analysis is on the board and the role of institutional shareholders, what happens below board level can be quite as important as behaviour in the board room, especially in relation to the incentive structures that mould the actions of employees.
Culture, privileges, protection – as investors, watch out for these.