International -- European Cover Story
EUROPE'S HOTSHOTS (int'l edition)
Staid companies are putting thirtysomethings in top positions--and it's changing Corporate Europe
The buzz started among Frankfurt bankers days before Dresdner Bank's official announcement on Feb. 20. Bernhard Walter, Dresdner's new CEO, was about to shore up its lagging investment banking operation by naming hotshot options trader Leonhard H. Fischer to the bank's management board. What was surprising was Fischer's age. At 35, he is believed to be the youngest board member ever appointed to a major company in postwar Germany. Now, thirtysomething up-and-comers all over the country are fretting about falling behind. "All of a sudden I'm feeling old," laments one 38-year-old bank vice-president in Frankfurt, only half kidding.
Welcome to the club. In the heart of Continental Europe, some of the world's most conservative companies are suddenly playing the youth card. Companies that once routinely favored experience over youth are now promoting the top performers, regardless of age, naming executives in their thirties and early forties to key positions, from chief strategist to chief financial officer and, in some cases, CEO. Younger executives, whether in the top job or a rung below the boss, are playing a huge role these days in reshaping Europe Inc. Says David Shellard, a London-based managing director with search firm Russell Reynolds Associates: "In the old days, talent permeated an organization slowly. These days, companies don't have time to wait."
It's a dramatic shift: Unlike their predecessors, the new class of top execs is steeped in the culture of shareholder value. Many of them went to business school or served a stint at U.S. outfits such as McKinsey & Co. or J.P. Morgan & Co. The young managers tend to be more impatient and less chary of job-slashing than their elders. They also tend to jump to where the action is. That's certainly the case with Thomas Putter, 40, a self-styled "young turk" from Goldman, Sachs & Co.'s London office. On Mar. 2, he left Goldman to start a private equity investment unit within German insurance giant Allianz. By giving the new unit autonomy and up to $2 billion to invest in LBOs and other deals on the Continent, Allianz "is breaking nearly every rule in the book," says Putter. The aim: to build a European rival to such dynamos as Kohlberg Kravis Roberts & Co. and Goldman Sachs Capital Partners.CULTURE-BUSTERS. Putter's strengths are typical of the skills young execs are offering to Europe's old-line companies. Young CFOs are pioneering incentive-based pay and sophisticated systems for tracking profits in companies that have long rewarded loyalty over performance or only vaguely understood which operations made money. The hotshots also are bringing in the Internet and other technologies that older execs are less comfortable with. And a few, such as Ulrich Schumacher, 40, head of Siemens' chip operations, are pure culture-busters. They are challenging the cautious, risk-averse management styles their elders long cultivated. And after a decade of slow growth and painful consolidation, the upstarts may be Europe's best hope for launching a new era of growth.
With their consulting and investment banking backgrounds, these executives are deeply involved in the takeover boom that has gripped European business. They are taking charge on the eve of Europe's adoption of a single currency, which will surely intensify the dealmaking. Dresdner's Fischer is a case in point. In recent months, a series of tax scandals has wracked the bank, forcing its investment banking chief and other executives to resign. CEO Walter needs someone with on-the-ground experience to guide his board as it scouts a U.S. investment banking target. Fischer fills the bill: He joined Dresdner in 1995 after eight years at J.P. Morgan and is respected by rivals for helping to build Dresdner's capital-markets activities. And Thomas Middelhoff, 44, who will become CEO of Bertelsmann this fall, spent months in New York scouting its Mar. 23 deal to buy Random House Inc.
To be sure, many of these young executives have impeccable Establishment credentials. For instance, France's Jean-Marie Messier, 41, CEO of Compagnie Generale des Eaux, attended France's elite Ecole National d'Administration and later served as a top Finance Ministry aide. Since he took a top job at the water utility in 1994, he has used an alliance with British Telecom to challenge France Telecom. And he recently won control of media giant Havas, a key to building a fast-growing services conglomerate. Says Messier: "There has been a significant renewal of management in French companies." It is an answer, he adds, to "the demands of globalization."
