At the Jan. 19 annual meeting of German steelmaker ThyssenKrupp, shareholders approved an article amendment that gives the Alfried Krupp von Bohlen und Halbach Foundation (Krupp Foundation) the right to appoint three out of the 10 supervisory board members elected by shareholders.

The foundation, which was set up by the founder of a predecessor company, is ThyssenKrupp's largest investor, and recently increased its stake to 25.1 percent. The direct appointment of foundation representatives will bypass the traditional director election process.

If the three foundation appointees join forces with the 10 members who are elected by employees, they would outnumber the seven members who will continue to be elected by outside shareholders. Against the background of a rapidly consolidating steel industry dominated by emerging-market players, some analysts see this as a defensive measure to protect the company against hostile takeovers.

The story has taken on added significance because the chairman of ThyssenKrupp's supervisory board, Gerhard Cromme, who defended the measure in front of angry shareholders attending the annual meeting, is also the head of the government commission that created the German Corporate Governance Code (Kodex). According to provisions of the Kodex, it is the general meeting that should elect shareholder representatives on the supervisory board, and those members should represent the interests of all shareholders. Those critical of Cromme's support for the change also point to his role as CEO of ThyssenKrupp until 2001 and longstanding close ties to the Krupp Foundation.

In defending the move, Cromme argued that giving the Krupp Foundation the right to appoint supervisory board members would actually improve transparency, one of the main aims of good governance, by clearly disclosing the foundation representatives' allegiance.

Cromme also sits on the supervisory board of Siemens, which is under criminal investigation by the state attorney's office in Munich in a bribery scandal involving 420 million Euros ($557 million) of payments under review. A large number of shareholders were expected to vote against the annual management proposal to absolve the management and supervisory boards from liability for their actions at Siemens' Jan. 25 annual meeting.

The controversial ThyssenKrupp resolution received 289.8 million votes in favor, or 78.9 percent of votes cast, according to a company press release. Press reports indicated that a number of large German investors voted with ThyssenKrupp management for fear of upsetting Cromme, who sits on nine German supervisory boards.

Vereinigung Institutionelle Privatanleger (VIP), a German association of shareholders, filed a counterproposal opposing the measure. According to Hans Buhlmann, head of VIP, the measure is "a poison pill, which can only be removed by a three-quarters majority vote." However, shareholders voting by proxy were not able to vote on the counterproposal because of the compan's procedural rules.

Some industry observers, including Dieter Fockenbrock of the German-language daily Handelsblatt, expressed concern that the ThyssenKrupp vote will set a precedent whereby other large shareholders will try to enshrine their representation on German supervisory boards. One example is Porsche, which owns a 29.1 percent stake in Volkswagen, and has openly called for more influence at the German carmaker.