International -- European Business: MANAGEMENT
THE TOUGHEST BOSSES IN EUROPE (int'l edition)
Three CEOs who are making unpopular moves to boost competitiveness
These are trying times for Europe's top brass. In recent weeks, city streets have erupted in labor protests as industry steps up the pace of restructuring. Yet despite the resistance, maverick execs are challenging Europe's old consensus system. In Germany, a hostile bid by Krupp boss Gerhard Cromme for rival Thyssen moved steel-industry consolidation forward. At French auto maker Renault, Chief Executive Louis Schweitzer is sticking to plans to shutter a Belgian factory. And Air France Chairman Christian Blanc is forcing pilots to accept U.S.-style, two-tier pay scales to drive costs down. All three are breaking new ground.
STOPPING RENAULT'S SPIN
Big job cuts loom for '97, '98, and '99
For Louis Schweitzer, it was yet another blood-pressure-raising encounter. After weeks of controversy over his decision to shutter a Belgian car plant employing 3,100 workers, the bookish CEO of French carmaker Renault was preparing to face his own team. On Mar. 22, 600 Renault managers gathered for a special conference with Schweitzer outside Paris against a bleak backdrop: Two days earlier, Schweitzer had announced a 1996 loss of $926 million, Renault's first red ink in 10 years.
The questions came hard and fast. But as the morning wore on, the 54-year-old executive had nailed down perhaps his most important constituency. "His message was that Renault will be Europe's most competitive carmaker by 2000, and he was convincing," says one manager who attended. Adds Philippe Schwarz, head of DRI/McGraw Hill's automotive group: "Schweitzer has been quite good at mobilizing people, which will be essential."
And how. Schweitzer's abrupt announcement in late February that he would shut the Belgian plant and lay off an additional 2,700 French workers could shape up as a milestone along the road of Europe's quest for competitive renewal. It is already getting a message through to France: that the country's 12.4% labor-force reduction during the recession of 1991-93 was by no means its last restructuring. Schweitzer's message flies in the face of record unemployment, sluggish growth, and even opposition from his government, already alarmed at the pitch of public unrest.
RUNNING. Yet Schweitzer so far shows no sign of backing down. On the contrary, his effort to salvage France's biggest auto maker, partially privatized last year, is just beginning. In late March, he said he still intends to cut 3,000 workers in 1998 and again in 1999. He also pledges to cut $3.5 billion in costs over the next three years, slicing a big chunk out of purchasing, and to target emerging markets such as Latin America more aggressively. The goal: to boost sales by 350,000 cars over six years and pull ahead of such rivals as Volkswagen and Fiat.
Ambitious? Yes. But to keep up with the industry, Schweitzer has little choice. Morgan Stanley & Co. economist Eric Chaney notes that global auto productivity is rising by over 6% per year--a zesty pace that Renault will be hard-pressed to match. Schweitzer will need to keep fighting his militant workers, one battle at a time.
By Bill Javetski in Paris
THE FIGHTER PILOTING AIR FRANCE
Under Blanc, recovery is in sight
A full-blown confrontation with labor brings most French chief executives to their knees, but not Air France boss Christian Blanc. His latest win came on Mar. 21, just 24 hours before Air France pilots, opposing his plan to slash salaries for new hires by 37%, threatened to strike. That would have cost the airline $72 million. But Blanc, the son of a World War II resistance fighter, parried by saying he would quit and let the pilots commit "commercial suicide." They quickly came back to the negotiating table.
Since his arrival in 1993, Blanc has dealt with France's militant public-sector unions with agility. He won the respect of some of the country's most truculent labor leaders by promising no involuntary layoffs. By ceding that point, Blanc won the right to do almost everything else. "His secret is applying General de Gaulle's methods to business management," says Denis Olivennes, executive vice-president at Air France.
AIRLINE INNOCENT. Under Blanc's tenure, Air France has eliminated five layers of management, slashed debt from $6 billion to $3.6 billion, and revamped scheduling. Blanc froze pay for two years and promotions for a year, and he boosted the amount of flying time crews must log before receiving overtime pay. Now, Air France is on the road to recovery. Since March, 1994, when Blanc launched his restructuring plan, operating costs are down 20% and productivity is up 30%. In the year ending on Mar. 31, the carrier is expected to just about break even, after showing $3.3 billion in losses since 1990.
Blanc, a 54-year-old former leftist from Bordeaux, admits that he knows little about airline management. But he aims to privatize Air France over the next 12 months and to cut costs by a further 15% by 1999. He claims he can make it Europe's leading carrier by 2000, but it won't be easy. Despite all the changes, Air France still has higher costs and lower productivity than its European rivals.
While chipping away at labor costs, Blanc also has to keep the government from meddling. Last November, President Jacques Chirac pressured Blanc to rescind orders for 10 Boeing jets and buy from Airbus Industrie instead. Blanc told the government that the Boeing Co. planes would make Air France more competitive and that if they didn't like his decision, they could find a new chairman. The government backed down.
In January, Blanc uttered in a rare public speech a truth that few in France dare admit: "Our country, which revels in making grand declarations on the role of the state, has for about 15 years followed a completely disastrous policy." That kind of blunt talk is not likely to win Blanc many friends. But it may help Air France survive.
By Gail Edmondson in Paris
CROMME BREAKS THE MOLD
Thyssen-Krupp will ax 7,900 jobs
For more than a decade, German metal giants Thyssen and the Krupp group jawboned about merging their struggling steelmaking operations. But Krupp CEO Gerhard Cromme knew that continued dithering would ultimately prove fatal to his company and hurt Germany's entire steel industry. With industrywide overcapacity battering prices, it was only
a matter of time before Germany's high-cost producers would be squeezed into oblivion.
To force Thyssen's hand, Cromme cooked up a scheme to take over his bigger rival. The 54-year-old executive had lined up backing from big shareholders and banks, and his hostile bid--a rarity in Germany--showed Thyssen CEO Dieter H. Vogel that he meant business. To his bankers' disappointment, Cromme had to withdraw the bid, but he still scored a hit: Vogel agreed to merge the steel operations. In less than a week, Cromme's hard-nosed tactics broke one of the oldest logjams blocking industrial restructuring in Germany. "He did an excellent job," marvels one BMW executive.
MANAGEMENT PURGE. The main points of the new company's form were settled on Mar. 26. Thyssen will have 60% ownership and majority control, while Krupp gets a 40% stake. Some 7,900 workers will be let go over the next four years--double the number envisioned in the companies' separate restructuring plans. A thousand of those laid off will be managers.
Contrary to his cowboy image, Cromme comes from a bookish background. Born during World War II in a German town near Bremen, he learned Greek and Latin at an early age from his father, a teacher. He attended universities in Mustair, Switzerland, and in Paris before landing at Harvard University. Cromme gets high marks for swiftly integrating Krupp and Hoesch, a steelmaker he acquired in 1992. He slashed the workforce by 20%, chopped costs by $300 million a year, and restored the combined company to profitability in just two years.
In 1993, when Cromme closed Krupp's Rheinhausen steel mill and slashed 2,500 jobs, he held his ground through months of protest by angry workers. This time, the blast furnace of resistance has been equally intense. On Mar. 25, nearly 30,000 members of the powerful IG Metall labor union demonstrated in Frankfurt against the merger plan. Nevertheless, Cromme's initiative succeeded in forcing German labor to swallow much of his agenda. His accomplishment may well set a precedent for other German companies in the throes of restructuring.
By David Woodruff in Bonn