The Arrival of Shareholder Value in the European Auto Industry a Case Study Comparison of Four Car Makers

Abstract

The paper deals with changes in the corporate governance systems of major European flagship companies in the car industry – Fiat, PSA, Renault and Volkswagen. While all four companies are protected from immediate capital market pressures either by family or state ownership, they have clearly opened up to shareholder value principles in recent years. The central questions of the paper are: to what extent traditional characteristics of corporate governance have converged under the pressure of capital markets; the different approaches companies take to governance and how this affects their performance. To answer these questions, the paper discusses the recent developments of a shareholder value policy and the corresponding changes of targets and controls, as well as of incentive systems, in these companies. The paper also assesses what these companies use the capital markets for: do companies need the stock market to finance their operations? Or does the importance of the stock market rather lie in its function as a market for corporate control? What comes out clearly from the analysis is that none of the companies used the stock market for their operational activities, including major investments. The most important influence of the stock markets lies in the potential for hostile takeover. Even though all four companies investigated are to some degree protected by family or state ownership, they feel the need to raise a defence against this potential danger. As to performance indicators, the analysis shows that a shareholder value policy does not necessarily lead to better economic performance. On the contrary, the analysis shows that the more engaged companies are towards shareholder value policy, the less well they performed in terms of profit margins and returns on capital.