An organized change in leadership in Germany's largest corporation goes something like this: When the first rumors about the early departure of DaimlerChrysler CEO Jürgen Schrempp surfaced on Thursday morning, the company issued an official press release stating that its supervisory board had adopted a resolution stating that "Prof. Jürgen E. Schrempp will be leaving the company effective Dec. 31, 2005."
This is the kind of language that's generally used to inform the public that a company's management has fired a chief executive. Schrempp won't be receiving a golden parachute, nor will he be paid out through the end of his contract, which otherwise wouldn't expire until April 2008 and he won't be given a seat on DaimlerChrysler's supervisory board.
Moreover, the letter of termination to Schrempp, chief executive officer for 17 years -- first at aerospace subsidiary DASA and, since 1995, at Daimler-Benz and its later reincarnation DaimlerChrysler -- made no mention of the company's appreciation of his work. This is usually the approach a company takes when an executive is let go for personal failings.
At a meeting of the company's supervisory board, Schrempp's designated successor, Chrysler Group CEO Dieter Zetsche, instead thanked the members of the board for their confidence in him. Then Eckhard Cordes, head of the Mercedes Car Group, said a few words. Until then, he had been the company's second-in-command, next to Schrempp, after having assumed the task, less than a year ago, of leading Mercedes-Benz out of its crisis. In fact, Cordes was seen as the leading candidate to take over Schrempp's position. But on Thursday morning, Cordes asked the board members to release him from his contract as of the year's end.
At 2:00 p.m. -- after DaimlerChrysler's stock price had long since skyrocketed in response to the news of the departure of the man once known as "Mr. Shareholder Value" -- Schrempp held a telephone conference to respond to analysts' questions. Schrempp himself described his departure as a "masterpiece," adding that "the timing was excellent."
The speculations triggered by his departure are likely to come as a surprise to someone with such a distorted perception of reality. Was it time for Schrempp to go because he had secretly invested in South African companies? Nonsense, says a company spokesperson. And what about the suicide of DaimlerChrysler executive K., a member of the E2 executive group, which reports directly to the board? K. is said to have left behind a farewell letter filled with accusations against Schrempp. The company spokesperson says that while the suicide did occur, everything else is pure speculation.
Harsh criticism from shareholders
A more likely explanation for Schrempp's departure can be found with Deutsche Bank, which had wanted to sell its shares in DaimlerChrysler for some time, but not at the low price to which shares had declined as a result of Schrempp's strategy. Harsh criticism coming from shareholders probably also has something to do with it. And then there is the possibility that Schrempp wants to spend more time with his youngest son, now four months old. Of course, one reason for his turbulent exit lies in past power struggles, in which Schrempp, Zetsche and Cordes were at times allies and at times adversaries.
The complex Schrempp-Cordes-Zetsche relationship began in 1996. Although Schrempp was already head of Daimler-Benz at the time, Mercedes-Benz still existed as an independent subsidiary, led by then-chairman Helmut Werner, and it was responsible for the bulk of revenues and almost all profits.
Schrempp wanted to deprive Werner of some of his power, a difficult proposition, because Werner was a highly effective manager. Schrempp, teaming up with Cordes, developed plans for a restructuring of the group that would involve the merger of Daimler-Benz and Mercedes-Benz, making Werner's position redundant. But Schrempp and Cordes would not have been able to pull off the merger without the support of the entire executive leadership at Mercedes-Benz. They got their way when Zetsche, then Sales and Marketing Director at Mercedes, as well as two other senior executives backed Schrempp and supported the merger. Werner, isolated, left the group, and from then on Zetsche was viewed as a Schrempp ally.
Cleaning up Chrysler
Zetsche, born in Istanbul and raised in Frankfurt, had previously worked for the group in Brazil, Argentina and the United States. He was head of development, sales and marketing at Mercedes-Benz, and critics charged fast-tracker Zetsche with dashing up the corporate ladder by using what they called the helicopter principle: he would touch down in a cloud of dust and, by the time the dust had settled and it became clear what exactly Zetsche had changed, he would already have taken off again.
The man with the powerful moustache had little time or concern for these kinds of accusations. Zetsche is direct, affable and uncomplicated, an executive who plays an electric guitar at the Geneva Auto Show and pours beer for his guests at the Detroit Motor Show. Zetsche knows how to win people over, even when it means making tough decisions. To Schrempp, he seemed the perfect choice when he needed someone to clean house at Chrysler in 2000.
