In the lead up to the AGM of the carmaker, Volkswagen (VW), last week (10th May) activist investor Hermes EOS recommended a vote against re-electing members of the management and supervisory boards and the revised remuneration policy.

Hermes believes that VW had made unsatisfactory progress in uncovering the corporate governance and culture problems which contributed to the 2015 emissions scandal. Commenting on the revised remuneration policy Hermes said there have been some long overdue improvements but it still lacked sufficiently challenging performance metrics for the bonus component. It also could provide an inappropriate level of pay for mediocre company performance, Hermes said.

Hermes noted that following the breaking of the diesel emissions scandal in September 2015, VW's supervisory board commissioned the US law firm Jones Day to conduct an external investigation into the scandal. VW said that it would inform shareholders about the findings of the external investigation at the AGM 2016. However, no report summarising the main findings has been published to date and, according to the company, such a report will also not be provided to the public in the future.

Hermes said: "We believe that in order for the company to draw the necessary conclusions from the scandal, to overcome it and move on, the publication of the key findings of the external investigation should be mandatory.

We remain underwhelmed by the progress Volkswagen has made on reviewing and improving its corporate culture since the emergence of the scandal in September 2015. This is concerning as we believe that a questionable corporate culture contributed to its unfolding."

While Hermes said it recognised that VW had begun to improve its integrity and compliance systems but believed its efforts to date lacked an analytical basis, were insufficiently focused on corporate culture as widely defined, and remained vague on key performance indicators. Hermes believes that Hermes needs to undertake a systematic, independent review and analysis of what went wrong and the role corporate culture played in the scandal.

Hermes added that it remained concerned about the composition and effectiveness of the company’s supervisory board and executive remuneration and had been raising concerns about this for over a decade. However, Hermes noted that there had been improvements in communications with investors since Hans-Dieter Pötsch, had taken office in October 2015. However, Hermes believes there may still not be a sufficient number of independent members of the supervisory board.

Hermes welcomed the vote given to shareholders on the revised remuneration policy but while there had been improvements it said it would vote against. Among its concerns was the performance criteria for the long-term incentive plan which Hermes said does not set optimal incentives for the creation of long-term value in the interest of all stakeholders. In Hermes view, the plan should be underpinned by Volkswagen’s long-term, strategic goals which it specified in its Together 2025 strategy.

Manifest's remuneration analysis gave VW its lowest grade, F  noting potentially excessive pay given recent company performance and an excessive level of performance pay. Manifest also noted that performance conditions do not apply to all long-term incentive awards and the details of these conditions are not disclosed for all awards.

Hermes is a client of Brussels-based corporate governance adviser, Deminor. Erik Bomans, from Deminor, attended the AGM as he had last year, and added to the call by Hermes for the publication of the report by Jones Day on the emissions scandal. He also wanted to obtain full disclosure of the amount that VW has agreed to pay to settle cases taken against the company in connection with the scandal. It is estimated to be $28bn and Bomans said these settlements were a cost to shareholders but no executives had been made to paid for company mistakes.

The voting results from the AGM show that all the resolution received around 99% support from shareholders. However, it should be noted that a large proportion of VW's shares are held by Porsche (30.8%), Qatar Holdings (14.6%) and the German State of Lower Saxony (11.8%).