Germany must leave fireside for the cold winds of change: John Eisenhammer looks at tough new legislation on insider trading

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The Independent Online
IF FERDINAND PIECH, the chairman of Volkswagen, were the head of a corporation in America, he would probably by now be clutching the hand of his lawyer.

By any standards, Mr Piech's record last year in misleading the markets about VW's performance was spectacular.

In the US, irate investors tend to vent their feelings by suing company executives who behave in this manner. In Germany, by contrast, such retribution is unheard of, for companies can, and do, say virtually what they want. Anyone looking for signs of remorse on Mr Piech's face will do so in vain.

But the days of such executive insouciance are disappearing. A chill wind from the Anglo-Saxon lands to the west is already picking up strength, set to blast severe changes through the cosy, inward-looking environment in which German corporations have traditionally peddled information and worked the markets.

For one of the world's foremost economic powers, with numerous globally active corporations and ambitions to be a leading international financial centre, this change is desperately overdue.

Throughout the first half of last year Mr Piech confidently said that VW would return a group profit in 1993, regardless of horrendous losses in a collapsed car market and the absence of any signs of real recovery.

Then, well into the summer, this profit was suddenly transformed into a loss of more than DM1bn ( pounds 397m). At its interim results conference at the end of November, Mr Piech put the annual group loss at DM2bn. Barely two weeks later, at an informal gathering with a small group of journalists, he said the loss would be DM2.3bn.

Such behaviour would be virtually unthinkable in Britain or the US. Generally, when executives sense a serious discrepancy developing between their reading of company fortunes and street estimates, they issue a formal profit warning.

But there is another, even more fundamental, difference in the manner in which companies provide market-sensitive information.

German companies are fond of what is familiarly called the 'fireside chat'.

A small group of journalists, almost exclusively German and usually resident in the town where the company is based, are invited for a discussion with the chairman, often over a decent meal and a bottle or three.

The only way that shareholders, analysts and others find out that such a fireside chat has occurred is when the previously unheard of numbers and details suddenly appear in some newspaper.

When Volkswagen had its last fireside chat on 8 December, Mr Piech said for the first time that he expected a small group profit for 1994, and revised his loss forecast for 1993.

But this was not public knowledge. It was restricted to a small group of journalists, who were expected to keep this information to themselves under embargo.

By definition, they were insiders, party to a situation that is illegal in the US and Britain. But then Germany, alone among the world's big economies, still has no law against insider trading and no national regulatory body.

Instead, some of the household names of German industry and finance, who are as international as any rival when competing for world markets, display breathtaking provincialism when it comes to purveying company information.

There is nothing exceptional about the actions of Mr Piech or Volkswagen. Rather they are exemplary for German practice.

As a Volkswagen spokesman said: 'Until the law changes in Germany, we see no reason why we should not continue having these information meetings with a small group of journalists.'

A similarly brazen response came recently from Bayerische Vereinsbank, Germany's third largest.

A group of analysts had been invited to Munich on 11 November, when they were told that BV's nine-month operating profit had risen 28 per cent from a year earlier. The next few days saw BV shares vigorously outperforming the German market. But outside this small group of analysts, no one knew why.

It was not until 10 days later that the authoritative financial newspaper Borsenzeitung came out with the figures, still ahead of the official results press conference.

Asked to comment, the bank said: 'There is still no law on insider trading and we are under no obligation to make information available in a particular way.'

The law is due for an overhaul. The Bonn government has approved tough draft legislation, which will bring Germany into line with accepted international standards.

This should receive parliamentary approval by the summer - two years later than the deadline set by the European Union. Adjusting to this severe new world will be a culture shock.

But one company has had to pave the way rather earlier, providing a taste of things to come.

Daimler-Benz was a great one for the fireside chat. But ever since its listing in New York, and its submission to the tough strictures of the Securities and Exchange Commission, a whole new world has dawned in Daimler's headquarters in Stuttgart.

Not long ago the traditional December gathering was cancelled in favour of a full, public press conference.

'We simply cannot afford to make mistakes now,' said Roland Klein, Daimler's man in charge of international press relations. But Daimler will not be alone in this unfamiliar world for long.

'What we have been doing this year is what other German companies will unavoidably have to face,' he said.

(Photograph omitted)