Volkswagen's Governance: A Complex Legacy Under Scrutiny

Volkswagen's plan to close plants in Germany and dissolve labour agreements has sparked criticism over its governance and ownership structure. Intricately influenced by historical factors and state involvement, the company's governance model is uniquely complex, drawing substantial control from Porsche SE and the state of Lower Saxony.

Volkswagen's recent announcement to shut down some German plants and end long-standing labour agreements has reignited debate over its unusual governance and ownership model. Investors have long criticized the automaker's intricate structure for hampering shareholder value and flexibility.

As with many major German conglomerates, Volkswagen has evolved through decades of expansion and strategic pivots. Its portfolio spans budget vehicles like SEATs to luxury brands such as Lamborghinis, alongside stakes in Porsche AG and Traton.

The company's governance roots trace back to its early days before World War Two, when the Nazis established the main factory in Wolfsburg, partially funded by assets taken from trade unions. Post-war British control placed the company in public hands, and the Volkswagen Law of 1960 further solidified worker and state influence, particularly through the state of Lower Saxony's 20% voting stake.

This law mandates that crucial decisions require more than a four-fifths majority, effectively giving Lower Saxony and labour representatives a blocking minority. The governance structure is further complicated by Volkswagen's dual-class share system, with Porsche SE holding a controlling 53.3% voting stake despite a lower equity share.

CEO Oliver Blume's dual leadership of both Volkswagen and Porsche AG has also been a point of contention among investors, who argue that this undermines effective management and has resulted in the company's shares underperforming over the past five years.

(With inputs from agencies.)