This FT column asks professional services experts to comment on a current business issue. This week's topic: Porsche's share option earnings.
The problem
Porsche this month revealed it had made €3.6bn (£2.6bn) from share options in the year to July, compared with about €1bn from sales of its cars. The news provoked comments from some analysts that the German luxury marque was acting more like a hedge fund than a carmaker. Yet many managers regard derivatives as essential tools to manage the risks of volatility in exchange rates, interest rates and commodity prices. When is it acceptable for manufacturers to place big bets on the market? Should investors be pleased or dismayed when an industrial enterprise makes money from financial speculation?
The advice
The consultant - Alan Middleton
Porsche should be praised for pursuing its core business, as it appears to be doing. It is following a sound business rationale that has secured a big financial upside.
Porsche essentially means the "Porsche-Piech" family. Historically, the family has been entwined with Volkswagen: Ferdinand Porsche was Volkswagen's founder and designed the first Beetle. Until recently, the family protected its interests at the VW board with a minority shareholding and with Ferdinand Piech, the founder's grandson, as the head of VW's supervisory board.
However, since the European Court of Justice ruled last month that Germany's "VW law" had illegally shielded Volkswagen from takeover, that approach was put at risk. So Porsche needed to act to secure two interests. First, sharing product platforms and technology with VW-Audi (Porsche cannot easily afford to develop these areas alone). Second, safeguarding the wholesale business of Porsche Austria, which generates around half the family's income.
If one assumes that Porsche was acting to secure its core business - and that its decision was based on publicly available information - then the profit was simply a fortuitous windfall.
The writer is CEO of PA Consulting Group
