Vestas - Analysis of the Leadership and the Governance

Introduction

The aim of this paper is to analyse and identify the leadership and governance outlook of Vestas Wind Company A/S. In the recent years, the Danish colossus, started to focus on strong profit growth and exploitation of the growth potential as a new corporate strategy for the mid-term.

Accordingly, an outline of the group history, its ownership and the governance structure will be delineated and discussed analytically, including the examination of few challenges, followed by a critical view of the switching strategy in relation to the leadership issues faced in the recent past. Moreover, the corporate social responsibilities will be discussed as core competencies, which enabled the company to struggle, in the past, for the world leader’s position in wind energy industry, and later, to exploit their huge potential for future growth. Finally, few recommendations will offer some suggestions for the incoming years.

Nevertheless, due to space limitations only a recent time frame will be considered, without taking into considerations some minor scandals which were not supported by strong evidences.

History of Vestas and Its Governance

Vestas started in 1971 to embrace the wind’s exploitation as a source of energy in alternative to the traditional energy productions. In the following years, passing through financial crises and quality controversies, they decided to focus solely on the turbines for the wind energy sector, suddenly becoming the global leader in turbine manufacturing production. Their purpose was to lead the wind industry, in order to become one of the main player in the alternative energy market, in which currently, the wind-powered energy provides 2% of energy world production (expectations forecast 10% before 2020). Accordingly, the Danish company focuses on the corporate social responsibility as a natural consequence of its sustainable nature, even though, in 2012, they implemented the new operating business model based on the unexploited potential growth in the mid-long term. (Vestas, 2017)

Therefore, examining the scheme below, representing the governance pattern, the first subject are the shareholders, focusing so on ownership and control. According to this, two main problems are discovered. Firstly, an Agent Problem of type I (Berle & Means, 1932) is prevailing. As a matter of facts, the registered shareholders are holding the 96% of the entire capital. However, each shareholder does not own more than 5% and if happens, it has to be noticed to the company (Vestas, 2015) (Appendix Figure 1). In 2016, Vestas delivered 201 million in dividends with an increased earnings-per-share rate, consequently to the increase amount of treasury shares recalled by Vestas itself (8 million only in 2016) (Vestas, 2016). It can be argued that the degree of ownership is weaker than the influence exerted by the management, due to this ownership dispersion. In this way, the firm could incur in a situation of under-monitoring of the management’s conduct, as stated by the Agent type I problem.

The second problem, is the possible conflict of interests among the owners, raised by the one-share-one-vote (Harvard Business Review, 2013) shareholder system, for which a large part of them could sustain the capital only for short-term speculation, more than for long-term investing purposes, like the major shareholders do.

The analysis of the Corporate Governance continues revealing a two-tier structure, characterizing a Continental European Model, (Block, 2016) in which the Board of Directors, working on three main committees (Board Committee Nomination & Compensation, Board Committee Technology & Manufacturing and Board Committee Audit) act as a supervisor and guide accurately the Executive management board in terms of compensation, strategy suggestions and recommendations, mainly focusing on long-term results. (Vestas, 2015)

The aforementioned Board of Directors is composed by 12 members, of which only three are not Danish, but still Scandinavian (Finland and Sweden respectively). In the executive management board, however, 5 members are in charge of day-to-day management, coming from different parts of Europe (Spain, France, Sweden and Denmark). As a consequence, a good level of geographical diversity (in the management board) and a knowledge-based diversity (in the board of directors, based on educational and working background) should ensure a balanced and multinational oriented approach (Oxelheim, Gregoric, Randøy, & Thomsen, 2013) resulting in higher percentages of foreign sales and foreign ownership, as demonstrated by the share of international shareholders, accounting for the 57% of the entire ownership. (Vestas, 2016)

From The Strategy to The Leadership

As mentioned above, starting from 2011, the corporate strategy slightly changed to a different target. Previously, the goal of the management was summarized with the statement: “No. 1 in Modern Energy”, connoting the willingness to achieve the world leadership in the wind energy, having the most environmental sustainable plants and production. Accordingly, revenue and margins results should have been achieved (15bn revenues no later than 2015) (Vestas, 2010), while unfortunately, the forecasts were not accurate and did not take into account a global economic downturn, together with several management-related complications.

As a consequence, in 2012, the corporate strategy started to move to a different direction: “Profitable Growth for Vestas”. The first two years, thus the short-term, were dedicated to the “turnaround” of the company, rearranging the internal processes to allow, afterwards, the effective launch in 2014. The essence of this new target is to focus principally on unexploited growth, after the achievement of the previous goal i.e. being the wind energy global leader.

In changing the entire corporate strategy, specific attention should be paid toward the match needed between the executive management and the planned changes. To this regard, the former CEO, Ditlev Engel, seemed to miss the requirements to fulfil these new guidelines from the Board of Directors and not able to change his management and leadership style. The board claimed, indeed, that during the 18 months preceding the change of CEO, many legal challenges and criticisms from various stakeholders shifted the attention from the positive achievements of the restructuring, to the misbehaviour of Engel. Therefore, the new CEO, Andrers Runevad, was chosen in order to meet the expected future growth performances, thanks to his technical background (electrical engineer (Bloomberg, 2017)) and thanks to his business background as former President of Ericsson. The telecom industry, indeed, was evaluated