|What are the policies and monitoring systems that are in place to prevent poor practices and breaches of company operating standards, e.g. bribery and corruption, and how any breaches are reported to the board and addressed to limit the risk of recurrence?|
|Volkswagen AG||2020||Germany||Vote Bulletin||https://www.blackrock.com/corporate/literature/press-release/blk-vote-bulletin-volkswagen-oct-2020.pdf|
BIS regularly reviews VW’s governance structure and risk profile. BIS has engaged regularly with VW’s Supervisory Board chair since 2016 on a range of environmental, social and governance topics, and has frequent dialogue with VW’s Investor Relations and Sustainability teams. We have on numerous occasions encouraged the company to improve the number of independent directors on the Supervisory Board to enhance the level of independent oversight of management. We have regularly discussed board composition, minority shareholder interests and Supervisory Board transparency.
… When analyzing the independence level of the Supervisory Board, BIS only considers members who are elected by shareholders, and excludes government or employee representatives whose presence might be legally required. With two independent members (at the time of the AGM), the current level of independence on VW’s Supervisory Board does not meet BIS’ expectations for controlled companies. In controlled companies, BlackRock expects the number of independent Supervisory Board members to be no less than one-third of the shareholder representatives.
The insufficient level of independence on VW’s Supervisory Board impedes its ability to form sub-committees that meet BIS’ expectations of majority independence with an independent chair. In our assessment, the insufficient independent oversight provided by VW’s Supervisory Board played a major role in the events which led to the company employing what has become known as a ‘defeat device’ in some of its diesel engine cars, as uncovered in 2015. This was software which could detect when the engine’s CO2 emissions were being tested and adjust performance in order to improve results. VW faces ongoing investigations and legal proceedings in relation to the 2015 incident, which continues to impact shareholder value.
BIS remains concerned with the level of fees paid to the company’s independent external auditor. For the last two fiscal years, the level of fees paid for audit-related services was surpassed by those paid for services related to other matters, thus raising concerns with the independence of the auditor. No disclosure was provided in VW’s annual report to explain and justify this practice. BIS notes that a new external auditor will be appointed this year.
- Management Proposal
- Resolution on the formal approval for fiscal year 2019 of the actions of the members of the Supervisory Board H.D. Pötsch, H.A. Al Abdulla, B. Dietze, H.P. Fischer, M. Heiß, L. Kiesling, P. Mosch, B. Osterloh, H.M. Piëch, F.O. Porsche, W. Porsche, C. Schönhardt and S. Weil who held office in fiscal year 2019
- Concern regarding the independence of the external auditor
BIS has ongoing concerns with the insufficient level of independence on the Supervisory Board and its subcommittees. BIS’ policy is to withhold support from the re-election or discharge of those members who are most accountable for Supervisory Board composition through their role on the Supervisory Board or membership of relevant board sub-committees. We voted against the discharge of nomination committee members H.D. Pötsch, W. Porsche and S. Weil for the insufficient level of independence on the Supervisory Board, and of Supervisory Board chair H.D. Pötsch for the insufficient level of independence on the sub-committees.
In light of BIS’ concern regarding the independence of the external auditor, we voted against the discharge of Supervisory Board members B. Dietze, M. Heiß, B. Osterloh, F.O. Porsche and C. Schönhardt, all of whom served on the audit committee during fiscal year 2019.
We believe Supervisory Board members should be held accountable for the level of oversight provided on governance matters. We voted against the discharge of Supervisory Board members H.D. Pötsch, H.A. Al Abdulla, H.P. Fischer, L. Kiesling, P. Mosch, B. Osterloh, H.M. Piëch, F.O. Porsche, W. Porsche and S. Weil who were already serving at the time of the emissions incident. This is consistent with our approach since VW’s 2016 AGM.