Bloomberg News

ThyssenKrupp Chairman Faces Calls to Resign After Writedo

January 18, 2013

Gerhard Cromme, the supervisory board chairman of two of Germany’s biggest companies, faced calls to resign at ThyssenKrupp AG (TKA)’s annual general meeting today, after a year tainted by corruption probes and a 4.7 billion euro ($6.3 billion) loss.

Cromme, 69, who has steered the oversight board at the country’s largest steelmaker since 2001, holds the same post at Siemens AG (SIE), the engineering company that employs 370,000 people. In a career spanning three decades in steel, he was handpicked by industrialist Berthold Beitz, 99, to oversee ThyssenKrupp, 25 percent-owned by the Alfried Krupp von Bohlen und Halbach Foundation that Beitz has led for 45 years.

In the biggest shareholder rebellion in the 14-year history of the merged company, ThyssenKrupp is under attack from investors as Chief Executive Officer Heinrich Hiesinger attempts to repair the damage from price-fixing and bribery scandals and a botched expansion in the Americas that cost it 3.6 billion euros in writedowns in the last fiscal year.

“It’s questionable whether you can do two full-time jobs like this at two DAX companies,” Michael Adams, a professor of economic law and a specialist in corporate governance at the University of Hamburg, said of Cromme.

Shareholder Powerlessness

ThyssenKrupp, whose stock gained 0.2 percent in 2012 as Germany’s benchmark DAX Index surged 29 percent, is canceling its dividend for the first time since the company was formed through the 1999 merger of Thyssen AG and Fried. Krupp AG. The shares retreated 1.8 percent today and closed at 18.07 euros in Frankfurt.

Some 69 percent of shareholders voted in favor of Cromme’s performance last year. A majority also approved the other members of the supervisory board’s performance.

In response to shareholder unrest, the supervisory board will waive half of last year’s pay, Cromme said at today’s meeting. “We trusted too long, we could have acted sooner,” he said.

Hans-Christoph Hirt, the executive director of Hermes Equity Ownership Services Ltd. representing several pension funds, holds Cromme and Beitz partly responsible.

“A credible new beginning at ThyssenKrupp implies that the supervisory board takes responsibility for the shortcomings in the leadership culture,” he told today’s meeting. Hirt said he would vote against the board’s performance for the past year as he called for an “orderly succession plan” for the chairman’s role.

Deka Investment, a top 10 shareholder, called on Cromme to stand down at the meeting.

Compliance Concerns

Handelsblatt last month cited Beitz, in a rare interview, as saying that Cromme “is here to stay.” Cromme, in an interview with Der Spiegel the same month, said he sees no need to resign.

Institutional Shareholder Services Inc., a Rockville, Maryland-based company which provides proxy voting and corporate governance services worldwide, is advising shareholders to vote against the supervisory board’s performance for the last year.

It’s making the recommendation “in light of ongoing oversight and compliance concerns at ThyssenKrupp that increased in intensity” and the board’s “unwillingness to acknowledge any need for improvement despite significant and serious developments that it failed to deal with effectively over a number of years.” ISS commented in a 21-page report to clients last month.

Deutsche Schutzvereinigung fuer Wertpapierbesitz e.V, one of Germany’s biggest shareholder groups, and the Association of Ethical Shareholders Germany said they plan to vote against the supervisory board’s performance at today’s meeting.

Ousted Executives

ThyssenKrupp ousted three executive board members last month in an effort to repair the damage caused by its involvement in a rail and an elevator cartel and the ill-fated expansion in the Americas.

An audit of unprofitable plants in the U.S. and Brazil highlighted decisions made on assumptions and key data that were “either clearly too optimistic or later proved to be incorrect,” the company said in a Dec. 5 statement.

Last week Bertin Eichler, deputy chairman of ThyssenKrupp’s supervisory board, said he will leave this year after he was probed by compliance staff over five company-funded foreign trips deemed to have been of a partly private nature.

Steel Americas

The departure will leave Cromme as one of five remaining supervisory board members who originally approved the 9 billion- euro investment in a steel plant in Brazil in November 2005 and in the U.S. in May 2007.

In contrast, when executive board member Ralph Labonte leaves on March 31 for health reasons, none of the managers associated with the Steel Americas investment decision will remain.

Hiesinger joined ThyssenKrupp from Siemens in 2010 as deputy CEO to Ekkehard Schulz, who was co-CEO alongside Cromme for two years before Cromme moved up to the supervisory board. Schulz took responsibility for the Steel Americas decision by resigning from all posts at the company and the foundation at the end of 2011.

Hiesinger is cutting ThyssenKrupp’s business units to five from eight and building its non-steel base as he seeks buyers for the Steel Americas unit.

Old Habits

Hiesinger promised to rid ThyssenKrupp of “old structures and habits” on Dec. 11, when he said the company displayed “an understanding of leadership in which ‘old boys’ networks’ and blind loyalty were more important than business success.”

At the time, he described the cooperation with the supervisory board as “very good.”

That’s not a view shared by a lobby group for chairmen that expressed its disapproval with Cromme this week.

“We’re of the opinion that the majority of responsibly- minded supervisory board officials expect you to think about taking personal consequences and give up your mandate as ThyssenKrupp supervisory board chairman,” lobby group Vereinigung der Aufsichtsraete in Deutschland e.V., or VARD, said in a letter to Cromme.

VARD, whose members include Air Berlin Plc (AB1) Chairman Hans- Joachim Koerber and former RWE AG (RWE) Chief Executive Officer Dietmar Kuhnt, seeks to improve the work of the supervisory boards that oversee German companies by setting common rules.

Cromme’s term runs until the AGM in 2015.

To contact the reporter on this story: Tino Andresen in Dusseldorf at tandresen1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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