DWS’s woes highlight the limits of its independence
When Deutsche Bank listed its asset management subsidiary DWS in 2018, it thought it had crafted an attractive solution to a strategic problem.
Freed from its scandal-prone parent company, the value of one of Europe’s biggest fund managers should become more visible. It would also raise capital for Deutsche without diluting its own shareholder base. And equipped with its own stock as valuable acquisition currency, DWS could also lead consolidation in global asset management.
Four years later, DWS’ disappointing record has fallen well short of that vision. Its chief executive left following a “green money laundering” scandal and its shares are trading 20% below the IPO price.
This has left Deutsche open to scrutiny of the lender’s lasting influence over its subsidiary and whether the structure it has chosen for the listing suits what is supposed to be a champion of shareholder rights in Europe.
These concerns were underscored by the swift appointment of Deutsche Bank chief Stefan Hoops as chief executive of DWS in early June. The 42-year-old former investment banker and longtime confidant of Deutsche Bank chief executive Christian Sewing has been parachuted in to replace Asoka Wöhrmann, despite not having much management experience. assets.
Wöhrmann resigned hours after the company’s offices in Frankfurt were raided by police investigating allegations that he had misrepresented investment on environmental, social and governance criteria – allegations which Deutsche and DWS continue to deny.
Unlike the process for public companies in other markets, Hoops was appointed chief executive without needing to seek approval from all shareholders due to the idiosyncratic German structure that Deutsche chose for the DWS listing, known as the name of KGaA. It combines elements of a limited partnership and a joint-stock company. Indeed, the influence of minority shareholders is weak.
The supervisory board, elected by the shareholders, has very limited power. Unlike common stock companies, it has no say in the appointment and demotion of board members and cannot block crucial corporate decisions such as mergers. It is the “general partner” of the KGaA – Deutsche Bank in the case of DWS – who can make the decisions.
Deutsche Bank said Hoops’ appointment was the result of a “proper selection process”, which involved a headhunter. However, he declined to disclose when the process began, who the headhunter was and whether outside candidates were being considered. The lender said Hoops was chosen because of his “outstanding capital market expertise, deep understanding of clients and excellent leadership qualities”.
That Hoops turned out to be the right person for the job at DWS was a demonstration of Deutsche’s control over its subsidiary.
Desiree Fixler, the former head of ESG at DWS who raised the greenwashing allegations with the fund manager, said the notion of the firm’s independence from Deutsche was still “a mirage “. “In my experience, there was no separation between Deutsche Bank and DWS,” she told the Financial Times.
Deutsche Bank rejects the idea that it wields undue influence over DWS, arguing that the KGaA structure was “quite common” in the German corporate landscape. However, outside investors and corporate governance experts have long expressed concerns about the governance structure.
“We don’t like the KGaA structure from a corporate governance perspective,” Janne Werning, head of capital markets and ESG stewardship at Union Investment, told the FT, adding that it “unduly restricts shareholders’ rights and makes it difficult for DWS to be seen as a business in its own right.
The structure makes issues such as corporate strategy or the choice of a CEO particularly sensitive. In 2019, a deliberate merger of DWS and the asset management arm of UBS fell apart in part because Deutsche was keen to retain control of the asset manager, according to people familiar with the talks. Would DWS minority shareholders have preferred a deal with UBS or a CEO with more asset management experience?
DWS declared itself a champion of shareholder rights and “transparently communicated succession planning”. He promises to hold “boards and administrators accountable” to these issues, calling on them “to demonstrate how they incorporate relevant stakeholder perspectives into their discussions and decisions.”
If DWS continues to perform poorly, questions about whether the KGaA structure meets these goals can only multiply.