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German Tabloid Scandal Is an ESG Stress Test for Private Equity

Mathias Doepfner, chief executive officer of Axel Springer SE, is displayed on a screen as he speaks during the Noah Technology Conference in Berlin, Germany, on Thursday, June 13, 2019. The annual tech conference runs June 13 -14 and brings together future-shaping executives and investors.
Mathias Doepfner, chief executive officer of Axel Springer SE, is displayed on a screen as he speaks during the Noah Technology Conference in Berlin, Germany, on Thursday, June 13, 2019. The annual tech conference runs June 13 -14 and brings together future-shaping executives and investors. (Bloomberg)
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Private equity firms claim to improve the operating performance of their portfolio companies. But what about non-financial credentials? Last year’s governance crisis at German publisher Axel Springer SE was a stress test for buyout firm KKR & Co., its single biggest shareholder. Now fresh questions have emerged over the handling of the situation. If Axel Springer’s ESG scorecard suffers once more, KKR’s does too.

To recap, Axel Springer hired law firm Freshfields Bruckhaus Deringer in February 2021 to investigate complaints against Julian Reichelt, then editor-in-chief of best-selling tabloid Bild. The focus was on what it called alleged “abuse of power in connection with consensual relationships.” Reichelt denied the allegations, but admitted to mixing private and professional relationships. When the probe concluded in late March, he apologized for hurting people he’d been in charge of.

At the time, the company said there were no grounds to dismiss Reichelt: He had made “mistakes” but the investigation discovered no evidence of sexual harassment. His position was scaled back to a co-leadership role. Then in October, amid digging by the media, Axel Springer terminated his employment saying he’d continued to blur private-professional boundaries and hadn’t been truthful about this.

Axel Springer has since been changing. In December, it introduced a requirement that workplace relationships involving managers be disclosed — something staff had previously resisted. The company has also been broadcasting a commitment to cultural change. Chief Executive Officer and 22% shareholder Mathias Doepfner has emphasized that employees should feel they can air concerns about abuse of power or disrespectful behavior without fear of repercussions.

(The publisher, through subsidiaries like Insider and Politico, competes with Bloomberg News in providing financial and political information.)

But a Financial Times investigation published this week has called into question whether Axel Springer acted as soon as it could have done and whether its public statements conveyed the full seriousness of Freshfields’ findings. Moreover, Doepfner set about his own counter-investigation into what he perceived as a conspiracy against the company after the law firm concluded its work, the FT said. That would be hard to square with supporting a “speak up” culture.

Axel Springer has not commented on the specifics of the FT report. A spokesperson said the article painted “a misleading picture of the compliance investigation, the consequences drawn from it, the entire company and its leadership.”

Amid it all, KKR is more than just a minority shareholder. The firm has had three seats on the nine-strong supervisory board since January 2020. Its co-investor, the Canada Pension Plan Investment Board, has another. Together, they control 48.5% (mostly attributable to KKR funds) of Axel Springer.

Yet KKR has also invested a great deal of trust in Doepfner. He leads the separate executive board which, under the German two-tier system, runs the company on a day-to-day basis. It was this management board that hired Freshfields. The problem with the supervisory/executive board model is that the non-executives are one step removed. Doepfner’s power is further reinforced by virtue of Friede Springer, the late founder’s widow, having given him the voting rights on her 22% stake.

Add the fact that the norms around disclosing workplace relationships are different in Germany compared to the U.S., and KKR has got itself into a complicated situation — one very different from a conventional leveraged buyout where the private equity firm would have full control.

Nonetheless, KKR is clearly in a position of considerable influence. The firm says it fully supported management’s decision to launch an external investigation, adding it “expects and encourages its portfolio companies to provide all employees with a working environment that is free from any form of harassment or discrimination, with proper compliance procedures, corporate governance guidelines, and disciplinary action in accordance with all applicable laws.”

KKR’s own shareholders as well as the limited partners in its funds will want clarity that it’s lived up to this mantra with Axel Springer.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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