The merger partner, with which Schrempp planned to build a global corporation, had turned out to be a company in crisis, bringing DaimlerChrysler billions in losses. Zetsche's job was to solve Chrysler's problems and cover for Schrempp, who had come under fire for supporting the failed merger in the first place. "Schrempp told me very clearly," says Zetsche, "that he and I were in this together."
Competing for the top slot
Meanwhile, back at DaimlerChrysler headquarters in Stuttgart, Cordes was unhappy with the business he had taken over from Zetsche. According to Cordes, the commercial vehicle unit Zetsche had previously managed was in need of restructuring, the alliance with Caterpillar -- Zetsche's doing -- had failed, and the company's acquisition of Detroit Diesel had been a mistake. From then on it was clear that Zetsche and Cordes would be competing for Schrempp's job in the future.
Cordes and Zetsche are polar opposites. Cordes is a sharp-witted, hot-headed analyst who quickly loses his patience with anyone unable to follow his thought processes quickly enough. Although he obtained a truck driver's license when he took over as head of the commercial vehicles unit, Cordes is a manager who saves his true enthusiasm for an attractive net cash flow on the balance sheet, which is exactly what he wanted to achieve -- the faster, the better -- in his new working environment.
In the United States, Zetsche's first achievement was to defuse American prejudices against Chrysler's new German bosses. "They thought they were getting Adolf Hitler," says US automotive expert David Cole, "but then Martin Luther showed up."
But this didn't make the restructuring any easier. Chrysler closed or sold six plants and cut 26,000 jobs. Wolfgang Bernhard, who had been sent to the United States with Zetsche, often assumed the role of the bad guy, the man who demanded the biggest sacrifices, while Zetsche devoted his energies to new models and to sales.
While at Chrysler, Zetsche also defused the notion that his only role was to put out fires. In just under five years as head of the US carmaker, Zetsche improved vehicle quality and productivity at Chrysler's plants -- so much so that they are now more productive than Mercedes-Benz factories.
Everything was going swimmingly, for Zetsche, who was practically worshiped as a hero in the United States, and for Schrempp, who urgently needed Zetsche to succeed, as DaimlerChrysler began running into problems elsewhere. The Japanese arm of Schrempp's global corporation, Mitsubishi, had plunged into the red. At the shareholders' meeting on April 7, 2004, many shareholders demanded the resignation of the DaimlerChrysler CEO.
But the supervisory board extended Schrempp's contract on the same day, unintentionally laying the groundwork for the current discussion surrounding Schrempp's departure.
Supervisory board chairman, Hilmar Kopper, of Deutsche Bank and Central Works Council chairman, Erich Klemm, agreed that Schrempp would only run the group two or three more years, at which point he would turn over the reins to a successor, and Schrempp agreed with their plan.
But the board members had a problem. If they just offered the CEO a two-year contract, the discussion over his possible successor would have resumed again after only one year. Instead, they gave Schrempp a four-year contract through April 2008 and, in return, Schrempp promised that he would resign voluntarily before the contract expired and that he would not insist on being paid his remaining salary.
A revolt from within
Two weeks later, DaimlerChrysler's supervisory board was scheduled to vote on whether the group should invest another 4.5 billion to save ailing partner Mitsubishi. Schrempp was in favor of the investment, and so was his friend Cordes. But a number of members of the DaimlerChrysler board were concerned that the investment, and possibly future financial commitments, could jeopardize the entire group. To address these concerns, the board members, invited by Zetsche's deputy, Bernhard, met in Zetsche's Stuttgart office a few days before the slated decision. The eight executives attending the meeting agreed that there was one thing they wanted to prevent: the additional investment in Mitsubishi. Of course, everyone present must have known that Schrempp would perceive their actions as a revolt against him.
At the supervisory board meeting, the DaimlerChrysler CEO asked the board members to vote on his bailout plan for Mitsubishi. "Three are in favor," said Schrempp -- he himself, Director of Corporate Strategy Rüdiger Grube and Cordes. And then he asked the supposedly weakest member of the group of eight opponents, Director of Global Purchasing Tom Sidlik: "Tom, what's your position?"
When the US executive then launched into lengthy explanations and seemed to be on the verge of capitulating, at least from the perspective of Schrempp's remaining critics, Bernhard interpreted Sidlik and told Schrempp that he might as well skip the vote, because all eight remaining board members were against the bailout. And then he asked the group, one by one, beginning with Zetsche, what they thought of the idea. The outcome was clear: 8:3 against Schrempp's proposal.
