WWW.ICGG.BIZ ISSUE 11/2005 INSIGHT Corporate Governance Germany Essential: Information, Analysis and Opinion for Investment Professionals, Advisers and Academics CONTENTS 02 COMPANIES Buhlmann’s Corner: VW - the new old Germany Infineon in the sights of the financial authorities Federal judges have doubts about Mannesmann acquittals 06 financial investors Germany - the most exciting M&A country in Europe Enforcement: Little chance for pre-clearing 07 politics Acting in Concert - guidance sought Lufthansa buys into Fraport Platform for combative shareholders Deutsche Lufthansa has taken advantage of the sale of the government’s stake to acquire an around 4.95 % share of airport operator Fraport. 10 people Contract extension for The airline wants to beef up its holding to 5 % within a few weeks. Manfred Wennemer Additionally, Lufthansa is claiming a seat on the Fraport Supervisory Elmos Semiconductor’s CEO in waiting Board. That would enable it through the oversight body to exercise Hugo Boss makes management board influence on strategy and on investments in Fraport’s core business. A smaller representative on the Supervisory Board should also enhance planning security on the cost side. As regards potential conflicts of interest arising from the dual role as customer and co-owner of Fraport, the airline 12 campus Considerable potential for Supervisory points out that it has no intention of pushing through special condi- Board improvement tions for itself. The Federal Republic of Germany has sold its remaining High cost of IFRS shares (18.2 % of the share capital) in airport operator Fraport for over Groups often giving away money 660 million Euros, through direct placing with institutional investors plus an exchangeable bond. The biggest shareholders, after the Federal Government’s withdrawal, are the State of Hesse (31.8 %) and the City of 14 capital news Holdings: Buying & Selling in October Frankfurt (20.3 %). Neither are making use of their preemptive right to Insight DAX30 shareholder structures Fraport shares at the moment. The City of Frankfurt continues, however, Insight Shareholder ID: Jenoptik to be interested in raising its share to 25.1 %, so as to reach a blocking minority. By a consortial agreement, these two shareholders are to keep 50 % plus one share until mid 2011. 22 indexes of companies and persons Corporate Governance Germany INSIGHT COmpANIES BUHLMANN'S CORNER Germany after the elections: the new old Germany onflicts in co-determination because he can now call 10 % of the against each other – or simply crea- or codetermination in conflict shares, by and large, his own, Porsche ting a vacuum in which both Salzburg C– there’s one of the major pro- in the New Germany is demanding “as (VW dealers the Porsche Family) and blems on the new Federal Government’s an ultimatum” three seats on the VW Wiedeking (now only Porsche CEO, table. Is it defensible for a squad of Supervisory Board, which thanks to but soon, with his ultimatum, VW employees to be able to keep Herr co-determination is only half available supervisor) can flourish. Where are we Schrempp in office as DaimlerChrysler to capital. Are they maybe hoping to going to get the purgative to clean out CEO beyond his time, just because the use this access to the holy of holies to the Corporate Governance system? capital side doesn’t react? Recall the conclude one or more (public – and Take a look at Fresenius. There cor- crack at the 2004 AGM about the “Dual perhaps a few secret?) cooperation porate governance was turned on its Monarchy of Kopper and Klemm”, i.e. agreements? Who is to judge that? head so that everything could stay the the Supervisory Board chair and the One non-German plaintiff in a tech- same – just like Tomasi di Lampedusa’s head of the Works Council – which nically interesting legal action against Sicily in “The Leopard”. Until the inves- by definition represents the interests VW has been trying for four years tors managed to force a Corporate- of the German workers only. Is a VW through German lawyers to show his Governance Audit Committee out of workforce – but actually, once again, locus standi – unsuccessfully, though the major shareholder. So that the only the part working in Germany – admittedly in Wolfsburg, VW’s com- Board members – in entitled to keep Porsche strategist and pany town. any case entitled – family manager Piëch as President (i.e. IF what Porsche boss Pischetsrieder could then (but why chair of the SUPERVISORY Board), is said to have said – “Porsche’s entry only then?) look a even if he is at the same time the domi- will help VW to save … cost advantages bit closer and then nant shareholder in their new major of billions” – is true, THEN the Delphi – here’s where it gets shareholder? Which in turn, let us receiver ought immediately to buy up exciting! – report. not forget, is not just a competitor