VW, Porsche exec roles raise governance worries

Published: 14 Aug 2009 06:04:12 PST

* VW CEO, CFO to have same roles at Porsche SE

* Investors see potential conflict of interest

* Business deals between the groups to come under scrutiny

FRANKFURT, Aug 14 - The appointment of Volkswagen's chief executive and its finance head to lead Porsche SE before the groups merge raises questions about potential conflicts of interest, corporate governance experts said.

The moves come as VW announced it will pay up to 3.3 billion euros ($4.7 billion) for a 42 percent stake in Porsche's sports car unit, the first step towards a full merger to create a European automotive powerhouse over the next two years.

VW said the combination could yield 3 billion euros in savings and add 700 million euros in annual operating profit.

Porsche secured an alliance with VW, which already supplies parts for around a third of all Porsche vehicles.

While the industrial logic appears clear, the naming of VW CEO Martin Winterkorn and VW CFO Hans Dieter Poetsch to take the equivalent roles at Porsche as well next month raised eyebrows.

That's because key merger details between VW -- Europe's largest automaker -- and Porsche still need to be negotiated, corporate governance experts said.

"You can't negotiate with yourself," said Wolfgang Gerke, an honorary professor at the European Business school and member of the Frankfurt Stock Exchange's exchange council.

"The VW-Porsche case raises several corporate governance issues, including conflicts of interest," Gerke said, adding insufficient information was available to determine whether either company had suffered a disadvantage.

Marco Cabras, a spokesman for Germany's DSW association for private investors, said: "This isn't a prime example of good corporate governance. More transparency is desperately needed about decision making procedures and processes."

For example, a potential conflict of interest could arise at a Volkswagen shareholders meeting, Cabras said.

Because Porsche already has more than 50 percent of VW's voting shares, Winterkorn could use Porsche's clout to influence the annual vote to endorse the Volkswagen management board. "This issue needs to be resolved," Cabras said.

ABSTINENCE

The two men in the hot seat played down concerns.

Winterkorn told reporters at VW's headquarters in Wolfsburg he couldn't see any potential conflicts of interest arising from his dual leadership role, adding that if any arose they "could be resolved."

Poetsch told an analyst conference call that he and his boss would abstain from any decisions by the Porsche management board on agreements between the two companies.

The ties between Volkswagen and Porsche are already entwined in the form of Ferdinand Piech, Volkswagen's chairman, who is also a member of the families that control Porsche.

The Porsche and Piech families will remain the largest shareholders in a combined company, together retaining a stake of between 35 and 40 percent, Volkswagen said.

Their ties mean business deals between the two groups will come under scrutiny to ensure they are done at arm's length.

Volkswagen on Thursday said it would also buy Europe's biggest auto distributor from the Porsche and Piech families.

The sale will be based on an enterprise value of 3.55 billion euros, a figure Bernstein Research analyst Max Warburton said appeared at first glance to be "above most assumptions".

Porsche had sought to seize control over Volkswagen, but its takeover attempt backfired after it took on more than 10 billion euros in debt, forcing it to seek help from Volkswagen.

For factbox on terms of the VW/Porsche integration, click on