Magazine

Commentary: A Setback For German Reform


Forcing out your CEO just a day after releasing spectacular results might seem a bit odd. And yet that's what Siemens (SI) did to Klaus Kleinfeld on Apr. 25. Hours after the Munich electronics and engineering company said that operating profit in the most recent quarter soared 49%, to $2.7 billion, Kleinfeld—under pressure from the Siemens supervisory board in the wake of a corruption scandal—announced that he will not seek to extend his contract. Officially, Kleinfeld will remain in charge until his term expires on Sept. 30, but as a lame duck he's unlikely to launch any initiatives. As of Apr. 25, Siemens hadn't named a successor.

Kleinfeld's departure is a severe disappointment to those who saw the 49-year-old executive as Germany's best corporate chieftain. It's doubly disappointing that the ouster appears to have been engineered by two supervisory board members previously known for their efforts to modernize Germany Inc. Gerhard Cromme, chairman of steelmaker ThyssenKrupp, headed the commission that reformed Germany's corporate governance code. And while Deutsche Bank (DB) CEO Josef Ackermann was fined $4.2 million for breach of trust as a board member at another company, he has won praise for leading his own organization back to financial health. According to German press reports, Cromme and Ackermann persuaded worker representatives, who make up half the members of the supervisory board, to back them in pushing Kleinfeld to leave. (Neither Cromme nor Ackermann was available for comment about those reports.)

The immediate justification for Kleinfeld's forced departure is an investigation by Munich prosecutors into whether Siemens bribed foreign officials to win contracts. The company says $570 million might have been misused. One person close to Cromme suggests the ouster may have been an attempt to appease the U.S. Securities & Exchange Commission, which is looking into the bribery allegations because Siemens has a listing in the U.S. But, as Cromme emphasized in a statement, there are "no indications of personal misconduct or that Kleinfeld had any knowledge of events related to the affairs." As long as Kleinfeld isn't even accused of any wrongdoing, there's no satisfying explanation for the move.

Shareholders are clearly upset. Siemens' stock slid 3% following Kleinfeld's de facto resignation. That's after a 39% runup since Kleinfeld took office in 2005—a trend that continued even after the bribery scandal came to light in November. Kleinfeld, who is fond of quoting former General Electric Co. (GE) CEO Jack Welch, earned high marks for his far-reaching realignment of Siemens, a GE rival that makes power plants, X-ray machines, trains, lighting, and more. Kleinfeld sold or spun off money-losing telecommunications-equipment divisions, made plans to sell an auto-electronics unit, and spent $7.6 billion last year on acquisitions to strengthen the company's core businesses and build Siemens' presence in emerging markets such as China and India.

Now, Kleinfeld won't have the chance to finish the job he started, which is a pity for Germany. Kleinfeld was emblematic of a turnaround that has seen dozens of German companies reinvent themselves in recent years by cutting costs, boosting innovation, and expanding abroad. That has made Germany the world's biggest exporter of manufactured goods and driven the first sustained drop in unemployment in more than a decade.

The best hope for Siemens—and Germany—is that the supervisory board will quickly name a successor who can carry forward Kleinfeld's strategy. Speculation focuses on Wolfgang Reitzle, a highly regarded former Ford Motor Co. (F) executive who has transformed industrial gas supplier Linde. Reitzle says he doesn't want the job. But under pressure from his friend Ackermann he may have a hard time turning it down. One can only hope that whoever succeeds Kleinfeld will have a freer hand to act in shareholder interests.

By Jack Ewing


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