When RWE holds its annual general meeting on April 23, it is likely to be an unpleasant experience for executive and supervisory board members alike.
RWE is Germany's second-largest energy company and like many other power providers in the country, is in crisis as the government institutes a hasty switch to sustainable energy sources that leaves traditional power companies holding expensive assets they have to wind down.
Later this month, Peter Terium, RWE's chief executive, will have to tell shareholders how he plans to lead the energy company out of the crisis.
That isn't the only problem. Shareholders will also ask tough questions about RWE's supervisory board, the non-executive body which hires and fires chief executives and confirms strategic decisions.
Its current head, Manfred Schneider, is 76 years old. He will need to explain why he still has no successor for his job.
Why do the municipalities, which own just a quarter of the stock, comprise 40 percent of the supervisory board?
There is also likely to be criticism of four further board members; those who represent the municipalities that are part owners of RWE. The most difficult question they face will be: Why do the municipalities, which own just a quarter of the stock, comprise 40 percent of the supervisory board?
It is not the first time this question has been leveled at the municipalities' representatives; it has been raised by shareholders’ associations and major fund companies in the past.
But this year they have a prominent supporter: the supervisory board chairman himself. When the board is newly elected in the coming year, Mr. Schneider wants to take away one of the municipalities’ seats, according to a source close to the supervisory board.
The municipalities from the Rhine and Ruhr regions of western Germany, which have been closely involved with the utility company’s fortunes since it was founded in 1898, are not about to relinquish their influence without a fight.
"At RWE's annual general meeting, where there is a vote on major decisions affecting the company, municipal shareholders have a consistent representation of well over 42 percent,” they wrote in a position paper, a copy of which Handelsblatt has obtained. "This would justify a discussion about increasing the number of the municipalities’ seats on the supervisory board of the RWE to five, rather than reducing the present number.”
The involvement of towns, municipalities and districts as members of the supervisory board probably makes RWE the DAX company with the most complicated power structures.
Supervisory boards in Germany always have an employee representative. RWE has two: one from each of two competing trade unions represented on the supervisory board: Ver.di, which represents workers in the service industries; and IG Bergbau, Chemie, Energie whose members are from the mining, chemicals and energy businesses.
The supervisory board then includes the representatives of the municipalities who have their own specific interests. They are particularly focused on generous dividends and what happens to the power plants in their regions.
“The influence of the municipal shareholders can be a problem,” said Thomas Deser, fund manager at Union Investment. He said they tend to be particularly interested in high dividends and were often highly critical of capital increases. "That is not always compatible with the interests of other shareholders,” said Mr. Deser.
At RWE, the two issues, dividend and capital increases, currently have great potential for conflict.
While other shareholders are prepared to accept lower dividends and enable RWE to be restructured, the municipalities consider the current dividend of €1 per share to be the absolute minimum. They have already factored in these revenues in their tight budgets.
A capital increase would also be difficult for the municipalities to stomach, as they probably wouldn't be able to participate, and that would mean a loss of influence. And there is currently one investor ready to put fresh capital into the company: A sheikh from Abu Dhabi wants a 10 percent stake.
For their part, the municipalities feel they are being unjustly criticized. In their position paper, they take pains to justify their four seats, arguing that the municipalities are not just the biggest investor. "The municipalities are also customers and partners to RWE in the organization of local and regional energy supplies.”
Handelsblatt's Jürgen Flauger covers the energy industry. To contact the author: [email protected]