Wirecard’s Chairman Must Finish What He Started

(Bloomberg Opinion) -- The threat posed by an activist shareholder is normally correlated with their stake in the target. But agitators with no shares can be formidable adversaries if they have good arguments. Look at Chris Hohn's demands of Wirecard AG.

The billionaire hedge fund manager is calling for management change at the German payments group even though his firm TCI Fund Management Ltd. is short the stock. Hohn's investment implies he thinks the shares will fall regardless of his prescriptions. All the same, Wirecard Chairman Thomas Eichelmann would be wise to treat the challenge as if it came from a major investor.

The immediate trigger for Hohn's intervention was an audit that failed to clear up questions raised about Wirecard's historic revenue by articles in the Financial Times last year. Accounting firm KPMG AG was unable to verify, among other things, Wirecard revenue generated through arrangements with partner businesses — the area the FT had focused on. What's more, KPMG said partner companies had not provided it with the evidence it needed to do its job, and Wirecard staff didn't proffer, or delayed, useful information.

Wirecard has drawn attention to the fact that KPMG found no reason to correct past accounts. Yet its shares have fallen by a third. Investors don't see an all-clear while gaps remain.

The constituent of Germany's Dax index is effectively back to where it was in October when it commissioned the accounting review, having categorically rejected allegations of impropriety and argued that the FT drew incorrect conclusions from its source material. Some questions are the same, some have been settled, and some new ones have surfaced.

Hohn is rightfully calling for the supervisory board to take responsibility for completing the audit. While both Wirecard's supervisory and management boards decided to call in KPMG, the auditor answered only to the former. Finishing the job is partly about restoring confidence. As a financial company, it's also imperative Wirecard knows where its revenue comes from to combat money laundering.

Eichelmann suggested to German daily Handelsblatt that constraints resulting from the pandemic hampered the collection of evidence; a forensic audit will often depend on original documentation. In that case, Wirecard should come up with a plan to address these issues. Investors would rather have the full picture late than never.

Next, there need to be consequences if Wirecard employees actively stalled KPMG's work as opposed to being caught up in the response to the virus. The supervisory board appoints the management board and that gives it leverage to ask tough questions here. For his part, Hohn thinks Chief Executive Officer Markus Braun should go.

Eichelmann has hinted at boardroom change, pointing out to Handlesblatt that the contracts of some directors are up for renewal later this year. But he says now would be the wrong time for Braun to leave and points to governance changes that were already underway before last week. That message, echoed by Braun himself in comments to Bloomberg News, sounds complacent amid the shock investors feel at KPMG's report.

Wirecard appointed Eichelmann last June. But he was in charge of supporting KPMG from the start. A crisis he inherited now belongs to him. His challenge is to finish the audit and deal with anyone who got in the way. Regardless of TCI's short position, that's the right thing to do.

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.