Corporate Governance

Importing International Litigation: Bobin v. Lagardere (Rube Goldgberg Governance)

By J. Robert Brown

In many ways, EADS represents a company with corporate governance gone wild. 

Until 2007, the company was a two headed hydra, with two controlling shareholders (Daimler and Sogeade) each getting to designate a CEO and each getting to designate a Chairman.  Moreover, each of the controlling shareholders had a veto at the board level.  As the EADS 2007 annual report notes:

• Since its creation in 2000 and until 22^nd October 2007, EADS was led by a dual-headed management structure, with two Chairmen and two co-Chief Executive Officers, which has provided the necessary balance and stability required for a company with such a unique industrial and multi-national heritage.

Necessary balance and stability or a path to indecision and paralysis?  In addition to the cumbersome governance structure, EADS was and is subject to considerable political influence.  One of the two largest shareholders is Sogeade (Société de gestion de l'aéronautique, de la défense et de l'espace), a French holding company owned equally by Lagardere and the French government.  Sociedad Estatal de Participaciones Industriales (“SEPI”), a Spanish holding company, owns slightly more than 5% of the shares. 

The cumbersome structure has changed, but only modestly, and only after the inevitable breakdown in management, evidenced by the delays in the A380 and the insider trading scandal plaguing the company.  After consultation with the French and German governments, the company devised a slightly altered governance structure.  The new structure?  Only one Chairman and only one CEO.  Nonetheless, both have to be appointed "on joint proposal by the Daimler-Directors and the Sogeade-Directors."  (As described in the 2007 annual report). 

Moreover, it is clear, whether explicitly or implicitly, that one of the positions will be filled by a Daimler nominee and the other by Sogeade.  This is more or less ensconced in the company's system of governance.  As the 2007 annual report notes:  "The Chairman shall have either French or German nationality, provided that the Chief Executive Officer is of the other nationality."  And, indeed, the current CEO is Louis Gallois, a Frenchman with a long history of service in the French government.  ("Gallois began his career in 1972 and worked in various posts for the Ministry of Economy and Finance, the Ministry of Research and Industry and the Ministry of Defence."), the Chairman, Rudiger Grube, a German who also sits on the management board of Daimler.   

The board itself consists of eleven directors, including the chairman and CEO, two designated by Daimler and two by Sogeade, one by SEPI, so long as the holding company retains at least 5% of the shares (although the right expires at the 2012 shareholder meeting), and four "independent" directors to be jointly proposed by the Chairman and the Chief Executive Officer of EADS and approved by the Board.  The current directors can be found here.  In other words, it is a board dominated by the two large shareholders, not at all independent, and subject to considerable political involvement.

Full post as published by The Race to the Bottom on June 24, 2008 (boomark / email).