SPIEGEL Interview with Siemens CEO Peter Löscher 'The Management Culture Failed'

Peter Löscher, the new CEO at German engineering giant Siemens, discusses his predecessors' mistakes, persistent problems with corruption, the excessive salaries of some executives and the company's global opportunities.

SPIEGEL: Mr. Löscher, when you arrive in a city you've never been to before, how do you get your bearings?

Löscher: I leave my hotel as quickly as possible and just head out into the streets, preferably on foot.

SPIEGEL: And how have you gotten to know Siemens since you became CEO this summer? It is, after all, a company with 400,000 employees in 190 countries.

Löscher: Once again, I just headed out the door. In this case, of course, I needed a jet. It was important to me to get to know the Siemens universe firsthand, and not just from the perspective of an executive in Munich. I visited the divisions immediately, in Erlangen and Nürnberg, as well as in Switzerland. Then I took a look at the United States business. I also traveled to Austria, China, Japan, India and Russia. During the first 100 days in my new position, my goal was to listen and gather impressions.

SPIEGEL: In the company's 160-year history, you are the first CEO who was not promoted from within. Who is helping you get your bearings?

Löscher: I was simply on the road a lot -- without a staff. And my schedule was always the same. I had breakfast with customers, met with politicians or individual business partners in the morning and had lunch with young executives -- I did all of this on my own. I spent my afternoons in management meetings and perhaps attended an employee meeting, and in the evenings I would meet with the management team wherever I happened to be. You can learn a lot this way.

SPIEGEL: How could you be sure that they weren't just putting on a show for you during these trips?

Löscher: Take the discussions with young executives, for example. Their openness and enthusiasm are fantastic. One quickly discovers what's going well and what isn't in a company.

SPIEGEL: How much time did you take to think about it when Supervisory Board Chairman Gerhard Cromme offered you the job in May?

Löscher: Less than 10 seconds. We had a very intensive and open discussion that lasted several hours, and no subject was off-limits. In the end, all it took was a handshake. I gave notice at Merck in the United States on May 18. I was introduced here in Munich on May 20. But I didn't sign the contract until July.

SPIEGEL: Siemens has been shaken by what has probably been the biggest corruption scandal ever made public. Were you truly aware of what you were getting yourself into?

Löscher: To be honest, I underestimated the scope of the problem. The sum of questionable payments has now increased to €1.3 billion ($1.9 billion). In the summer, the charges centered on the Com division, that is, the communications business. But it's now clear that other parts of the company were clearly infected, as well.

SPIEGEL: The company has already incurred costs of €1.5 billion in penalties, back taxes and legal and consultants' fees.

Löscher: And the investigation is still underway.

SPIEGEL: Have you at least reached the bottom of this swamp?

Löscher: As far as I'm concerned, I have my two feet firmly on the ground. We want the investigation to be swift and comprehensive, and we will clearly draw the necessary consequences. We are pushing forward, and there are no ifs, ands or buts. But it will take time.

SPIEGEL: Have Siemens executives also lined their own pockets, or was the money always shifted around purely in the supposed interest of the company?

Löscher: Because these are all current investigations, I cannot comment on them. It is clear, however, that we all support an absolutely clean business in the future. Anyone who doesn't accept this can't work for Siemens.

SPIEGEL: Your predecessors, Heinrich von Pierer and Klaus Kleinfeld, repeated a similar mantra over and over again. But corruption was always treated on a case-by-case basis -- if it was addressed at all.

Löscher: What I have discovered here goes well beyond isolated cases. That's already borne out by the sheer magnitude of the questionable payments.

'Managers Broke the Law'

SPIEGEL: So it was a system based on a shadow economy. How could something like this have developed in the first place?

Löscher: It's completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rules. Siemens had and still has an outstanding set of rules. The only problem is that they were apparently being violated on an ongoing basis. The management culture was simply not practiced consistently and uniformly. This is why my job now is to install a new culture. And I can guarantee you that senior management will practice what it preaches -- to a T.

SPIEGEL: How important is the symbolism of your own salary in this context?

