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Leading investors to oppose discharging board at German giant ThyssenKrupp

Anger over board’s failure to accept blame for mistakes

Some leading institutional investors in German steel and industrial giant ThyssenKrupp are set to vote against discharging the supervisory board at the firm’s annual shareholder meeting in Essen tomorrow (January 18).

Under German rules, investors vote to clear (“discharge”) the board of responsibility for events in the previous year.

But the investors are upset at chairman Gerhard Cromme’s perceived failure to take responsibility for a series of missteps.

The shareholders include Hermes Equity Ownership Services (Hermes EOS), the German Association of Institutional Shareholders (VIP); the German Association of Ethical Shareholders (DKAA); and DSW, one of two small German shareholder associations.

Responsible Investor has also learned that a major asset manager in Frankfurt will join the group in voting against discharge – and make its criticisms known at the meeting chaired by Cromme.

The shareholder anger stems from the supervisory board’s failure to admit responsibility for €12bn losses on new steel mills in Brazil and the US and a €103m fine for price fixing among other issues.

Instead, the blame has fallen on former senior and middle managers, including Ekkehard Schulz, who was chief executive until retiring January 2011. Board executives Olaf Berlien, Edwin Eichler and Jürgen Claassen departed last December. Claassen is himself facing accusations of bribery while he was the firm’s communications chief.

Despite this, there have been no consequences for either Cromme, the architect of ThyssenKrupp in the late 1990s who served as its co-CEO until 2001, or fellow board members.Current CEO Heinrich Hiesinger told a news conference last month that the supervisory board couldn’t be held responsible for the disastrous steel mills, saying it is totally dependent on management for information.

DKAA and others reject the idea that Cromme, who’s also chairman at industrial group Siemens, was misled by management. They add that it was in any case the board’s duty to evaluate critically the information they were given.

“ThyssenKrupp likes to point out that outside experts have confirmed in legal opinions that the supervisory board was fully compliant with the law,” said Hans Hirt, executive director at Hermes EOS. “But this does not mean that board members are not responsible for bad decisions and a lack of oversight and control.” Hermes EOS’ clients own just under 0.5% of ThyssenKrupp.

The shareholders are not calling for Cromme’s immediate resignation. “That would be far too premature, as Cromme is needed to get the firm out of this mess,” said a source at the Frankfurt asset manager that owns about 1% of ThyssenKrupp. Another small asset manager in Hamburg with €50m invested in the firm also expressed confidence in Hiesinger’s ability to turn the company around. ThyssenKrupp’s share currently trades at around €18 – or half of what it was worth in June 2011. It reported an operating loss of €4.4bn in its last business year.

Although under scrutiny, it is likely the board will be discharged as the critical shareholders are in the minority. Moreover, it can count on the backing of 25% owner the Alfred Krupp von Bohlen und Halbach-Stiftung foundation.