While talk of a “shareholder spring” piqued the interest of investors and media outlets alike in 2012, this narrative all but faded to a murmur across many global markets in 2013. The momentum may have held in Germany however, where minority shareholders at two companies – ThyssenKrupp and GSW Immobilien –shook things up at their annual meetings during the past half year. Proposals submitted to the meetings by institutional investors resulted in high-profile resignations at both companies. These noteworthy outcomes contrast with the less tangible effects of shareholder activism at the annual meetings of Deutsche Bank, Commerzbank and SolarWorld, among others, in 2012.
ThyssenKrupp – formed through the 1999 merger of two of Germany’s biggest companies – has existed in some form since 1891 and is now a multinational conglomerate with hundreds of operations around the globe. GSW, on the other hand, is a Berlin-based real estate company with a local focus. Although founded in the 1920s, GSW only had its initial public offering in 2011.
Frustrated with the perceived missteps occurring at ThyssenKrupp’s highest ranks, several individual and institutional investors submitted countermotions requesting shareholders oppose the ratification of management and supervisory board acts. Though these ratification proposals are largely symbolic in Germany, any mounted opposition signals serious shareholder discontent.
Investors were agitating for change at the top after ThyssenKrupp reported several years of poor returns, culminating in a net loss of €5 billion for the 2011/12 fiscal year. As a result of the surprisingly large loss, company executives were forced to claim responsibility for mismanagement of the failing Steel Americas projects, releasing three management board members from their recently renewed three-year contracts early (though they still provided hefty severance packages). Glass Lewis agreed with the dissident institutional investors, recommending shareholders vote against the ratification of all supervisory and management board acts.
When votes were tallied, the ratifications of individual executives and board members received between 62% and 76% of support shareholders’ support, an unusually low showing. The significant level of opposition from minority shareholders is made clear when accounting for the 25% stake of the founding families held through a foundation. Weeks after the annual general meeting, the company announced that supervisory chairman Gerhard Cromme would be retiring. Although the Company did not provide any explanation for the decision, it is presumed that the significant opposition to the ratification proposals by minority shareholders at the annual meeting, coupled with continued engagement from institutional shareholders requesting a new supervisory board chairman, led to Mr. Cromme’s resignation from ThyssenKrupp’s board.
In the case of GSW, Dutch institutional investor PGGM proposed motions to remove that company’s supervisory board chairman and also put forth a vote of no-confidence in its newly-appointed CEO. PGGM was outraged at the selection process of then-CEO Bernd Kottmann. Mr. Kottmann assumed the role as GSW’s chief executive just a week after his predecessor resigned. The catch? Kottmann and supervisory board chairman Eckart John von Freyend had a long-standing relationship as coworkers: the two served together as executives at a failed real estate company years earlier and continued to sit alongside one another on the supervisory board of a third real estate company. In addition to the CEO’s rushed replacement and perceived nepotism, PGGM was frustrated with the chairman’s failure to respond adequately to shareholders’ questions.
PGGM was not alone in their concerns. German financial services watchdog BaFin investigated whether the company violated disclosure rules with the departure of Kottmann’s successor. GSW maintained that a number of other candidates were considered for the position but did not provide details.
The no-confidence motion for CEO Kottmann received 63.3% of votes at the annual meeting, exceeding the majority vote required. PGGM’s proposal to oust chairman von Freyend got 69.6% of the popular vote. While the latter of the two motions required 75% approval in order to be enacted, shareholders’ strong message was clear. Glass Lewis supported Mr. von Freyend’s removal but fell short of supporting Mr. Kottmann’s no-confidence vote.
In a move reminiscent of Mr. Cromme’s some months before, Mr. von Freyend resigned from GSW’s board earlier this week. His long-time friend and co-worker Bernd Kottmann left the company in late June, shortly after the annual meeting.
The two cases of ThyssenKrupp and GSW may act as parables for future shareholder activism in Germany. The stories demonstrate that institutional shareholders, even when wielding just a small fraction of a company’s total share capital, can sway a huge portion of shares against management even in Germany, where such action has been rare in the past. At both meetings, the shareholders who proposed motions controlled less than 5% of the companies’ capital. Glass Lewis presumes that management at other German companies have taken note.
With contributions from Kevin Schroeder