Of course, when executives such as Fischer or Messier soar to the top, they are often considered parvenus and meet resistance. Their success runs counter to Europe's tendency to value experience over youthful ambition. For many Europeans, the Italian concept of anzianita--the measure of one's age and experience--is still the deciding factor in job appointments, and any CEO under 55 is suspect. Messier found that out the hard way. When he became heir apparent to CGE chief executive Guy Dejouany at 37, board members including Peugeot Chairman Jacques Calvet threatened to resign in protest. Calvet blasted the move as "grotesque," adding: "You don't put a group like Generale des Eaux in the hands of a young man. You need a solid, serious professional."
Such attitudes are one reason Francesco De Leo, 35, caused such a stir when he was named general director of Telecom Italia recently. De Leo says he counters skepticism by "taking charge and demonstrating the need for concrete accomplishment." And he notes that Allessandro Profumo, 41, the head of Credito Italiano, has surrounded himself with young people. "I'd like to see the same at Telecom," De Leo adds.
The mounting pressure of global competition will force even traditional companies to inject more youthful energy to their ranks. "It's the best way to shake up an organization," says Nokia Corp. CEO Jorma Ollila, who has brought in a bevy of young managers over the last six years. Trotting out the young execs at road shows is a good way to persuade investors that a company is serious about reforming. Younger managers, says Carol Franklin, New York-based manager of Scudder Kemper Investments Inc.'s Greater Europe Growth Fund, "are often the catalyst for the changes we're hoping for at a company."
One exec who has started preaching that gospel is Jean-Pierre Rodier, 50, CEO of aluminum giant Pechiney. He's beginning to break down the company's promotion-by-seniority system by appointing Christel Bories, 34, to head the company's plastic packaging business starting Jan. 1, 1999. Bories is also Pechiney's youngest board member ever and one of a handful of women execs on the rise in Europe. "I'm part of a wave of managers appointed to help transform Pechiney," says Bories, who has overseen Pechiney's restructuring program since 1996.
Like Bories, the young managers often get one of their company's toughest assignments. Swiss power giant ABB made Alexis Fries, now 42, head of its Asia-Pacific operations back in 1993 with a mandate to establish ABB businesses across Asia and recruit local executives to help run them. One reason: the grueling work hours involved in such jobs. "Demands on managers for international jobs are much greater," says CEO Goren Lindahl. "You need people who are very geared and can handle the intensity."
As more young managers come to the fore, the internal dynamics of many Continental companies are changing. As thirty- and fortysomethings shoot to the top, their compatriots are becoming less willing to wait until late in their own careers to rise. The likely result: more turnover at European companies. The young and ambitious aren't afraid to jump ship if they aren't rewarded; many come from the outside in the first place. What's more, they don't come cheap. For example, Allianz probably matched--or beat--Putter's executive director's pay at Goldman Sachs. Headhunters and rivals say Putter is likely to earn at least twice the $300,000 annual salary that an Allianz up-and-comer his age typically makes.
In fact, young execs have been helping to tear down traditional compensation systems at many companies. They tend to favor pay-for-performance--for other employees as well as for themselves. At the new $600 billion United Bank of Switzerland--the result of the merger between Union Bank of Switzerland and Swiss Bank Corp.--Chief Financial Officer Peter A. Wuffli, 40, is introducing stock options and other incentives to "align top management's interests with those of shareholders." A former McKinsey consultant, Wuffli pioneered such a system at Swiss Bank. Not only was that unheard of at a big Swiss bank but SBC didn't even have a CFO before Wuffli arrived in 1994.UNSETTLING. In many companies, young managers are shining the spotlight more on profits and shareholder value, too. In Italy, ex-Olivetti executive Francesco Caio, 40, took the helm of Merloni Elettrodomestici, Europe's No.4 appliance maker, in January, 1997. He helped boost sales a healthy 12% last year to $1.6 billion. He also cut debt and tightened cost controls to boost operating profits by 51%. Merloni's stock has more than tripled, to $5, since his arrival.
