Porsche Changes Tack
The announcement of Porsche’s (Germany) intention to take a 20% equity interest in Volkswagen (Germany) in September 2005 was greeted with outright opposition on the part of many shareholders in both Volkswagen and Porsche. Major investment banks immediately downgraded Porsche from a buy to a sell, arguing that the returns on the massive investment, some €3 billion, would likely never accrue to shareholders. Although Porsche and VW were currently co-producing the Porsche Cayenne and Volkswagen Touareg, this ownership interest would take the two companies far down a path of cooperation way beyond the manufacture of a sport utility vehicle. Although Porsche had explained its investment decision to be one which would assure the stability of its future cooperation with VW, many critics saw it as a choice of preserving the stakes of the Porsche and Piëch families at the expense of nonfamily shareholders.
This case has been used to focus discussion in both graduate business classes and executive education programs on issues related to corporate governance and the financial implications of corporate strategy. It is a current case, without an ultimate outcome as of yet. The corporate governance discussion focuses on how ownership—controlling ownership—at Porsche may or may not be acting in the best interests of all shareholders. This question then is linked to a more detailed understanding of return on invested capital (ROIC), a measure of financial performance in which Porsche has traditionally excelled. This strategic change by Porsche is then analyzed in the context of its likely impacts on ROIC, the implications of those changes, and a return to the debate of what is best for all of Porsche’s stakeholders in the future.