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Facing Courts, Porsche's Corporate Governance Remains Poor

October 16, 2012 | About:
GMI Ratings

GMI Ratings

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Porsche Automobil Holding SE (PAH3.DE) reportedly won a recent victory in its ongoing battles over allegations that it manipulated the market. Even if the courts ultimately decide that the German car maker is innocent, Porsche could do more to bulletproof itself from criticism by improving its corporate governance.

German and U.S. investors claim that Porsche’s holding company concealed that it was amassing a majority stake in Volkswagen (VOW.F) while planning to acquire the company in 2008, the media reported. A court in Braunschweig dismissed two investor claims amounting to around €4.7 million, the company said in September, reportedly on the grounds that German laws against market manipulation pertain only to share issuers. But the courts reportedly continue to evaluate other claims adding up to billions in potential retribution, and news hit Oct. 11 that the family of the billionaire Adolf Merckle, who committed suicide in January 2009 while his business empire crumbled following bets on Volkswagen's stock, are suing too.

Porsche SE said in September that it “believes the damage claims filed by various speculators to be without merit and considers the claims pending in the USA to be legally insufficient and without merit.”

Even as Porsche employees such as the former CFO Holger Haerter and former CEO Wendelin Wiedeking reportedly answer questions in court, the company continues to lack policies aimed at preventing senior managers from abusing their powers. For example, the Porsche and Piëch families were controlling shareholders as of their most recent annual report filed this March, raising questions as to what extent they prioritize other investor interests. Not helping matters, most of the people on the twelve member board don’t meet our definitions of independence; Uwe Hück, Hans Baur, Berthold Huber, Peter Mosch, Bernd Osterloh, and Werner Weresch are all employee representatives. Other board members belong to the controlling families, such as Dr. Wolfgang Porsche, Dr. Hans Michel Piëch, Dr. Ferdinand Piëch, and Dr. Ferdinand Oliver Porsche.

This isn’t the only red flag about Porsche’s corporate governance. The company’s financial disclosure is so limited and contrary to international standards, it isn’t possible to calculate an Accounting and Governance Risk (AGR ®) score that would measure the extent of its risk against peers. Sometimes Porsche’s business strategies have also made it challenging to find clear and adequate information about its activities. For example, the company changed its name from Dr. Ing. h.c. F. Porsche Aktiengesellschaft in November 2007, while reconstructing its Porsche AG operations into a wholly-owned subsidiary. More recently, Porsche and Volkswagen announced a plan in July to integrate; while such changes can add value to a business’s operations, they also have the unfortunate consequence of complicating comparisons.

Given that regulators have been scrutinizing Porsche’s information in recent years as court battles continue, the company’s managers should be persuading the world right now that they will make every possible move toward achieving better corporate governance. Instead, they have not yet managed even to take some of the typical measures that global companies normally pursue to protect themselves from the risk of reputational damage.

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Region: Western Europe

Country: Germany

Sector: Cyclical Consumer Goods / Services

Industry: Auto / Truck Manufacturers

Market Cap: EUR 7,426.6 mm (Large Cap)

ESG Rating: D

AGR Rating: N/A

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Rating: 2.9/5 (10 votes)

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