Corporate governance, innovation, and economic performance: A case study on Volkswagen

In the debate on globalisation of the financial markets and its effect on corporate governance it is often claimed that the pressure for higher rates of return exerted by institutional investors in the name of shareholder value, has led to a fundamental change of company policy among listed companies. Due to short-term profit orientation and increased dividend pay-outs to investors, the critiques argue, long-term development of the innovation potential of these companies will suffer, and this ultimately will have negative consequences on employment and growth. Since in the 1990s almost all major German companies listed on the stock exchange have declared their commitment to the principles of shareholder value. Hitherto there is little empirical evidence of the consequences of such an orientation on company-internal structures and processes. The present case study on the Volkswagen AG helps to close this gap. Central questions in this study are the following: To what extent have the distinct characteristics of Volkswagen’s corporate governance systems changes in response to shareholder value demands? What is the role of the stock market for the company? Have the incentive systems and the systems of target setting and controlling changed to better correspond with shareholder expectations, and what are the effects on investment/disinvestments decisions and thus on the long-term innovation potential of the firm? And finally, what are the effects on the economic and the financial performance of the company?