Buhlmann's Corner

Wishful thinking and reality – ‘The Proposition’

This is about a film – ‘The Proposition’ (its German title - Wunsch und Wirklichkeit – translates as Wishful Thinking and Reality) a true-to-life depiction of the state of Corporate Governance and shareholder AGMs.

Just like the film set in Boston, the founders and shareholders Larry Page and Sergey Brin find themselves in love with partners who are impotent. The co-shareholders possess A, B and C type shares without voting rights and all this (nomen est omen) in a parent company called “Alphabet” a multi-layer concern where never is heard the slogan ‘one share one vote’ so often yelled by activists at corporate governance conventions. Hi-tech concerns like Linkedin and Yelb, or groups such as Comcast and Discovery, or Volkswagen and Facebook all have that in common – grab the shareholders by the purse strings and deny them voting rights.

Everything is fine and hunky dorey provided the money keeps rolling in but then major Snafus take centre stage as soon as ethics become conspicuous by their absence and corporate governance practice is brought to its knees. One example, nothing short of sensational, was Volkswagen with its dictatorial leadership. The autocrat kept the actor at arms-length, the world-class swindle became an astronomical sum of money and, to cap it all, who got appointed to chair the Supervisory Board with the task of investigating what really happened? Why, none other than Hans Dieter Pötsch former treasurer and head of company communication policies. Nobody seems to be at all phased by the idea.

The AGM certified by an almost plebiscitary vote that everyone discharged their duties. Doesn’t anybody realise that deliberate abstention is not a vote for anything at all but just a non-participation in the vote regardless of whether you’re physically present or not. Are we absolutely sure that this doesn’t bother anyone at all? The fact remains that nobody seems to have noticed that the VW website gives the number of those present at the vote as 276,482,699 shares with voting rights, 277,355,828 of whom voted ‘Yes’ for the second item on the agenda. It stands to reason, the absentees also voted on the matter of the dividend.

Ought I be concerned when an abstention is not considered as a vote but a non-presence? If everyone was clear on the matter then probably not. But, I ask myself, why should the question even arise? So that an imaginary electronic count be held of the ‘NO’ votes not yet cast to make the percentage of approval look better?

Ought I be concerned because practically no voting shareholder ever makes sure that his vote cast gets on board and put to its intended use? History shows that concern ends at the ballot box at the journey’s very departure point. As anyone interested in voting rights can tell, by and large only ‘yes’ votes tend to make it home.

The remuneration system, not only of Deutsche Bank, but also of Renault, and in London of BP was rejected. When you want to, you can. All the rest is chatter, although it is also true that since being quoted on the stock market, certain German companies like Henkel and Merck are having to come to terms with rules that hinder voting rights – but behind the scenes the founding family acts as the ethical representative of shareholders as regards corporate governance. But then again, that ain’t necessarily so, as Haniel, Volkswagen and company show.

The dot on the ‘i’ of capitalism is called Apple; saved from bankruptcy by Bill Gates, father of Microsoft, with a pittance (150 million US$) it grew to be the most expensive boutique on the planet. For years, preference shares defended it against the AGM majority. Carl Icahn a great man is no longer there. And if Carl Icahn sees the risks in the ETF (Exchange Trades Funds), then these risks are real, even though the strength and power of an activist like Icahn grows as the number of shareholders who vote at AGMs diminishes. Indeed, during the Deutscher Corporate Governance Kodex conference, an ETF like Black Rock even went so far as to suggest that AGMs should be abolished. That, for me is just a self-fulfilling prophecy. You start by not going yourself, then you suggest doing away with it altogether, like the priest who firstly conceives a child so that by making a donation he gets out of being posted to Rome. And on the subject of Rome, even the Vatican is beginning to murmur about corporate governance. Clemens Börsig (ex-CFO and chair of DeutscheBank – like Pötsch in VW) left the IOR early. Does that mean that Pope Francis has an inside track to higher causes? Now, the question is should he have multiple voting rights as they have in France for shareholders with seniority. Or why not give all non-Catholics the non voting right to participate?