Remarkable shareholder decision at Philips: At the Annual General Meeting of the medical technology group and competitor of Siemens Healthineers, investors refused to ratify the actions of the Executive Board by a large majority. Influential proxy advisors had recommended this – not because they opposed the current management, but because they wanted to set an example against the conduct of the prematurely retired CEO Frans van Houten. Despite the debacle with ventilators, he insisted on his million-dollar bonus. On the other hand, his successor Roy Jakobs and the other board members waived their special payments.

Klaus Max Smolka

Editor in business.

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Such a vote is very rare – in 2019, something like this happened to the major Dutch bank ING and in Germany Bayer as the first DAX company. Philips had run into difficulties in the last years of van Houten's tenure: Certain devices for patients who are prone to breathing interruptions during sleep are equipped with noise-absorbing foam that can come loose and potentially damage health when inhaled. 5.5 million devices were or are still to be replaced or repaired.

Billions in costs due to recall

The cost of the recall has so far led to provisions almost in the billions, and a further 575 million euros have recently been set aside due to an expected class action lawsuit in the USA. The share lost more than two-thirds of its value – only recently has the share price recovered slightly. Van Houten relinquished his leadership to Jakobs in October – half a year before the regular end of his third term.

The new one is now cutting one in eight jobs and shaking up the research structure. Annual general meetings in the Netherlands are usually smaller than in Germany. This year's shareholder meeting of Philips – a member of the leading index AEX – was no exception. Start: Tuesday, 14 p.m., Location: a larger conference room on the first floor of a hotel in the old south of the metropolis.

Jakobs was humble in front of the shareholders and thanked them for their continued support in difficult times, which could not be taken for granted. The chairman of the supervisory board, Feike Sijbesma, made no secret of the debacle. Shareholders praised the new CEO for his drive. However, Jakobs comes from his own management, and a shareholder protection representative criticized the employees around van Houten, who would no longer have offered him any contra. An audibly angry private shareholder wanted to know how the board of directors intended to compensate him and other shareholders for the 70 percent loss in the value of the share.

Anger at the ex-boss, humble successor

The decisive factor for the Executive Board, however, was agenda item 2e: Discharge of the Executive Board members, to which Van Houten still belonged in 2022. The voting consulting firms Glass Lewis and Institutional Shareholder Services (ISS) advised against agreeing. Sijbesma showed understanding for the motive: that is, the displeasure with Van Houten. What's more, he expressed his own displeasure with little bluster, because the other board members had shown modesty. "Unfortunately, this does not apply to everyone, and so we had to pay out the money to the former chairman of the board," said Sijbesma, referring to contractual claims. Nevertheless, he assessed the push against the discharge as "inappropriate". Because the board of directors bears collective responsibility, it is also necessary to vote on its discharge in its entirety – which is why a "no" vote is not suitable for a signal against the former chairman.

It didn't help. A good 76 percent of the votes cast fell against the delimbing of the Executive Board – while the Supervisory Board got off scot-free. The decision is above all of symbolic importance, further damage to Philips' reputation. As a concrete consequence, however, it also means that shareholders reserve the right to prosecute board members.

Typically, shareholders approve with an overwhelming majority. In 2019, ING shareholders refused to discharge the board of directors after the bank reached an agreement with the judiciary on a settlement payment of 775 million euros to dispel allegations of money laundering via ING accounts. From Germany, the Bayer case is also well remembered from 2019, the precedent for the Dax.

Shareholders accused the management of underestimating legal risks in the purchase of the American company Monsanto. One of the differences: After a fierce debate at the World Conference Center in Bonn, the shareholders needed almost thirteen hours to vote. Philips shareholders gave their slaps at the Hotel Okura after three hours.