The onset of these change-agents, however, can be deeply unsettling for older managers. Take the January appointment of 40-year-old Schumacher as the youngest board member ever at Siemens. Schumacher joined the company in his 20s, after earning a doctorate in engineering. But the comparison with the average Siemens exec ends there. Since becoming chief of the semiconductor division in October, 1996, Schumacher has roiled the company's cautious management culture. He strongly favors linking pay to performance. To focus attention on the new rules, he has also bluntly told some older execs they would never make the rung on the ladder they've been aiming for all their careers.
But if they play the game his way, he tells them, "they can make twice as much as before" under his incentive plans. "Until now, medium to low performers have been overcompensated and high performers have been grossly undercompensated," Schumacher says.
To hold all his 26,000 employees accountable, Schumacher has split his operation into dozens of units. He also gives top managers an incentive to succeed by promising to bring them up the fast track with him. Of seven division managers under him, he says, "I have two younger than me and one older than me who could do my job--and I've told them so," he says. "If I get more authority, I can imagine promoting these people." But meeting Schumacher's goals won't be easy: Even as Asia slows, he wants to nearly double his sales to $8.3 billion by 2001.
Siemens is not the only European tech player turning to young mavericks for help. At France's Alcatel Alsthom, the 38-year-old No.2 of its telecommunications business, Anne Lauvergeon, is pushing to make the engineering-driven company more market savvy. And she's encouraging promotion of young managers. "If we want to be really good, we have to use the rich talent throughout the company," she says.
Meanwhile, in Finland, 41-year-old Pekka Ala-Pietila runs the company's thriving mobile phone unit. Since Ala-Pietila took over the business at the age of 35 in 1992, Nokia has held its own as No.2 in the world to Motorola, while its mobile phone sales have jumped eightfold, to $5.2 billion. But Ala-Pietila argues that a balance of young and seasoned managers is important. The 10 executives reporting to him range from 34 to 60. "We make sure to have enough young managers to keep us moving," says Ala-Pietila. "But you also have to have experienced managers to help the younger ones avoid mistakes."
No doubt, as younger managers take on more responsibility, they sometimes will fall prey to the errors of inexperience. At 26, Belgium's Alain Skowronek, is general manager of City Bird SA, a long-haul, low-fare airline backed by Belgium's City Hotels Group. It's his second airline startup since he graduated from Belgium's elite Solvay business school and became sales and marketing manager of Eurobelgian Airlines in 1994. Victor Hasson, his CEO then and at City Bird now, is just 40. Among the innovations they introduced at their first low-fare carrier were faxing tickets to customers. "If we'd been more experienced, we never would have thought of that," Skowronek says. The airline was so successful that Britain's Virgin Group PLC bought it out in 1996 for $55 million. Unfortunately for him, Skowronek had no equity."TERRIBLE TIMING." But City Bird has hit more turbulence, partly because its young execs may have been in too big a hurry to succeed. Although the airline boasts 70% occupancy and costs per mile are just 6.2 cents--half the level of low-cost Southwest Airlines--its initial public offering last November proved disastrous. The stock came out just as the market took a battering, and the consortium of banks placing the shares got cold feet. "We had terrible timing," Skowronek admits. City Hotels had to buy up nearly half the shares while archrival Sabena, Belgium's national airline, bought 10%. Even so, City Bird is now on the offensive, adding planes and new flights to the U.S. and Brazil.
How far Europe's corporate restructuring goes could well depend on how skillfully young managers--likely the next generation of CEOs--avoid such pitfalls. Even the ultraconfident Schumacher admits his goal of a profit this year in Siemens' semiconductor unit "will be a formidable task." Then again, these aren't executives who quail at challenges. Having achieved jobs at the top--or close to it--before they hit 45, these youthful managers have plenty of time to leave a lasting influence on Europe Inc.By Thane Peterson in Frankfurt, with Monica Larner in Rome, and Gail Edmondson and Mia Trinephi in ParisReturn to top