ANALYSIS: Lessons from the shareholder revolt at GSW

GSW Immobilien's management did not appreciate the extent of the shareholder disquiet until it cost the jobs of the CEO and supervisory board chairman. Other European listed real estate companies should take that harsh lesson to heart.

GSW, a Berlin-based residential portfolio manager, is on the lookout for a new chief executive after the previous incumbent Bernd Kottmann lost the confidence of his shareholders.

Kottmann, who joined from IVG Immobilen, bowed to the inevitable just two months into the CEO job, shortly after shareholders passed a no-confidence motion against him last month.

At the meeting on 18 June, almost 70% of shareholders also voted to dismiss GSW supervisory board chairman Eckart John von Freyend who managed Kottmann's selection and appointment. Von Freyend previously worked at IVG.

Activist shareholder
Dutch pension giant PGGM led the shareholder revolt, claiming the appointment had not been carried out in a transparent manner.

GSW’s supervisory board will now appoint an independent legal adviser to investigate Kottmann’s hiring, the company said in a statement.

According to one investor who attended the AGM in Berlin – and who asked not to be identified - Von Freyend was ‘blindsided’ by the extent of the shareholder revolt. ‘It was obvious at the AGM that he didn’t see it coming and that there was no way back for him,’ he said.

The ouster represents a rare show of force by shareholders in an economy where shareholders rarely make themselves heard and where corporate governance rules lag behind markets such as the UK.

The backlash against Kottmann’s hiring began in mid-May when Dutch investor PGGM complained that GSW didn’t follow the correct procedure in hiring him, citing too short a span between the departure of former CEO Thomas Zinnöcker in April and the hiring of Kottmann the same month. PGGM holds a stake of around 3% in GSW. Other shareholders in GSW include BlackRock Inc. and GIC.

Trumpeting transparency
This time round, PGGM is hoping for a ‘more transparent procedure’, a spokesman told PropertyEU: ‘We don’t have a say in who they actually pick but we want corporate governance procedures to be followed and we want them to listen to their shareholders. Last time, we asked Von Freyend several times to explain the hiring procedure but he refused to answer our questions,’ he said.

It is believed that investors were initially advised to vote against the proposed dismissal of Kottmann whilst simultaneously voting to remove chairman Eckart John von Freyend due to the way Kottmann’s hiring was handled. Until a replacement for Kottmann is found, his duties will be carried out by COO Jörg Schwagenscheidt and CFO Andreas Segal. Von Freyend is stepping down at end-July.
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GSW manages 60,000 apartments in Berlin. Following its IPO in 2011, its share price has increased from €19 to €29.43 on 1 July 2013.

Nonetheless, the fear in real estate circles is that the shareholder revolt at GSW may have ‘sown the seeds’ for investors in other real estate firms who are unhappy, the analyst said. ‘It could encourage other unhappy shareholders to find their voice. There is a fear that this revolt could be repeated,’ he said.