DOUBLE TROUBLE Commerzbank Bungles the Vote

Commerzbank’s management and supervisory boards need to talk with their biggest shareholder, the federal government, before putting major proposals to a vote, says our author.
Mr. Blessing and Mr. Müller failed to get the government onside first.

There's a major loss of face when a proposal by a company’s supervisory board fails at the annual general meeting because of opposition from its biggest shareholder.

Usually it doesn’t happen because corporations carefully coordinate their plans with their most important stockholders in advance.

At Commerzbank, all that went wrong last week when its largest shareholder, the federal government, voted down 200 percent bonuses for top employees.

Clearly there are serious issues between Germany’s second largest bank and its major shareholder. The core of the conflict is probably that Commerzbank would like to be a normal bank, but is actually a political bank today. Although the federal government allows Commerzbank a free hand in business policy, it is much more sensitive when it comes to bonuses, executive board salaries or compensations.

It should have been clear to all participants how sensitive it would be to propose bonuses that would have been double the base pay for top performers – in effect, tripling their overall compensation.

The government ultimately put E.U. regulations into effect, within the German law, which limits bonuses in normal cases to the amount of the fixed salary. A doubling of this bonus threshold should only happen in exceptional cases.

As long as the state is the bank’s major shareholder, it can exert its influence in any way it wants.

So it was politically clueless for a bank, whose major shareholder is the state, to push the legal boundaries on bonuses. One could say that the government maneuvered around for a long time, rather than making a clear announcement. It is ultimately not in the interest of taxpayers, if the bank, of which almost 16 percent belongs to the state, suffers an avoidable loss of reputation.

It is the job of the executive board chairman, Martin Blessing, and supervisory board chairman, Klaus-Peter Müller, to recognize political sensitivities more clearly. But this is not the first time they have banged their heads up against this wall.

Two years ago, when they wanted to reduce the executive board, they also failed to handle it quietly. The federal government would not tolerate any compensations, so Mr. Blessing and Mr. Müller simply fired an executive board member. The manager successfully sued, and the termination turned into a spectacle that damaged the bank’s image.

Considering past mistakes, it seems pretty bold to put a politically sensitive bonus plan to a shareholder vote without backing from Berlin. That other non-state shareholders almost unanimously agreed to the bonus plans does not change anything: As long as the state is the bank’s major shareholder, it can exert its influence in any way it wants. Ultimately, it was €18.2 billion from taxpayers – not private investors – that saved Commerzbank in 2008 before the crash.


To contact the author: [email protected].