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Dutch, Canadian institutions back Deutsche Bank governance audit as shareholder body plots legal action

Proposal for special audit gets 14.35% shareholder backing at AGM

At least two of the world’s leading institutional investors – PGGM of the Netherlands and Canada’s British Columbia Investment Management Corp. (bcIMC) – have backed a call for a review of governance at Deutsche Bank proposed by German shareholder body DSW.

DSW wants the Frankfurt-based bank to determine whether its governance was good enough to prevent future scandals such as the Libor-rigging issue which has cost it €2.2bn in fines. It wants BDO, the accounting and business consultancy firm, to carry out the audit.

“While the bank has put in place new policies, practices and oversight procedures in the recent past, we are supportive of carrying a special audit report,” said bcIMC, which manages C$114bn (€83bn) in assets for public sector pension plans and others. “We are voting for this extraordinary measure which would provide shareholders with additional insights into accounting, risk management and oversight policies and practices.”

In the event, DSW’s proposal received 14.35% shareholder backing at the AGM yesterday.

However, the DSW says that despite the defeat, it will be able to force a governance audit of Deutsche through legal means. “It’s a process designed to protect minority rights. As long as we have at least €100,000 worth of voting shares in the bank, we can ask a court – in this case in Frankfurt – to order an independent audit,” said DSW spokesman Jürgen Kurz. The auditor would then be chosen by the court instead of shareholders, as per the original DSW proposal.Kurz said that as the DSW had already acquired €500,000 worth of voting shares to get its proposal on the agenda of the AGM, passing the €100,000 threshold shouldn’t pose a problem. The shareholder body plans to file the request for an audit with a Frankfurt court within the next four weeks.

Attention had focused on the scale of support for ‘discharging’ the bank’s management and supervisory boards of legal liability for 2014. It turned out that almost 40% of the voting capital went against Deutsche’s management on the discharge question for 2014.

The €162bn PGGM, voting against discharge, said the body bears “ultimate responsibility” for the libor affair and other legal troubles.

Hans Hirt of Hermes Equity Ownership Services (Hermes EOS) said that while he very much shared the criticisms of other big Deutsche shareholders and voted against management discharge, he didn’t feel that DSW’s proposal was necessary. “It’s pretty clear from the regulators’ reports what went wrong at Deutsche Bank. We felt that it was more important to hold those accountable – which is why we denied management discharge,” Hirt, who is a director at the UK engagement firm that’s ultimately owned by the BT Pension Scheme, told Responsible Investor.