VW’s government shareholder did not want to back top bosses

Volkswagen shareholder Lower Saxony wanted to withhold its backing for the carmaker’s top management at a supervisory board meeting but relented to avoid further damaging the firm, a source close to the German federal state said.

Representatives of the Lower Saxony government, which has a 20% stake in VW, raised their objections last week when the supervisory board debated whether to endorse the managers’ actions in 2015 — the year the company was engulfed in a scandal over the rigging of US emissions tests.

However, they backed off following a plea from Chairman Hans Dieter Poetsch, fearing their stand would be seen as a vote of no-confidence vote in VW’s leadership, the source told Reuters.

VW declined to comment.

Last month Volkswagen announced a €4.1bn ($4.63bn) operating loss for 2015.

It has reached a nearly $10bn deal with the US government, but still faces an array of civil law suits and members of its management board — which runs the company day-to-day — are under fire over their bonus scheme.

In the end, the supervisory board recommended after its May 10 meeting that shareholders should vote to ratify the actions of the top management, including chief executive Matthias Mueller, at the agm on June 22.

Such shareholder votes are common for German companies but in VW’s case the crisis means that approval is not a formality.

Support from Lower Saxony is vital for VW’s management along with the backing of the company’s two other major shareholders, the Piech and Porsche families and the Gulf state of Qatar.

The source told Reuters that Lower Saxony, which holds two seats on the 20-member supervisory board, initially opposed the recommendation because investigations into the scandal were still continuing.

US law firm Jones Day is finalising an inquiry ordered by VW into what role managers may have played when the carmaker cheated in the exhaust tests on diesel vehicles.

The source said Poetsch had strongly backed endorsing the management board.

Lower Saxony, represented by premier Stephan Weil and the state’s economics and labour minister Olaf Lies, eventually accepted his pleas to consider the risk that a split supervisory board could pose to VW’s recovery efforts.

A vote against the Volkswagen management board would have risked further destabilising the company that employs over 120,000 people at six factories in Lower Saxony, including its Wolfsburg headquarters.

A spokeswoman for Weil declined comment.

In a statement after the May 10 meeting, the supervisory board said its recommendation to endorse the managers’ actions was based on the presumption that investigators did not uncover any wrongdoing, and it did not preclude the possibility of seeking compensation at a later stage.

The source said Weil, a Social Democrat and former judge, is very unhappy with the agreement on managers’ bonuses.

Bonuses have become a flashpoint at VW.

Trying to soothe unions and investors, the supervisory board decided last month to withhold parts of executives’ bonuses but said they would get the remainder if the company’s preference shares rise 25% by 2019.

VW, which will pay 12 current and former members of the management board €63.2m for 2015, has drawn political fire at the federal level over the bonuses.