VIPsight - March 2012

COMPANIES

VIP opinion on the adaptation of the German Corporate Governance Code:

The Code Commission is not more sovereign than the sovereign – the general meeting. Not even on the question of “(in-)dependence,” which is by definition very difficult. Those who have nothing to do with a company are as independent as they are irrelevant. A (transparently!) dependent adviser can, however, do justice to the business – in various senses.

One solution to this dilemma might be to set a low threshold, above which an AGM would, as with a point of order, rule autonomously by resolution, and taking account of the well-known vote deductions (discharge, special audit, etc), on the question of (in-)dependence. Where, in accordance with a regulated quorum, the independence of the candidate is established, it should be assumed that the world is in order, for a period also to be determined; if it turns out, however, that dependency is present, the AGM should obviously carry out a re-election annually. The sovereign is called ‘shareholder’.

February 2012, VIP

Buhlmann's Corner

A paradoxical AGM

Even attending shareholders can obviously make mistakes at general meetings  ̶  and then even the best advisor is powerless. The statements of the chairman of the meeting at Balda  ̶  an S-DAX company with moderately profitable operations and an equity worth twice the market value of its parent company’s  ̶  at the extraordinary general meeting in Germany in February 2012 were at more than one place rather bizarre, a sort of special kind of comedy act.

“The Supervisory Board minutes record Michael Chiang (the main shareholder) as being present, but I (the Supervisory Board chair, and chairman of the meeting) remember that he was not.” My questioning brought no explanation  ̶  why should it, after all.  “My law firm advised the company, because the Supervisory Board took a framework decision on that (which is illegal). But it was also charged separately; the hourly rate applied was more than usual for the place.” The usual local hourly rate was likely too low, then. ‘More than usual’ means very much the local custom. Otherwise, it should have been ‘the hourly rate was higher than local custom’.  “With sales of 38 million a loss of 18 million is relatively high, but 14 million of it was amortization (due to the successful management) and another three million was corporate costs, so that operationally the result is one million.” The Managing Director of this subsidiary just reappointed is successful, then, and the corporate costs are not operationally related. Are the tax people watching at the AGM? “The application for a special audit is inadmissible because it has to be checked legally.” Which is why it was not voted on.

The most astonishing thing came 200 minutes into the meeting  ̶  the chairman’s statement, “I do not know if my major shareholder is present.” Yet he had stated at the start of the meeting (and repeated in the course of it): “I have checked for acting in concert, because the subjects of decision suggest the fact. Evidence of acting in concert is not available, or is insufficient. The shareholders’ representatives give no reason for doubt in this connection.”  Nobody noticed any longer that the board was promising the shareholders “to commission a special internal audit” (the auditor was allegedly not yet appointed) to nail down the misdeeds by the regular AGM in three months’ time. At the instigation of VIP the notary minuted this: “The result of the special audit will be disclosed to all shareholders.”

Why after this cabaret responsible shareholders should still send one-way, box-ticking votes as a message to critical meetings, without even asking for a receipt, is a question I shall probably take to my grave without an answer. One Supervisory Board election candidate even suggested “let’s all pull on the same rope”, after which I politely and simple asked to complete that with the phrase “and in only one direction”. So that no one’s Pinocchio nose would break off.

AGM Dates

Director's Dealings

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