Management Shake-Up Baggage Hampers Fresh Start at Siemens

Joe Kaeser has been voted in unanimously as the new Siemens CEO in a triumph for supervisory board head Gerhard Cromme, who has defeated his critics for now. If the company truly wants a fresh start, though, it will have to part ways with Cromme too.
Siemens executive Gerhard Cromme: incredible staying power

Siemens executive Gerhard Cromme: incredible staying power

Foto: ? Wolfgang Rattay / Reuters/ REUTERS

In early 2011, Gerhard Cromme and Peter Löscher made a pact. They both were wealthy men but they agreed they would both stay on at German engineering giant Siemens for another five years after 2012: Löscher as CEO and Cromme as head of the supervisory board. Cromme, famously adept at pulling strings, would of course retain his position as supervisory board chief at German steel giant ThyssenKrupp  as well. Only a few months later, at the end of July, Cromme extended the contract of Austrian-born Löscher by five years until 2017. Löscher expressed his gratitude to the former steel manager with his loyalty and respect.

But the friendship between these two men ended for good on Wednesday at 11:30 a.m., when the company announced officially that Löscher was no longer the head of Siemens  and that he would be replaced by Chief Financial Officer Joe Kaeser. There was no boardroom revolt against Cromme's coup-like removal of Löscher, even though heavyweights on the board, including former Deutsche Bank CEO Josef Ackermann and Allianz head Michael Diekmann, had considered not supporting Cromme's motion.

One thing is certain: Even if Cromme scored a victory over his critics on Wednesday, it was a pyrrhic one at best. For the company to get the fresh start it needs, a second important step will have to be taken at Siemens -- namely Cromme's own departure. It appears that is just a matter of time.

It was Cromme himself who brought former pharmaceuticals executive Löscher to Siemens to save the company from a massive bribery scandal. The polyglot manager was the right man for the job. He led Siemens out of the mire and set about travelling the world promoting Siemens as a corruption-free brand of top-quality products Made in Germany.

Nethertheless, at some point Löscher and Cromme should have taken things to the next level and defined the company's future direction, identifying areas where Siemens wanted to grow and those where it wanted to scale back.

A Controversial Consolidator

It must have dawned on Cromme in late summer of 2012 that Löscher was the wrong man for the job. Löscher's second term as Siemens CEO had only just begun. And Cromme himself was facing growing pressure in his other job as the head of ThyssenKrupp's supervisory board. Disastrous mismanagement under his supervision had led to billions in losses that threatened ThyssenKrupp's very existence. In an interview with SPIEGEL last December, though, he dismissed calls for him to step down.

Cromme is known for his staying power. When he joined steelmaker Krupp in 1986, the industry was at the height of a crisis that had already been raging for years. There were too many ageing steel mills. Cromme responded with an iron fist. His decision to close the Duisburg-Rheinhausen steel mill, which had a long history and employed some 6,000 workers, triggered a five-month battle with organized labor during the winter of 1987-1988. Furious workers threatened Cromme, threw eggs at him and held protests in front of his private residence for months. But he didn't allow himself to be swayed.

Acting more or less single-handedly, he went on to consolidate most of the German steel industry up until the end of the 1990s. Krupp acquired Hoesch, a Thyssen competitor that was actually considerably larger. When he switched to become the head off the ThyssenKrupp supervisory board in 2001, he took on a role that seemed to have more to do with shaping rather than supervising the company. His climb seemed unstoppable and, eventually, he had become something akin to the chief puppetmaster of of German industry, sitting on the supervisory boards of numerous blue-chip companies. Under the government of former Chancellor Gerhard Schröder, he was even appointed to head the Commission of the German Corporate Governance Code, a group tasked with making Germany's corporate governance rules transparent for national and international investors and strengthening confidence in German businesses. It put him in a position to essentially dictate to his executive colleagues how they were to run their companies.

A Lack of Potential Successors

But scandals involving luxury trips, diverse cartel probes and investigations by public prosecutors eventually led to Cromme's removal from ThyssenKrupp in March of this year. Since then, he has had more time to reflect on past mistakes at ThyssenKrupp, and to consider how similar ones could be prevented at Siemens.

By forcing Löscher out, Cromme has now corrected a bad decision. It also appears he has done Siemens a major service -- even though its implementation this week was more than a bit bumpy. But his own departure, which is essential, could fail in the short term for another reason: a lack of suitable candidates among the current and foreign captains of industry in Germany.

Employee representatives on the board would reject former Deutsche Bank CEO Josef Ackermann. It is also unlikely they would accept Werner Wenning, the former CEO of pharmaceuticals giant Bayer. Besides, he's already a member of a number of other boards. That still leaves Allianz CEO Michael Diekmann, but he already has his hands full with his own company. That's why one name constantly pops up when it comes to possible Cromme successors -- Wolfgang Reitzle, the head of Linde Group, a German industrial gases company. Reitzle is expected to quit next spring, but he would first have to become an ordinary member of the Siemens supervisory board to become familiar with the company before he could take over the chairmanship.

The next annual general meeting at Siemens is planned at the end of January 2014, and an orderly transition of power to him by then would be very difficult. It's feasible that Cromme will plan to stay on board until the AGM at the beginning of 2015. At that point, he will be 72 years old. The maximum age of employment at Siemens used to be 70 , but the company changed its rules in October 2011 to accommodate Cromme.

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