Breakingviews: Lufthansa governance farce marks new low point

Tue May 7, 2013 2:42pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Olaf Storbeck

LONDON, May 7 (Reuters Breakingviews) - Europe's largest airline in the last 24 hours has gone through a series of self-inflicted turbulences that raise doubts about the quality of its governance. On Monday morning, the nominated new chairman of Lufthansa (LHAG.DE), a former chief executive of the company, unexpectedly announced that he would not be available for the task. One day ahead of the annual shareholder meeting, Wolfgang Mayrhuber, 66, seemed to cave in to pressure from international investors unhappy with his candidacy. Then, a few hours later, he changed his mind once again, and decided to run after all.

In the short term, his retreat from the retreat saves Lufthansa from a public embarrassment. The handover from outgoing Chairman Jürgen Weber, 71, to Mayrhuber has been planned for more than a year. It would have been all but impossible to present another qualified candidate within a day.

From a broader perspective, however, the farce marks another governance low point in Germany. Right from the beginning, a number of strong arguments spoke against the appointment of Mayrhuber as Lufthansa's next chairman. As the company's chief executive from 2003 to 2010, he was responsible for many strategic decisions that still hobble the airline. He led Lufthansa in unfortunate acquisitions of ailing peers, did not sort out the company’s loss-making short-haul business, and neglected the modernisation of its fleets.

Despite a cooling-off period of two years – in line with the German corporate governance codex – Mayrhuber is still deeply entrenched with a company he joined in 1970. He also has many other commitments. Among other duties, he is chairman of Infineon (IFXGn.DE), a chipmaker, and a member or the supervisory boards of carmaker BMW and reinsurer Munich Re (MUVGn.DE).

Those points were raised by institutional shareholders months ago. For too long, however, both Lufthansa and Mayrhuber refused to take them seriously. A recommendation of influential shareholders advisory body Institutional Shareholder Services not to vote for Mayrhuber seems to have taken the company and the candidate by surprise.

Such capacity for misjudgement is unsettling. Europe's largest airline is in the middle of a painful and controversial strategic turnaround. It needs strong, credible and decisive supervisors. Mayrhuber's bizarre flip-flopping, and eleventh hour brinkmanship, confirm all the doubts that he would be right man for the job.

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CONTEXT NEWS

- Lufthansa's shareholders are set to vote for a new chairman on May 7 at the company's annual shareholder meeting in Cologne. The nominated candidate, the company's former Chief Executive Wolfgang Mayrhuber unexpectedly announced on May 6 that he decided against running for the job. A few hours later, he recanted that decision.

- Mayrhuber's withdrawal came after daily newspaper Frankfurter Allgemeine Zeitung reported proxy advisory firm ISS had recommended that shareholders vote against Mayrhuber.

- In 2012, Lufthansa Group increased its revenue by 4.8 percent to 30.1 billion euros. Operating profit fell 36 percent to 524 million euros. In February, the German airline announced that it will suspend the dividend payment, and plans to accelerate cost-cutting measures.

- Reuters: Mayrhuber back in running for Lufthansa supervisory board [ID:nL6N0DN386]

(Editing by Pierre Briançon and Sarah Bailey)

((olaf.storbeck@thomsonreuters.com)) Keywords: BREAKINGVIEWS LUFTHANSA/

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