As Volkswagen regears its strategy around boosting stock market value, investors warned its efforts would be wasted if it does not address the elephant in the room: the lack of a succession plan for its supervisory board.
The market needs to know who will take over when the octogenerian heads of its controlling shareholder - the Porsche-Piech family clan - retire, according to Deka, Union Investment and DWS, three of the carmaker's top 20 shareholders.
The company plans to run a series of capital market days in coming months for each of its brands, which it hopes will boost a valuation in freefall since mid-2021.
When their strategy presentation at the company's capital markets day in June failed to impress investors - shares fell 2.5% on the day - company representatives said future capital market days would turn it around.
But multiple sources were sceptical they would, unless Volkswagen's governance issues were addressed.
The listing of luxury carmaker Porsche AG in September would have been an opportune time to hand over power, Hendrik Schmidt, corporate governance expert at DWS, the asset management arm of Deutsche Bank said.
"We have asked repeatedly for a long-term oriented transition plan for the supervisory board and encouraged a generational change," Schmidt said.
"The share is suffering from a 'governance discount'," said Ingo Speich, head of sustainability and corporate governance at Volkswagen shareholder Deka Investment.
To be sure, other issues also weigh on Volkswagen's stock market performance, from high capital costs and risks in China to concerns over its ability to maintain market dominance in an electric age.
"On almost every criteria, investors have a better alternative to invest in within the autos sector than Volkswagen," said Arndt Ellinghorst of Quantco.
'NOT IDEAL IT'S TAKING SO LONG'
Wolfgang Porsche and Hans Michael Piech, both above 80, are the two oldest successors of the Porsche and Piech families which founded the Volkswagen Group.
The two men sit on the boards of both Volkswagen and Porsche SE, the holding company which owns 31.9% of Volkswagen and has 53.3% voting rights, essentially controlling Europe's largest carmaker.
"If a brick falls on my head, the question of a successor is taken care of," Wolfgang Porsche said in a recent interview with Stuttgarter Zeitung, without providing further details.
Still, the families are aware of the need for clarity, a source close to the matter said, declining to be named, with the next generation waiting in the wings.
One possible successor as head of the Porsche family is 62-year-old Ferdinand Oliver Porsche, currently on the board of Porsche SE, Volkswagen, Audi, and Porsche AG.
"Oliver Porsche is sure to represent and take over from Wolfgang Porsche at some point," the source said.
On the Piech side, 29-year-old Sophie Piech and her brother Stefan Piech, 52, are both possible candidates as successor to the role of Piech family head, the source said.
"It's not ideal that it takes so long," the source said.
Beyond the issue of the succession plan, analysts have pointed to weaknesses in the board's neutrality and qualifications.
Eight out of ten members are direct representatives of the three biggest shareholders in Volkswagen: the Porsche and Piech families, Lower Saxony, or Qatar.
Four are lawyers and one has no professional qualifications, analyst Daniel Schwarz of Stifel pointed out in a recent report, limiting the extent to which they would be able to advise management on issues like digitalization and electrification.
"When you compare the situation at VW with other businesses, VW comes off badly," said Schwarz, pointing to Mercedes-Benz's board where multiple members have experience in chemistry, software, and luxury goods.
(Reporting by Jan Schwartz and Victoria Waldersee; Editing by Bernadette Baum)