Germany’s third-largest asset manager Union Investment has criticised corporate governance of European blue-chips after it ranked Stoxx Europe 50 constituents — and none met its minimum criteria of supervisory board independence, transparency, diversity and director pay.

The table of the region’s largest companies, compiled by Union and Ivox Glass Lewis, the German-based proxy adviser, shows a clear north-south divide with 18 of the 26 British, German and Dutch companies in the upper half of the ranking and 10 of the 14 French, Italian and Spanish groups in the lower half.

The survey assessed 96 criteria associated with corporate governance, including separation of the chief executive and chairman roles, gender diversity, transparency issues such as executive pay disclosure and term limits for non-executive directors.

“The current corporate governance of many European blue-chips is still not on a satisfactory level,” said Jens Wilhelm, an executive board member at Union, who added that — based on British school grades — even the best performers received only a B+.

The average grade for the 49 constituents of the Stoxx Europe 50, which unlike the Euro Stoxx 50 includes British and Swiss companies, was B-.

Union manages €338bn in assets — as part of the co-operative banking sector — and has a 15 per cent share of the German fund market.

The three highest-ranked companies, Allianz, BASF and Siemens, were German, while the three worst were based in Spain and France — Telefónica, Vinci and LVMH.

“I am not surprised that German companies are leading in Europe,” said Alexandra Niessen-Ruenzi, corporate governance professor at Mannheim University.

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Germany’s corporate sector has been rocked by several scandals in the past decade including the Siemens bribery case, mismanagement and sleaze at Thyssenkrupp and Volkswagen’s diesel scandal that so far cost the carmaker more than €30bn. Thyssenkrupp and VW are not members of the Stoxx Europe 50.

The worst-performing German company in the ranking was Deutsche Telekom with a B-, the same score as a handful of the weakest UK companies including Reckitt Benckiser, Prudential, Imperial Brands and British American Tobacco.

The worst performers received a C- as they do not disclose executive pay on an individual level and they combine the posts of chief executive and chairman.

“Such a personal union is an issue which we see as highly critical as it leads to a lack of internal checks and balances,” said Vanda Heinen, Union’s corporate governance analyst.

French luxury group LVMH, the ranking’s worst performer, declined to comment.

Construction group Vinci told the Financial Times that “as a French company, we are operating under a different governance code and we believe that some of the criteria are less relevant in our circumstances” than for German corporates.

Germany’s two-tier board system by default leads to a separation of the roles of CEO and chairman, and its legally binding corporate governance code stipulates the individual pay disclosure.

Anke Zschorn, director of research at Ivox Glass Lewis, said the ranking “to a certain degree reflects a German perspective on corporate governance”.

She added, however, that the criteria “reflect international expectations on best practice in corporate governance” that apply for all listed companies regardless of their home country. “Such standards are only slowly gaining acceptance in corporate Europe,” she said.

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Telefónica said its board was “committed to sound corporate governance” and it aimed to improve its standards, including to increase the proportion of women on its board, which stands at 18 per cent.

In recent years it cut the size of the board, raised the number of independent directors to more than half the total and installed a senior lead independent director.

Meeting all formal criteria in the survey did not automatically mean companies had strong investor backing. Bayer recorded a B+ but Werner Baumann, chief executive of the German pharmaceuticals and chemicals company, suffered a historic no-confidence vote from investors last month.

“The reason for the voting disaster was not primarily a corporate governance issue but a serious misjudgment of Bayer’s management which even good corporate governance cannot entirely prevent,” said Mr Wilhelm, adding that Bayer’s management “grossly underestimated” the litigation risks of the Monsanto takeover in connection with the deal.

The survey also highlighted a significant lack of boardroom diversity, with 10 companies lacking even one female executive director and a further 12 not having at least 30 per cent female non-executive directors. Belgian brewer AB InBev and Swiss miner Glencore failed on both accounts.

Additional reporting by Harriet Agnew



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