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Swedish pension funds wrangle with VW over potential conflict of interest

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A group of a Swedish institutional investors has taken steps against German auto-manufacturer Volkswagen (VW) after it shut out minority shareholders in Scania.

The issues relate to VW’s 60% capital holding in Scania, the Swedish heavy vehicles manufacturer, which, under the Swedish A and B share system, equates to 88% of voting power.

In terms of voting rights, a single A share gives the owner one vote, while 10 B shares would be needed for equivalent power.

The group of investors claims VW used its influence to remove Scania’s nomination committee, reducing smaller shareholders’ influence within the company despite their having a near 40% capital stake.

The Scania board now comprises 10 members, including seven from VW, the firm’s CIO, and two independents, with no representation for minority shareholders.

AMF, the Swedish pensions provider, the fourth state pension fund AP4 and asset managers Skandia and Swedbank Robur have joined forces to highlight ongoing governance concerns.

They also cite VW’s ownership of rival truck manufacturer MAN Group, of Germany, as a potential problem.

VW has steadily increased its holdings in MAN, with the view to merging it with Scania to create Europe’s largest heavy-vehicle manufacturer.

AMF’s Anders Oscarsson, who heads up corporate governance at the provider, said its problem with VW was two-fold.

“The first,” he said, “is they have a competitor in their group. This always leaves you suspicious, and if there was a situation when to make investments, where would the investment go? If they only own 60% of the capital, they only gain 60% of the profit.

“The second problem is that Scania is in fantastic shape, and MAN is not, and Scania has done some excellent R&D. So the question is, could there be some transition out of the company?”

The pensions provider raised concerns over the recent awarding of a joint Norway and Sweden heavy military vehicle contract to the MAN Group, after Scania suddenly withdrew its tender.

In a statement, AMF said it wanted to ensure the principal owner of Scania respected all shareholders, so the company could continue providing good returns.

Despite its small holding, combined with other institutional investors, AMF can achieve the 10% minority vote needed to appoint an examiner or auditor, to keep governance in check, it said.

However, AMF conceded it lacked concrete evidence that minority shareholders were being disadvantaged.

After voting against the abolishment of the nomination committee in the 2013 annual general meeting (AGM), the institutional investors secured the requirement for complete disclosure of all management decisions at Scania, where conflicts on interest may occur between Scania and MAN.

AMF said it was looking forward to the disclosure report, specifically the information on Scania’s withdrawal from the military tender.

Scania’s next AGM is due to take place in early May, with the report detailing management decisions published shortly beforehand.

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