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Business

Opinion: Generational Change in the Board Room

Something's going on in German board rooms. Managers from the old school are making way for a new type of leader. In many companies, the days when CEOs had carte blanche do to whatever they wanted are coming to an end.

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Out with the old, in with the new - Zetsche (l) replaces Schrempp (r)

Last week, DaimlerChrysler's Jürgen Schrempp, CEO since 1995, announced he was stepping down. The news brought about a 10 percent rise in the company's stock price -- a clear sign that the stock market wasn't unhappy about his leaving.

With Schrempp's departure, DaimlerChrysler is losing a head who frittered away billions of the company's cash. The first instance was in 1992, when Daimler-Benz Aerospace (DASA) bought the tattered Dutch aircraft builder Fokker to the tune of two billion euros ($2.4 billion). A costly merger with struggling Chrysler came soon after, followed by the expensive adventure with Mitsubishi.

After all that, many were astounded when last spring Schrempp's contract was renewed for another four years. But now he has to vacate his top-floor office before the end of the year, without receiving a golden handshake or continuing to draw a salary.

The change at the top at DaimlerChrysler shows that something fundamental is changing in Germany. The foundations of the country's traditional management culture have begun to crack. Management mistakes now come with consequences.

New owners, new ways

That's due in large part to the new owners of German companies. In the past, the German corporate landscape was characterized by extensive cross holdings. There was even a term for it -- Germany, Inc. The most notorious was the Munich-based financial triangle between Munich Re, Allianz and the HypoVereinsbank. But after Hypovereinsbank was bought by Italy's Unicredito, that three-way was broken up.

Ein DaimlerChrysler Mitarbeiter hält im Mercedes-Werk in Sindelfingen (bei Stuttgart) am Mittwoch (09.02.2005) mit weißen Handschuhen einen Mercedes Stern in der Hand

Another example was the stake that Deutsche Bank had in DaimlerChrysler. The Frankfurt bank traditionally filled the position of supervisory board chief at the Stuttgart-based automaker. But this interconnection between two corporate giants came to an end when Josef Ackermann, a Swiss, took the reins at Deutsche Bank. He cut the shareholding ties with other German firms. At Schrempp's departure, the bank took advantage of the sharp increase in the carmaker's stock price and sold shares for 1.4 billion euros.

The shoes of the traditional Germany Inc. owners are now being filled by a fleet of international financial investors such as insurance companies, pension funds and investment managers whose primary concern is profit. Showy CEOs like Ulrich Schumacher, the head of chip manufacturer Infineon, who showed up for his company's IPO in a race car, are unwelcome in the sober world of investing.

Werner Seifert

When managers do manage to squander away billions of euros, today's owners are much quicker to pull in the leash than the old Germany Inc. boards were. The bosses these days can't rely as much as they once did on their good old boys networks. This was apparent in the case of Werner Seifert (photo), who was forced to step down as head of the Germany stock exchange, Deutsche Börse, largely because his planned takeover of the London exchange displeased TCI, a hedge fund and large shareholder.

Lawmakers get tougher

But it's not just the new owners who have increased the pressure, lawmakers are also taking a new look at boardroom activities. This year, the government forced companies for the first time to make board members' salaries public. The new law helped create more transparency and ensures that stockholders can finally ascertain whether or not a board is being compensated according to its performance.

All in all, times are tougher these days for German managers. There is more public accountability and more pressure from stockholders. That is a good thing, since when managers waste billions on ill-advised ventures, no one -- neither owners nor employees -- benefits.

Dieter Zetsche, fuer Chrysler zustaendiges Vorstandsmitglied der DaimlerChrysler AG

The new DaimlerChrysler head, Dieter Zetsche, has learned this lesson. He has presented himself as a man of the people and hasn't shied away form getting in line with the floor workers in the company cafeteria. It's a small thing, but one which shows he is taking a new approach.

Higher-ups who aren't afraid to rub shoulders with blue-collar workers generally don't lose their grounding. If the companies of Germany Inc. get more of his type in the head offices, Germans should be pleased.

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