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Online Extra: How Not to Replace a CEO


Munich chipmaker Infineon Technologies (IFX) was long seen as one of Europe's paragons of corporate governance and transparency. It issued detailed quarterly financial statements in German and English before it became standard and was among the first German companies to list on the New York Stock Exchange. CEO Ulrich Schumacher cultivated an image as a U.S.-style turbocharged exec, one who psyched himself up in the morning by blasting James Brown from his office stereo and blew off steam by driving on the amateur car-racing circuit. Supervisory Board Chairman Max-Dietrich Kley was a member of the government commission that wrote corporate-governance guidelines for Germany.

So imagine the shock on Mar. 4 when, in a three-sentence statement via the Frankfurt Stock Exchange newswire, Infineon announced that Schumacher had quit the company, effective immediately -- no reason given. So much for transparency.

What ensued is a textbook case of how not to replace your CEO r serve your shareholders. The lack of information, coming on the heels of such financial scandals as the collapse of Italy's Parmalat, caused Infineon shares to gyrate for several hours as investors tried to figure out what was going on at the world's No. 4 chipmaker. By the next morning, company representatives had passed the word that all was in order, and the shares settled down.

THEORIES ABOUND. Nonetheless, Schumacher's sudden exit was an embarrassment for Infineon -- especially because it still hasn't explained why he left. An Infineon spokesman declined to comment on the matter, as did a Schumacher spokesman, who cited confidentiality agreements with Infineon. Shareholders are still scratching their heads. "How are we supposed to judge?" asks Willi Bender, a member of the board of the Society for the Protection of Small Shareholders. "Did they get rid of a bad manager, or did they undermine a good one?"

That's still not completely clear. According to labor leaders, German press reports, and an Infineon insider, other members of the supervisory board believed Schumacher had become too autocratic, and with the help of worker representatives, the board engineered his ouster. A Schumacher loyalist says the CEO was ditched for being outspoken in his criticism of German business conditions and threatening to move company headquarters to Switzerland. "He became a political problem," says the loyalist.

Either way, the regime change was less than ideal for Infineon as the semiconductor industry was emerging from a deep slump. Supervisory Board Chairman Kley ran Infineon on an interim basis. But it went through a tumultuous six months without a permanent CEO. In September it paid a $160 million fine after pleading guilty to U.S. charges that it was part of an international conspiracy to fix prices on memory chips. (Schumacher's departure had nothing to do with the antitrust case, says an Infineon spokeswoman.)

AN ANTI-SCHUMACHER. Infineon returned to profit in the fiscal year ended on Sept. 30, reporting net income of $81 million on sales of $9.5 billion, vs. a loss of $574 million in the year-earlier period. But it has underperformed the industry -- analysts say it's too dependent on commodity memory chips and weak in more specialized ones that deliver higher margins -- and suffered a rash of investor downgrades.

On Sept. 1, Wolfgang Ziebart, a former management board member of auto-parts maker Continental, took charge. It's probably no accident that Infineon's board hired the anti-Schumacher. The low-key Ziebart promises to focus on chips for autos, communications, and memory while investing less in untested new technologies. And you won't hear loud music blasting from his window. But Infineon shareholders may welcome a bit more quiet in the executive suite. By Jack Ewing in Frankfurt


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