| BUSINESSWEEK ONLINE : FEBRUARY 22, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| INTERNATIONAL -- EUROPEAN BUSINESS
Commentary: Germany: Time to Crack Down on Second-Rate CEOs (int'l edition) The sudden ouster of BMW chief executive Bernd Pischetsrieder and deputy Wolfgang Reitzle at auto maker BMW sent a chill through German boardrooms. In the past, underperforming execs have been shuffled into early retirement or had their duties diminished. Things were arranged in such a way as to spare any embarrassment. Booting out a top exec unceremoniously just wasn't done--until now. ''In the old days, a CEO practically had to steal money from the company to lose his job,'' says Frank F. Beelitz, who heads Lehman Brothers Inc.'s German unit. ''Now, the life expectancy of an underperformer is getting shorter.'' It's about time. Germany Inc.'s dirty little secret is that a lousy CEO is still more likely to be coddled than axed. That's partly a matter of tradition and culture. But it's also the result of interlocking corporate boards and shareholdings among big companies and the banks that finance them. Deregulation, shareholder activism, and tougher global competition are changing the German system, but not fast enough. It's time for more big companies to take the lead in modernizing corporate governance. The government should help, too. COZY RELATIONS. Germany pays a heavy price for its inbred system. The last notable ouster of a German CEO was at Dresdner Bank, where a year ago the supervisory board eased Jurgen Sarrazin out of the top job early and replaced him with bank veteran Bernhard Walter. The sacking, however, had more to do with infighting than good governance. Board Chairman Wolfgang Roller was credited with doing Sarrazin in. But an unknown party then denounced Roller to authorities for tax evasion, forcing him to resign. Further secret denunciations enmeshed other execs in tax scandals and forced them out, too. Wags joked that Walter became Dresdner's CEO because he could prove he didn't cheat on his taxes. The sad denouement for investors: Dresdner isn't much healthier now than it was under Sarrazin. Its shares, like those of rivals Deutsche Bank and Commerzbank, trade at only slightly above net asset value--whereas elsewhere in Europe, bank shares trade at an average of 2.5 times book. Mark Hoge, a Credit Suisse First Boston analyst in London, gripes that Dresdner's costs are soaring. One reason, he contends, is that 21.4% of Dresdner's shares are held by insurance giant Allianz, insulating the bank from shareholders' ire. Another corporate brouhaha didn't turn out much better. Steelmaker Hoesch-Krupp's 1997 bid for rival Thyssen was billed as Germany's first major unfriendly takeover. Would that it were so. Top Deutsche Bank executives sat on the boards of both warring parties. Rather than let the best CEO win, the bank and local politicians imposed a power-sharing arrangement. That makes bold action hard at a time when European steelmakers are under pressure from cheap Asian exports. New initiatives are needed to break up the cozy relationships among German companies and banks. As a start, the government could offer a one-time tax deal letting big banks and insurance companies sell off investment stakes they hold in German companies. As it is, capital-gains taxes topping 50% make it unprofitable to sell. Companies need to do more, too. Corporate boards in Germany are large and unwieldy, and they rarely include international outsiders. Seats should be pared to a dozen or fewer and non-Germans brought in. Supervisory boards should also be more responsible. One step might be to create ''shareholders' committees'' that represent investors' interests. For now, the axing of Pischetsrieder at BMW is an anomaly in German corporate governance. It happened because the company's controlling family had the necessary clout. But it sets a good precedent. Germany Inc. should make sure it doesn't remain an anomaly for long. By Thane Peterson _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
Return to main story
INTERACT E-Mail to Business Week Online | |||