Löscher: It's important to maintain perspective when it comes to salaries. And I think that we at Siemens have been successful in this regard. Our salaries tend to be average compared with other German companies listed on the German stock index, the DAX, and they are even below average in an international comparison.

SPIEGEL: Your predecessor Klaus Kleinfeld earned an annual salary of €3.6 million. You earn €4.4 million -- as well as a sort of signing bonus?

Löscher: I did not receive a signing bonus. Instead, I was simply compensated for what I lost financially by leaving Merck prematurely.

SPIEGEL: Can you understand German politicians like President Horst Köhler and Chancellor Angela Merkel when they criticize excessive greed among executives ?

Löscher: I consider this debate to be very important in terms of social policy. It isn't directed against high salaries per se, but against excesses, in which payment bears no relation to performance. These discussions are even beginning to take shape in the United States. And they are necessary.

SPIEGEL: Internal auditors and prosecutors in several countries are not the only ones investigating Siemens. The US Securities and Exchange Commission (SEC), which could theoretically monitor your company for many years, is seen as particularly threatening.

Löscher: This so-called monitoring can in fact last for an extended period of time. But that's part of the normal SEC procedure.

SPIEGEL: You and the head of the supervisory board plan to travel to the United States in mid-December to meet with SEC officials. What do you plan to achieve?

Löscher: We intend to establish contact before our next shareholders' meeting in January. We want to, and must, engage the officials in the United States.

SPIEGEL: Why did corruption at Siemens continue for so many years, even after the laws had been toughened in Germany, and after Siemens had been listed on US stock exchange, thereby subjecting itself to tighter American controls?

Löscher: Once again, our management culture failed. And that's something we will address -- all of it. Four-hundred-seventy executives have already been sanctioned, and we have parted ways with 130. It is important that every Siemens employee knows that rules and laws must be observed. Anyone who fails to comply can expect the most serious of consequences.

SPIEGEL: What if someone confesses to old sins and asks for a second chance?

Löscher: We have implemented an internal amnesty program that runs until the end of January. In addition, any employee can anonymously report confidential information. This could raise new suspicions that haven't even been part of the discussion until now. I want a comprehensive inquiry and the complete truth.

SPIEGEL: Is your house-cleaning one of the reasons Siemens plans to part ways with its auditors, KPMG?

Löscher: The shareholders' meeting appoints the auditors. We have announced that we will open up the position for new bids in 2008.

SPIEGEL: Senior management is also said to have helped pay for the development of the labor organization AUB for years -- as a counterweight to the (German metalworkers' union) IG Metall. It's something for which you recently apologized personally. What prompted you to take this unusual step?

Löscher: The way I see it, the policy represented an odd and misguided approach. I issued an apology, on behalf of the company, to the labor organizations, the employees and IG Metall.

SPIEGEL: Do you ever discuss the many scandals with your predecessors, Pierer or Kleinfeld?

Löscher: No.

SPIEGEL: Wouldn't it make sense?

Löscher: I haven't done it.

SPIEGEL: Siemens is a company with global operations. What will you do in the future in regions or in situations where landing a contract may depend on paying bribes?

Löscher: Siemens endorses clean business. Period. I am not interested in deals that can only be had through corruption. This doesn't necessarily mean that we have to stop doing business in an entire country, but perhaps it does mean turning down specific projects or customers.

SPIEGEL: You would turn down the prospect of sales voluntarily?

Löscher: Do I even have to? Our orders were up by 19 percent last quarter. Infrastructure projects worth €500 billion will be awarded in the coming years in India alone. Business is booming. Our worldwide opportunities are promising and by no means exhausted.

SPIEGEL: The Nigerian government has imposed a moratorium on doing business with Siemens. Do you expect other countries to follow its lead?

Löscher: I would rather not speculate about that.

SPIEGEL: And how will Chancellor Angela Merkel's China policy  affect Siemens' business in the People's Republic?

Löscher: Siemens has been doing business with the Chinese for more than a century. There have been highs and lows. Most of all, however, we have a long-term partnership based on trust and respect, and one that has repeatedly contributed to balance and to understanding between our countries and cultures.

