International -- Int'l Business: GERMANY
UPHEAVAL AT DAIMLER (int'l edition)
As Deutsche Bank forces the revamp, will Germany Inc. ever be the same?
It was a very German coup--quiet, slow-motion, thorough. In a bare-bones press handout in June, 1994, Daimler Benz announced that Edzard Reuter would be replaced as chief executive by Jurgen E. Schrempp, head of Daimler Benz Aerospace (DASA) after the annual meeting the following May.
For Hilmar Kopper, chief executive of Deutsche Bank and chairman of Daimler's board of supervisors, Reuter's removal was the payoff for weeks of intense meetings with Daimler directors and advisers. Alarmed that Reuter had not reversed Daimler's disastrous diversification into aerospace and electronics, the burly Kopper resolved to ease him out. He did it so smoothly that Reuter barely grasped what was happening. Instead, he told the press that after handing over the reins to Schrempp, he would be replacing Kopper as Daimler chairman. Kopper quickly stomped on that: Reuter got a board seat and Kopper's power stayed unchallenged. Slowly, Germany Inc. woke up to what had happened: A powerful CEO had been overthrown by the company's bank and major shareholder.
Fast forward to January, 1996. Schrempp, handpicked by Kopper to resurrect the flagging fortunes of Germany's largest manufacturer, has started off the new year by doing things Reuter would never contemplate. In mid-January, Schrempp overrode objections from his unions and folded the remnants of the money-losing AEG electronics subsidiary into other divisions. The cost: a write-off of $1.1 billion. But the real shocker came on Jan. 22. Schrempp cut off funding for Fokker Aircraft, the floundering Dutch airplane maker 51%-owned by Daimler. The probable fallout: a bankruptcy filing by Fokker, with the loss of 7,900 jobs at the Dutch company and 1,200 at DASA, and a write-off so huge that Daimler will report a 1995 loss of $4.2 billion, a record in Germany.
What is happening at Daimler Benz is familiar enough in Corporate America these days. Major shareholder gets mad; shareholder boots out old CEO; new CEO gets tough. This, in the U.S., has been the standard formula for corporate change since the early 1980s. But in Germany, this scenario has until recently been a rarity. Boardroom politics are too consensual, big shareholders too unaccustomed to rocking the boat--and gradual change is always preferred to a major upheaval. "There isn't even a phrase in German for `shareholder activism' or `corporate governance,"' says Hans Decker, former vice-chairman at Siemens who now teaches at Columbia University.
Yet Kopper is signaling that his bank, which holds 24% of Daimler, must be more active in a country where shareholders are used to being passive. "Deutsche Bank had to take a role in unseating Reuter," says Arie Y. Lewin, a professor at Duke University's Fuqua School of Business. "It's not the [German] stock market that's going to do it." If Kopper and Schrempp pursue their program to the end, the idea of shareholder-inspired restructuring could become a permanent part of the corporate mentality in Germany. Kopper even hints he might sell off a chunk of Deutsche Bank's $6 billion stake in Daimler--provided the price rises enough and punitive capital gains taxes for large holding companies are legislated out of existence. Such a move would show other German investors that they too can profit by getting tough.
These are all radical possibilities from an unlikely pair of revolutionaries--two men at the top of the German establishment. Kopper does not rant about the corporate blunders during Reuter's eight years in office, when Daimler shareholders' total return slumped 30%. Instead, he says of his move to appoint Schrempp, "My constant theme was: `Come on. A lot of things have to be dealt with."' Yet Kopper has dealt with corporate messes before. In early 1994 he acted with brutal swiftness in removing Heinz Schimmelbusch, chief of metals and engineering giant Metallgesellschaft, another major Deutsche investment that ran into major problems.By John Templeman in Frankfurt and Stuttgart, with Christopher Power and William Glasgall in New York and bureau reportsReturn to top