Many board members expected Schrempp to resign in the wake of this setback. Schrempp, joined by Cordes and Grube, said that he would be available to the head of the supervisory board for a one-on-one discussion. But, as Schrempp later stressed, he never offered to resign. Instead, Bernhard was forced to resign, and Zetsche, who Schrempp's supporters saw as the instigator of the revolt, was promptly side-lined when it came to his career at DaimlerChrysler.
It was on that day, or perhaps even earlier, that Cordes and Zetsche became adversaries. Cordes felt safe in the assumption that he had captured an unbeatable lead in the race to succeed Schrempp.
The fact that everything turned out differently can also be attributed to problems at the Mercedes Car Group, which also includes the Smart and Maybach divisions, where the crisis is far deeper than it seemed at first.
Quality problems have cut to the core of the Mercedes-Benz brand name. If the car with the Mercedes star on its hood is no better, and in many cases worse, than its competitors, an important reason for many customers to buy a Mercedes falls by the wayside, leading to a decline in sales. Mercedes' sales in Germany have dropped 8 percent in the first six months of this year. To make matters worse, customers who are still buying Mercedes vehicles are demanding, and often getting, hefty discounts.
And the problems at the Smart division have by no means been solved, despite a projected 1.2 billion in restructuring costs for 2005. If sales of the division's four-seater model, the Forfour, continue to lag, DaimlerChrysler could find itself forced to negotiate a withdrawal from joint production of the model with Mitsubishi, costing the company another 500 million.
Job cuts at Mercedes-Benz could be just as costly. Because DaimlerChrysler agreed to forego business-related layoffs until 2012, it will only be able to cut an estimated 5,000 jobs in Germany by offering generous severance packages -- and that's bad news for CEO Schrempp, since such a move would further cut into DaimlerChrysler's earnings in the coming years.
An air of resignation
After the April shareholder meeting, Schrempp had his first conversation with close friend Kopper about the possibility of resigning as CEO before his contract expires. Kopper says that the conversation was not the result of pressure being exerted by Deutsche Bank and its CEO, Josef Ackermann. He said he sensed that Schrempp himself was gradually warming to the idea of leaving, especially after being forced to listen to sharp criticism of his wife's performance at DaimlerChrysler.
Supervisory board chairman Klemm was later brought into the conversation, which then turned to the most appropriate timing for Schrempp's resignation and finding a suitable successor. The men agreed that the process was to be quick and that lengthy transitional periods were to be avoided, only further reducing prospects for Cordes, who had just begun his new position at Mercedes-Benz.
Until as recently as last Wednesday, Cordes himself believed that he was the board's top pick for CEO. But by that evening, Schrempp and Kopper had told Cordes that Schrempp's resignation would take effect at the end of the year, and that his rival, Zetsche, would then take over the position. Cordes immediately demanded that his contract be cancelled, despite Schrempp and Kopper's attempts to convince him otherwise. For Cordes, it had long been clear that he would leave the company if rival Zetsche were to prevail -- and vice-versa.
But the supervisory board was unprepared for this outcome, leaving it unable to present a successor for Cordes and putting Mercedes in an uncomfortable position.
The press release, written by Schrempp himself, has turned the plan that Kopper, Schrempp and Klemm had worked out into a fiasco. It creates the impression that Schrempp was fired, an outcome that took the three men completely by surprise. "I'm very upset about this," says Kopper. "Schrempp didn't deserve this."
Even the fact that Schrempp isn't insisting on being paid his full salary until his contract expires seems to suggest that the DaimlerChrysler CEO was let go for dishonorable reasons, even though this was precisely what he had promised when his contract was extended. And, says Kopper, the company is grateful to Schrempp, even though Schrempp himself didn't want any words of appreciation to be included in his letter of termination. When Schrempp leaves DaimlerChrysler on Dec. 31, says Kopper, "he'll be commemorated -- and how."
That was exactly what DaimlerChrysler employees and shareholders did, in their own way, last Thursday. For shareholders, Schrempp's departure was a clear signal to buy more shares, prompting the group's value to jump by 3.7 billion. And Mercedes-Benz employees interviewed by the media in Sindelfingen expressed their relief.
"Finally" Schrempp is leaving, said one employee. "Far too late," said another.
Translated from the German by Christopher Sultan