SPIEGEL: Your immediate predecessor Kleinfeld began restructuring and significantly cleaning up the group. Do you think he did a good job?

Löscher: Absolutely. I have two advantages. First, the strong economy has helped our business, which has already grown tremendously. Second, I am able to build on a strategically correct framework, which is oriented toward the megatrends of the future, like the energy supply, urban growth and demographic change.

SPIEGEL: You plan to convert the group's eight divisions into three large sectors: Industry, Energy and Health. In principle, could the businesses that are not specifically mentioned -- like Nokia Siemens Networks or the Bosch and Siemens home appliance business -- be eliminated?

Löscher: These are businesses like everything else. For instance, the partnership with Nokia is contractually obligated to run for at least six years. And Bosch is a cash cow. Incidentally, I am in favor of evolution, not revolution.

SPIEGEL: Your new Industry Sector delivers the lion's share of Siemens revenues. Heinrich Hiesinger, the CEO of the Industry Sector, was in charge of the energy distribution division during the time when illegal price fixing activities was allegedly going on there.

Löscher: You can assume that we have thoroughly vetted everyone who has now been placed in a leadership position.

SPIEGEL: You recently predicted that the restructuring of the company would not be completely trouble-free. What exactly did you mean?

Löscher: On the whole, Siemens will grow at a faster rate than before. Logically, however, we have to ask ourselves which management layers and executive positions we will need when eight divisions are merged into three sectors.

SPIEGEL: In other words, the restructuring will not affect ordinary workers as much as mid-level and senior management?

Löscher: Once the divisions have been restructured and a new senior executive has been appointed for each sector, we will address the next level of management. We appointed the heads of our 15 future divisions on Friday. As part of this process, our declared goal is that people, not committees, will run the company in the future. And when it comes to that, we will see a healthy mix of new faces and people with many years of experience.

SPIEGEL: Both the Erlangen facility, which is home to the company's medical and power plant businesses, and former chief executive Pierer are still considered a behind-the-scenes center of power within the old Siemens group.

Löscher: There is only one center of power at Siemens -- the customer. At the end of the day, economic success, not proportional power, is what counts. It's already been rumored that I planned to deprive the local executives of power. On the contrary, I plan to strengthen their positions.

SPIEGEL: Why is it that there has been so little reaction on the markets to all the scandals and the resulting risks?

Löscher: I can only influence my results, not the stock price. That's why I don't speculate on what happens on the markets. We have just presented record financial results. And don't forget that Siemens has a strong reputation for innovation. Our engineering expertise is recognized worldwide. That's what counts.

SPIEGEL: There are rumors that something else attracts investors to Siemens: They hope that you might eventually split the company into the three new sectors and cash in.

Löscher: I vehemently reject that. We have been and remain an integrated technology group.

SPIEGEL: How do the weak dollar, the US financial crisis and expensive oil affect Siemens?

Löscher: We are organized globally and do about half of our business in the euro zone. That's a clear advantage in the current situation.

SPIEGEL: Do you think the United States is sliding into a recession?

Löscher: It will certainly experience slower growth. But it's ultimately a consumer crisis. This doesn't affect us directly, because we are involved primarily in the capital goods sector.

SPIEGEL: You yourself worked for Siemens competitor General Electric for several years. To what extent do you see the Americans as a model?

Löscher: We are talking about two companies that respect each other and are good competitors. Aside from that, each company has to find its own way.

SPIEGEL: What aspects of your own personality are now American?

Löscher: Well, I'm a native Austrian. One of my parents is of Italian heritage. My wife is from Spain. I've studied -- and worked -- on three continents. Two of my children are Americans and the third has a Spanish passport. In other words, I already experience the United Nations in my own family, and I see myself as a global manager with deep roots here in Europe. I've also noticed that as you get older you begin to appreciate your own cultural environment more and more.

SPIEGEL: It sounds like you might want to conclude your career by running an Austrian company once again.

Löscher: (laughing) I'm at Siemens now, which, by the way, is also perceived in Austria as an Austrian company. Siemens is both the high point and end point of my career.

SPIEGEL: Mr. Löscher, we thank you for this interview.

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