Thyssen Woes Tarnish 99-Year-Old Steel Baron’s Legacy
For 60 years, the name of Berthold Beitz has been synonymous with Germany’s biggest steelmaker, ThyssenKrupp AG, at first for his role in rebuilding the former arms supplier and helping it break with its Nazi past.
Now, as head of the foundation that holds a 25.3 percent blocking minority, the 99-year-old has become a symbol of much that has gone wrong at the Essen-based company, whose stainless steel was used in Manhattan’s Chrysler and Empire State buildings. ThyssenKrupp is again seeking renewal after a botched expansion in the Americas and bribery and price-fixing scandals pushed it to a 4.7 billion euro ($6.1 billion) annual loss.
The power wielded by the industrialist, who was a little known insurance executive when he was hired as general manager by the last Krupp family owner in 1953, is under attack from investors who hold him partly accountable for lax corporate governance that led to the missteps. With the company refusing to rule out a capital increase to repair its balance sheet, the foundation over which Beitz presides risks losing its influence.
“ThyssenKrupp needs a capital increase, it cannot survive without it,” Hans-Peter Wodniok, an analyst at Fairesearch GmbH & Co., said by phone from Kronberg near Frankfurt. “The question is what the foundation will do? It probably couldn’t afford to participate in a share sale.”
The Alfried Krupp von Bohlen und Halbach Foundation, which Beitz has headed since 1968, last month appointed two new members to ThyssenKrupp’s supervisory board, keeping the number of seats it holds at three, even after investors had asked it to ease its grip.
“We would prefer it if the foundation acted less dominantly in the supervisory board,” Ingo Speich, a fund manager at Union Investment GmbH, one of ThyssenKrupp’s 10 biggest shareholders, said in a phone interview from Frankfurt. “It is at least indirectly responsible for what happened in the past.”
Beitz has shown no desire to step aside from what he’s described as his personal mission for more than half a century. In a March 18 interview with Sueddeutsche Zeitung, the veteran steel baron said he “will continue as long as I can.”
Beitz still goes to the office every day, said an official at the foundation, who asked not to be named and declined to comment for this story, as did ThyssenKrupp. Beitz refused requests to be interviewed.
The organization manages the Krupp family fortune and has donated about 615 million euros to philanthropic projects since it was established, according to its website.
Chief Executive Officer Heinrich Hiesinger, brought in from Siemens AG (SIE) and appointed in January 2011, is seeking to fortify the company by selling assets, including unprofitable plants in Alabama and Brazil’s Rio de Janeiro state.
ThyssenKrupp has been hurt by a succession of writedowns and corruption probes that resulted in half the board being ousted in December as well as antitrust fines. The events have helped wipe about 11 billion euros off ThyssenKrupp’s market value since the start of 2008 and prompted the steelmaker to forgo its last full-year dividend.
ThyssenKrupp rose 1.5 percent to 15.25 euros in Frankfurt. The shares are down 14 percent this year.
Cia. Siderurgica Nacional SA, Brazil’s third-largest steelmaker, has emerged as the leading bidder for ThyssenKrupp AG (TKA)’s Brazilian and U.S. steel-plant assets, people with knowledge of the talks said earlier this month.
“We are in intense negotiations for Steel Americas,” Stefan Ettwig, a spokesman for ThyssenKrupp, said in an e-mailed statement on May 3.
Hiesinger is also seeking to build up the non-steel base that ranges from elevators to automotive parts and marine services.
The biggest shareholder rebellion in the 14 years since the 1999 merger of Thyssen AG and Fried. Krupp AG Hoesch-Krupp to form ThyssenKrupp has forced some degree of change. Gerhard Cromme, handpicked by Beitz more than 27 years ago and groomed as his successor, resigned as chairman in March after initially ignoring calls to stand down.
The writing may now be on the wall for Beitz himself after the company said May 15 that it has reviewed its relationship with the foundation.
Hiesinger pledged in December to rid ThyssenKrupp of “old structures and habits.” The company displayed “an understanding of leadership, in which old boys’ networks and blind loyalty were more important than business success,” Hiesinger said at the time.
“His leadership is totalitarian,” Friedrich von Bohlen und Halbach, a nephew of Alfried Krupp, the last family owner, said about Beitz. Von Bohlen, who fought unsuccessfully to reclaim his family’s influence over the estate, holds Beitz responsible for the company’s decades-long decline. “This has created broken corporate governance and a dysfunctional organization.”
The foundation’s dominance stems from two mistakes made by Alfried before his death in 1967, according to his nephew. Alfried had wanted to make his son Arndt his successor “come hell or high water and had no plan B,” von Bohlen said in an interview in Heidelberg.
When Arndt unexpectedly renounced his inheritance, Alfried only had outsider Beitz to turn to, and thus made him the head of the foundation to which he transferred the entire family holdings, he said.
“Beitz exploited the vacuum to make himself Sun King of the Ruhr,” said von Bohlen, referring to the German industrial region situated in the Ruhr River valley. “He views himself as Mr. Krupp.”
Among his admirers is Essen mayor Reinhard Pass, whose city made Beitz an honorary citizen in May 2007. The foundation’s blocking minority “has made the group less susceptible to takeovers and has contributed to secure employment,” said Pass.
The foundation structure that Beitz oversees is not uncommon among wealthy European families, such as Germany’s Dieter Schwarz, Sweden’s Ingvar Kamprad and Switzerland’s Margarita Louis-Dreyfus. Each have set up independent structures in the form of foundations or trusts that are legally “self-owning” and managed by professional boards with the goal of preventing hostile takeovers and generational feuding over the fortunes.
Although the foundation’s stake has been diluted over the years, it’s still worth about 2 billion euros. While its veto rights were initially designed as a bulwark against a hostile takeover, critics accuse Beitz of using them for his own outdated agenda.
Germany Inc. Fossil
Beitz is a “fossil of Germany Inc.,” said Michael Adams, a professor of economic law and specialist in corporate governance at the University of Hamburg. He’s “unwilling to let go of the reins of power. Compared with Beitz, even the pope resigned relatively young,” he said, referring to the resignation of German-born Benedict XVI at the age of 85.
The veteran industrialist has long been the public face of the company. He played a key role in helping to restore business ties with eastern Europe and Russia after the war and counted heads of state including East Germany’s Erich Honecker as friends. During the European steel crisis in 1974, he was instrumental in persuading Iran to buy a stake in the company to bolster its finances.
Beitz is feted for his wartime record. As head of oil supplies in Nazi-occupied Poland, he rescued hundreds of Jews from trains bound for death camps, warned others of impending deportations and hid many more in his home at great personal risk.
In 1973, Yad Vashem, Israel’s holocaust memorial, recognized Beitz as Righteous Among the Nations, an honor for non-Jews who risked their lives to save Jews during the Holocaust.
“From the bottom of my heart, I am proud to have helped all these Jews escape the death trains,” Beitz told author Marek Halter in an interview for “Stories of Deliverance,” his 1995 book. “But, truthfully, how could I have lived if I had not done it?”
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