ISS clashes with German blue-chips over boardroom independence
Proxy adviser calls on investors to replace chairs of BASF and Munich Re, who previously served as chiefs of their groups
Influential shareholder adviser Institutional Shareholder Services has clashed with two of Germany’s biggest blue-chips over a lack of boardroom independence, recommending the chairs of BASF and Munich Re be replaced.
ISS’s position centres on a long-standing and controversial practice in Germany’s two-tier governance system: the fact that top executives often join a company’s supervisory board at the end of their operational careers. Munich Re chair Nikolaus von Bomhard and his BASF counterpart Kurt Bock were both previously the most senior operational executives at their respective groups.
In line with Germany’s Stock Corporation Act and its corporate governance code, both von Bomhard and Bock underwent a two-year cooling-off period before joining the supervisory boards. Von Bomhard was backed by 85 per cent of shareholders when first elected in 2019, while Bock received 67 per cent support in 2020. Both were supported by ISS.
It is unclear how many investors will adopt the new ISS recommendation, but should Bock receive fewer than 50 per cent of the votes at the annual general meeting on April 25, the world’s largest chemical company would lose its chief and chair at the same time. It has previously disclosed that Markus Kamieth will replace chief Martin Brudermüller this month.
Frankfurt-based asset manager Deka, which is a top 10 shareholder in Munich Re and a top 20 shareholder in BASF according to data from S&P Global, last year adopted a similar voting policy to ISS. Deka told the Financial Times that it would vote against Bock at BASF, but would support Munich Re’s von Bomhard because it made a case-by-case assessment for sitting chairs seeking re-election.
The dispute with ISS is the delayed consequence of a change in the proxy adviser’s voting guidelines two years ago, which has until now been largely unnoticed. The proxy adviser now has a blanket ban against former chief executives becoming chair, a position that goes well beyond the requirements of German law.
ISS, which was acquired by German stock exchange Deutsche Börse in 2021, declined to comment on the reason for its policy update or on its specific voting decisions.
BASF and Munich Re said their choice of chairs respected the two-year cooling-off period required by German rules.
BASF also said that ISS’s view was based on general principles and “makes no reference to [Bock’s] specific work as chairman of the supervisory board over the past four years”.
Munich Re said in a response to ISS’s voting recommendation published on its website that “we respectfully disagree with their recommendation and believe Mr von Bomhard continues to be independent” and that his re-election was “in the best interest of all shareholders”. It declined to comment further.
Another proxy adviser, Glass Lewis, has recommended clients support both Bock and von Bomhard. Frankfurt-based asset manager DWS and Union Investment told the FT they also planned to vote in favour of the two chairs.