It’s known as being stuck between a rock and a hard place.
If Gerhard Cromme did not have prior knowledge of the expression then the last few weeks have surely made him aware of the unpleasant nature of the position to which it refers.
The ThyssenKrupp chairman published his code of conduct for German companies at the end of February and its contents reflect the fact that he had his options squeezed from both sides throughout the six-month process. Not a pretty thought.
Much of the trouble lies in the fact that German companies operate in a more stakeholder-oriented fashion than many of their counterparts in, say, the US or the UK. Yet Dax companies are among the most internationally-owned blue chips in the world, often with 50-60 percent-plus held by foreign institutions – many from the US and UK, which prefer a more shareholder-friendly approach. Add in the fact that German politicians are in a tizzy about protecting ‘their’ companies from foreign takeovers and you have a real recipe for attenuated options. Satisfying the domestic and international constituencies was always going to be difficult.
In the circumstances, Cromme has not done too bad a job but – as is the very essence of rocks and hard places – few people have given him due credit. Many observers say he offers too many concessions to the opposing clan to be able to sort any positives from the negatives.
The new code does proffer some moves in the right direction in a country that has sorely lacked a decent governance rule book to date. With the backing of the forthcoming Transparency & Publicity Act, companies will be forced to either comply with the code or explain their reasons for failure to do so. The theory is this will leave the laggards open to shareholder pressure.
Nor is complete compliance simply a matter of ticking a few boxes. Many German companies will be facing issues such as director independence and revealing individual directors’ remuneration for the first time. In certain key areas, the code goes a lot further than the rules in other major markets. Despite the generally condescending attitude in the UK (‘We did this many years ago, you know’), there are few UK companies that report on a quarterly basis and even fewer that post that information on the internet in a second language.
Still, if Cromme’s baby was a serious attempt to deliver a shareholder-friendly Germany, then he badly misjudged the desires of many interested onlookers. His greatest failing lies in bowing to domestic pressure and avoiding a clash with the new takeover law. The legislation allows German companies to adopt anti-takeover devices without shareholder approval and Cromme’s code has merely suggested that the management board convene an EGM in ‘appropriate cases’ so that shareholders can discuss a takeover offer.
Cromme knew the expectations of international institutional investors, of course, yet chose to ignore them. Evidently, he believed he would be in more trouble from his domestic peers if he truly opened German companies up to a bit of rigorous capitalist competition. Few eyebrows should be raised, however. The quashing of last summer’s European takeover directive by German MEPs after some twelve years’ work was a good indicator of things to come. But unless Germans begin to accept the need for free shareholder decision-making on takeover questions, they may find ‘their’ companies isolated between a rock and a hard place – while their investors seek more comfortable surroundings elsewhere.