on GM shares and watch his worries eva- At VW it will scar- the market, but also even today alrea- porate – or else the conflict of interest cely be possible to Hans-Martin dy the biggest – and uncoincidentally perceived everywhere but in Wolfsburg define how Porsche Buhlmann is expanding still further – dealer in their is real. Who is going to tell us, and can cover the whole the founder of VIP Vereinigung group’s products? when, how VW came to accumulate range of production, Institutionelle Clearly such conflicts of interest too many of its own shares, and what and Salzburg the Privatanleger e.V. look worse than Germany Inc as such. Brazilian decision-making assistance sales ... (www.vip-cg.com), And clearly something’s got to change then brought about their resale at the The Fresenius Me- a proxy voting here. And again, management expert right time, in VW’s interest? How for- dical Care model is agency. Fredmund Malik (St.Gallen) is clear- tunate that the mighty, double-ban- clever, and temp- ly right, when he takes Piëch under ked German Supervisory Board exists! ting; all the parties his wing by saying “Ownership creates Co-determination may be able to take keep face (after all, obligations more than anything else”. half of it, but not its power, were all to they’re doing something ...), each has But that does not mean that Corporate attend its sittings. How fortunate that an addressee to delegate responsibility Governance rules should stop when it it does audits, and can even pay for a to, and the details are left as an exerci- comes to Porsche descendants: owner- J.P. Morgan expert report – or perhaps se for the historian – since at present ship entitles only to a quota, not to more accurately, get it paid for. any matters of substance are liable to putting the burden on others. And the Surely there must be some mecha- remain secret. Corporate governance conflict of interest should be brought nism that makes it possible to find filed away – or filed-down corporate out transparently, and what’s more, as out whether the head supervisor (who governance? Yet it could all be so sim- soon as it’s recognized as a potential stands out in the media as the only one ple: there’s the AGM, and everybo- danger, not just once it breaks out. to have a “contract till 2007” for the dy comes along and speaks and acts While Kirk Kerkorian at GM is role) is now playing off the two VW – that’s what can crack (even) the VW “pushing” on to the Supervisory Board bosses Bernhard and Pischetsrieder Act. ISSUE 11/2005 02 Corporate Governance Germany INSIGHT COmpANIES Infineon in the sights of the Corporate Governance - financial authorities VW a test case The financial authorities are, accor- The dual role of Ferdinand F. Piëch ding to reports in the “Süddeutsche as Supervisory Board chair of automo- Zeitung,” investigating irregularities bile group VW and major shareholder surrounding the March 2000 IPO in sports-car manufacturer Porsche has of chip manufacturer Infineon. sparked off debate about the importance Executives are alleged to have secured of conflicts of interest on supervisory more shares, through trustees, than boards. Manuel R. Theisen, Economics had been reserved internally for Professor at management. The financial aut- Munich University horities are said to be examining and a lawyer, calls whether there were infringements it “the crassest of tax regulations. Last December case of conflict the head offices of Infineon and its of interest we’ve major shareholder Siemens were already searched in this connec- ever seen at this tion. Both firms confirm the investigations. Their object is said to level”. Theodor be Infineon’s so-called Friends & Family Programme. According Baums, Professor to the newspaper’s information, former Infineon CEO Ulrich at the Institute for Schumacher had secured access to further shares through trustees. Banking Law at the Among these was allegedly Infineon executive Peter Bauer. Infineon Johann Wolfgang stated that Bauer had at Schumacher’s request bought shares in his Goethe University own quota on a fiduciary basis. This is said to have been appro- and head of the former Government ved by then Supervisory Board head Volker Jung. Schumacher’s Commission on Corporate Governance, lawyer stated there were no investigations against Schumacher regards Piëch’s dual role as not unprob- personally in the tax case. Schumacher said, “The company and the lematic. According to the Corporate Supervisory Board had an interest in having the board subscribe as Governance Code, a supervisor must many shares as possible, so as to promote the board’s commitment resign if simultaneously a member of an to the company.” institutional body of a major competitor. The prosecutors’ investigations in the Infineon corruption case have However, opinions differ as to how much been extended to Schumacher.