Leading institutional investors backed narrowly defeated Deutsche board audit proposal

Major investors put weight behind governance-related shareholder resolution

A shareholder proposal at Deutsche Bank’s AGM asking the banking giant to approve a special audit of its management and supervisory boards has received widespread support from US, Canadian and European pension funds – although in the event it was narrowly rejected yesterday.

The proposal was submitted by investor Marita Lampatz and calls for a special report into whether executives and members of Deutsche Bank’s supervisory board “breached their legal obligations” during a number of recent scandals, including alleged Libor interest rate manipulation and value-added tax cheating.

At the bank’s AGM on May 19 several high-profile asset owners, including US pension giants CalPERS and CalSTRS, the Canadian Pension Plan Investment Board and Dutch state pension fund APG, lent their support to the proposal, as did the Florida State Board of Administration, according to voting tallies. In the end, however, it was narrowly defeated, with 53.6% of shares voting ‘no’.

Other important supporters include the Ontario Teachers’ Pension Plan, which stated that it believed the “potential benefits to shareholders of such an audit outweigh the costs”.

Also voting ‘yes’ on the proposal was PGGM, which admitted that while there was currently “no clear and irrefutable evidence” of wrongdoing at Deutsche Bank, probes by market regulators have raised questions about the conduct of senior executives and supervisory boards. The bank has also launched its own internal investigations, particularly into the role played by the chairman of the supervisory board in the LIBOR rigging scandal.PGGM, the Dutch pension investor, said: “However, the recent sudden resignation of the supervisory board member [Georg Thoma] in charge of these internal investigations, and the circumstances surrounding his resignation, raise significant doubts about the supervisory board’s ability to investigate potential wrongdoing by its own members, which highlights a conflict of interest.

“Therefore, in order to restore shareholder confidence, an investigation into these matters by a third party special auditor, to be provided in a written report available to shareholders, is considered to merit support.”

Proxy advisors Glass Lewis, ISS and PIRC also advised clients to support the proposal. Meanwhile, Norway’s sovereign wealth fund manager, Norges Bank Investment Management, did not support the proposal.

The pressure to produce this particular audit may become moot, however, as German shareholder body DSW successfully convinced Deutsche Bank to support a corporate governance audit in April in an effort to ensure that recent, costly failures that have cost the bank billions of euros do not recur, as reported in Responsible Investor.

Deutsche Bank’s commitment to the audit, which will be carried out by accounting and consultancy firm BDO, also meant that DSW abandoned its efforts to have a Frankfurt court order the audit and agreed not to re-submit a shareholder proposal on the matter at the bank’s AGM.

Other proposals defeated on the day included one calling for approval of executive remuneration schemes at the bank, which saw divisional heads eligible for a bonus linked to their division’s performance as well as a basic salary and individual bonuses.