Family affair

Volkswagen weakened by chairman's grumbling

Volkswagen's Chairman Ferdinand Piech doesn't seem happy with Chief Executive Martin Winterkorn, an old confidant and successor-in-waiting. His criticism comes at a bad time for the world's second-largest carmaker. Volkswagen is in the midst of a major cost cutting effort and is trying to revamp its struggling United States unit. The row at the top exposes flaws in the group's governance and differences between Piech and the rest of the controlling Porsche family as well as other key stakeholders.

Outside investors have little say in the euro 202-billion empire that makes Ducati motor bikes, Porsche sport cars, Skoda family sedans and Scania trucks. The Piech and Porsche families are holding 53 per cent of the company's voting stock - itself amounting to a little over 60 per cent of the share capital. The state of Lower Saxony controls another 20 per cent; and employees appoint half the directors. Between them, the two families, the state and the unions control 85 per cent of the board's votes.
 
What Piech has against Winterkorn is anyone's guess. But his grumbling recalls the time in 2006, when previous CEO Bernd Pischetsrieder was ousted after losing his confidence. For now, Piech remains isolated as Winterkorn still has the firm support of the rest of the board.

Winterkorn's overall performance has been strong. Revenue and operating profit doubled under his watch, while the dividend rose four-fold. Since he took over in January 2007, Volkswagen shares have gained 350 per cent versus 90 per cent for the overall German market.

True, the group's recent performance is a mixed bag. Profitability at VW's core passenger car unit has deteriorated. The brand has been losing ground in the US But a plan to squeeze euro 5 billion of costs at VW's core brand was kicked off in mid-2014 and seems to be on track. And a fresh management team is at work in the US.

The group's biggest challenge will be managing the succession of 77 year-old Piech and 67 year-old Winterkorn. Both have a reputation for micro-management, and Volkswagen's internal command structure is highly hierarchical. In the short run, a power tussle at the top could slow the restructuring. In the medium term, Volkswagen needs a more modern and decentralised leadership structure free from the whims of an ageing patriarch.