Is the VW construction too advanced for the great of Germany?

With 295,000 workers in Germany and 24 crops throughout its house nation, it’s onerous to overstate Volkswagen’s significance for Europe’s largest financial system. The Wolfsburg-based conglomerate is one in every of Germany’s greatest industrial employers and a centre of gravity for a community of suppliers.

From a short- to medium-term perspective, the Volkswagen empire has simply change into far more steady. Final month’s itemizing of a minority stake in sports activities automotive maker Porsche generated a high-value foreign money in case it wants to lift funds. Volkswagen nonetheless owns 75 per cent of Porsche’s voting and non-voting inventory. It might simply elevate billions of money ought to the group want it for one thing like paying for the transition to electrical autos.

Nonetheless, the Porsche preliminary public providing might show a significant headache in the long term, because it makes the conglomerate’s already cumbersome company governance much more advanced. Is that good for Germany?

After the itemizing of Porsche AG, buyers in search of publicity to the Volkswagen empire can now select between shopping for fairness in 4 completely different listed entities: the general group (Volkswagen AG), its sports activities automotive model (Porsche AG), its vans enterprise (Traton SE) and a holding firm that owns the Porsche-Piëch clan’s voting inventory in Volkswagen AG and Porsche AG (Porsche SE).

These are certain collectively in an online of cross-shareholdings successfully managed by the Porsche-Piëch household via its grip on voting shares. The listed corporations are notionally unbiased and run by separate government boards overseen by their respective supervisory boards. However be in little doubt — the photographs are known as by the Porsche-Piëch clans.

An overlap in personnel throughout the group’s eight completely different boards highlights and reinforces this grip. Eleven people — 9 of them males — maintain positions on boards of at the very least two completely different corporations.

5 of them are even on at the very least three completely different boards. Key man Hans Dieter Pötsch chairs the supervisory boards of Volkswagen and Traton, is the chief government of Porsche SE and sits on the supervisory board of Porsche AG. Oliver Blume doubles up as CEO of Volkswagen and Porsche AG. Volkswagen’s head of authorized Manfred Döss can also be in control of compliance at Porsche SE whereas being a member of Traton’s supervisory board.

This advanced net of crossholdings, share listings and particular person obligations does extra than simply create extra overhead prices. It may possibly elevate questions over conflicts of curiosity.

Simply check out the roles of Lutz Meschke, chief monetary officer of Porsche AG. It is perhaps in Porsche AG’s pursuits to maintain dividends low to protect money. However as head of funding administration at Porsche SE, he may wish to obtain as a lot funds from Porsche AG as attainable.

Advisors to the group state that the connection between Volkswagen, Porsche and the opposite entities is clearly legally outlined. Previous to the Porsche AG IPO, a authorized settlement that gave Volkswagen full management over the money flows and day-to-day selections at Porsche AG was cancelled. With out such a pact, the administration is required beneath German legislation to pursue the most effective curiosity of the entire company.

Nonetheless, the Porsche-Piëch clan and VW might put a brand new settlement in place with the stroke of a pen given its voting rights. This is perhaps a purely theoretical choice as such a transfer could be more likely to hit investor confidence. However ought to the preferences of the household change, there is perhaps little exterior shareholders can do towards it.

Exterior buyers mainly have a restricted voice. In Porsche SE and Porsche AG, the voting shares are usually not publicly traded in any respect. In VW’s case, the state of Decrease Saxony and Qatar’s sovereign wealth fund even have vital holdings of voting shares. Decrease Saxony’s authorities wields particular veto rights on points reminiscent of takeover provides. And the feisty IG Metall steel staff union has a giant affect at VW.

Proudly owning inventory in Porsche AG requires religion within the administration capabilities of a company that has a noticed document in areas reminiscent of compliance with emissions guidelines in addition to capital market communication. For now, buyers have chosen to disregard the potential pitfalls, lured by Porsche’s development and profitability. Ought to this guess go fallacious, it will not simply be painful for them. Given Volkswagen’s sheer measurement and scope, it will be a blow to the broader German financial system.

olaf.storbeck@ft.com