The Deutsche Bank Downfall How a Pillar of German Banking Lost Its Way
Part 5: Ackermann and the Arsonists
V. Ackermann and the Arsonists
A new face after 130 years of tradition. In Frankfurt, a new, exclusive executive committee was established. The bank failed to see the 2008 financial crisis coming. Internal conflict. Who controlled the controllers?
When Josef Ackermann took over control of Deutsche Bank on May 23, 2002, it was something of a revolution. One-hundred-and-thirty-two years after its founding, Deutsche Bank began imitating Anglo-American leadership structures. That might sound like a minor detail, but it was a huge cultural shift. Until that point, the head of Deutsche Bank had been the board spokesman, essentially the first among many equals -- and all decisions had to be passed unanimously by the board. British and US banks, by contrast, were led by a CEO, who presided over all of the bank's divisions. The bank's power was unified in this single position.
Ackermann downsized the management board from nine members to four and created a new body that sounds like a cross between communist and capitalist leadership fantasies: the Group Executive Committee (GEC).
This executive committee, made up of 12 members, became the bank's new center of power, an alternative management board. The members of the management board also belonged to the new committee along with seven managers who led the bank's largest divisions and who reported directly to Ackermann. He constantly set ambitious goals for his managers and had them submit daily reports. Although at first he pressured them by being demonstratively amicable, he later became pedantic and, ultimately, vindictive. People who witnessed the development speak of "psycho-terror."
Ackermann became the bank's Sun King, which must have been gratifying for him. His career had suffered the same kind of break as Edson Mitchell's. Just as Mitchell had been blocked from rising to the very top at Merrill Lynch, Ackermann had been sidelined at Credit Suisse, an institution he would have liked to lead. But in the mid-1990s a competitor had been placed at his side and he wasn't happy about it. Kopper, who was head of Deutsche Bank at the time, let Ackermann know that he would be welcome in Frankfurt at any time and it is very possible that, even before his arrival, he was told that he might ultimately become chairman of the management board.
Ackermann, who comes from Switzerland, is an interesting, enigmatic personality. He undoubtedly has narcissistic qualities, and is given to boasting about his abilities and famous acquaintances. It is a part of his character that shines through in meetings with him and all profiles written about him. He'll talk about how former New York Mayor Michael Bloomberg welcomed him as a hero or about how the head of the Jewish community greeted him by telling him he had been "sent by God." In his speeches, Ackermann is fond of bringing up honors he has received and never fails to mention that, when he was head of Deutsche Bank, he always received standing ovations at shareholders' meetings.
Appraisals from coworkers run the gamut from admiration to aversion. Ackermann would seem to be the kind of person people either love or hate. In Frankfurt, his underlings learned to fear him as a man with an apparently photographic memory for numbers. Ackermann, it was said, could take but a brief glance at a spreadsheet and commit every single number to memory.
When he was appointed in 2002, he became the first foreigner to lead Deutsche Bank, a detail that no media report at the time left unmentioned. Ackermann never thought much of discussions about the bank's German culture. Externally and for PR purposes, he was happy to parrot the bank's German values, but internally, he presented himself as a devotee of internationalization -- as someone whose job was to throw open the window in order to air out a particularly stuffy hallway. The "Deutsch" in Deutsche Bank was good for marketing, but not so good for earning money on Wall Street. Ackermann set about changing the bank's core identity while still celebrating the institution as a bastion of tradition.
He used the Executive Committee to limit pesky controls and to shift around resources without fear of being contradicted. The new power center was dominated by the investment bankers surrounding Anshu Jain and Michael Cohrs, who was responsible for large-scale mergers. It cemented the power structures at the bank that had existed at least since takeover of Bankers Trust.
Deutsche Bank had taken over Bankers Trust, an American investment bank, in 1999, a move that made it one of the biggest banks in the world, a fact it proudly proclaimed. More than anything, the takeover sent a message to the banking world that Deutsche Bank was serious about its plans to become a leading investment bank. It made it easier for Edson Mitchell, who was still alive at the time, to recruit both new talent and new investors. The earlier argument that Deutsche Bank was insufficiently represented in decisive markets no longer held true.
The new leadership structure gave the investment division easier access to resources. They were able to negotiate the budget for their capital-intensive activities directly with Ackermann, who was also responsible for distributing bonuses. It was a clever structure that also helped avoid friction with shareholders and the public: While management salaries in business operations had to be disclosed, those of GEC members did not. In the good years, Anshu Jain and several other committee members earned more than Ackermann. Indeed, in the course of his career at Deutsche Bank, Jain alone is thought to have earned between 300 and 400 million euros.
But Ackermann's organizational coup also had an additional effect. By shifting the most important decisions from the management board to the Executive Committee, the supervisory board no longer had as much influence on the bank's leadership. According to German law, the supervisory board can only control the management board -- and supervisory board members only learned as much about the activities of divisions under the control of the GEC as Ackermann was willing to tell them. Effective control was made even more difficult when Ulrich Cartellieris resigned in 2004. After that, there was only one trained banker left on the supervisory board: Rolf Breuer.
Germany's financial supervisory authority BaFin checked the new committee prior to restructuring but found no cause for complaint. The authority was satisfied by the bank's explanation that, from a legal perspective, GEC members were not company directors. As such, BaFin abstained from looking into the qualifications of the GEC members, something it always does for board members. As a result, the existence of the Executive Committee didn't just lead to a shifting of power within the bank, but to a culture of organized irresponsibility. Beneath the GEC were further committees and subcommittees and in the end, nobody knew who had responsibility for what. Neither did Ackermann, even as his formal power continued to grow.
In 2006, he had the supervisory board promote him from management board spokesman to management board chair, a step on the road to becoming an American style CEO. For the bank, the move would later have a fateful side-effect: whereas the management board to that point had always elected its leader from among the board's members and had the supervisory board approve the choice, from that point on the supervisory board was responsible for finding the bank's next leader.
On May 4, 2006, Clemens Börsig, who had been the bank's chief financial officer up to that point, became head of the supervisory board. It is difficult, if not impossible, to find someone involved with the bank who has much good to say about Börsig. Most are unanimous in the view that he was overwhelmed by the position, particularly when it came to finding Ackermann's successor. When the Swiss banker first mentioned in 2007 that he planned to step down in 2009, a chaotic search for his successor commenced -- at the end of which Börsig suggested that he himself be appointed. The supervisory board rejected his attempt at self-promotion and successfully convinced Ackermann to stay. Although he and Börsig were no longer able to get after that, they still had to work together for three more years.
Finally, Börsig tapped Anshu Jain and Jürgen Fitschen to succeed Ackermann against Ackermann's will. But real problems were brewing elsewhere. Even as Frankfurt was fighting over personnel and responsibilities, the world outside was collapsing. Between 2007 and 2011, a global financial crisis was followed by a European debt crisis that threatened to tear Europe apart.
Instead of quickly and carefully reexamining its business model, reevaluating its exposure and reconsidering its future, Deutsche Bank learned basically nothing from the crash. Under Ackermann's leadership, it had lost both the intellectual weight and the organizational structures to lead a competent debate about the narrowly avoided destruction of the entire banking universe. Entangled in childish, personal bickering, the bank missed its chance to start anew.
Critics of the bank see it as an unforgivable failure, the consequences of which still haven't been overcome. Once Jain took over from Ackermann in 2012, the bank remained one of the few financial institutions in the world that continued to conduct business as usual. And because it underestimated the consequences of the 2008 debacle, it didn't have the sensitivity to understand how seriously lawmakers saw the development. Frankfurt realized only far too late that regulators might actually move to curb investment banking.