Executive In Exileby
As he sits in the book-lined conference room of a friend's Manhattan office, Heinz Schimmelbusch's eyes well up when the talk turns to the stresses on his family since he was fired nearly three months ago as CEO of giant German conglomerate Metallgesellschaft (MG).
Schimmelbusch, dubbed "the hate man" by the mass-circulation newspaper Bild, is under investigation by German prosecutors amid allegations he covered up more than $1.3 billion in U.S. oil-trading losses that nearly caused the company's collapse. Police have searched his Frankfurt apartment. His 17-year-old son, who has remained in Germany, has received telephoned death threats aimed at the former executive. And his 10-year-old daughter, now staying with Schimmelbusch and his wife in an apartment in New York, "cannot sleep at night," he complains, toying nervously with his eyeglasses.
The trouble began on Dec. 17, when the powerful CEO was summoned to the office of Deutsche Bank Director Ronaldo H. Schmitz, who also serves as chairman of MG's supervisory board. Schmitz, charging he had been blindsided by mounting deficits as oil prices collapsed last fall, "told me I had misinformed the board," Schimmelbusch recalls. "I told him he was lying. He said: 'You're fired.' And that was that."
PERSONAL FEUD. At roughly 20-minute intervals, Schmitz dealt out the same treatment to four other members of MG's management board, which in Germany's unique corporate architecture is directly responsible for day-to-day operations. But that has hardly quieted the waters at MG, whose $15 billion in annual sales make it Germany's 14th-largest industrial group.
As Deutsche Bank, Dresdner Bank, and other big lenders implement a $1.97 billion bailout plan, the mess at MG has mushroomed into a personal grudge match between an ousted CEO and the powerful Deutsche director who did him in. "This was the biggest corporate failure since the war," says Schmitz, chain-smoking cigarillos during an interview in his office. "The company was on the verge of bankruptcy. What further grounds do you want for firing a chief executive officer?" Responds Schimmelbusch: "If somebody says I knew things that I was willfully hiding from somebody else, that's a lie. What has been done is irresponsible. I will fight for my reputation and against everybody who defamed me."
Such mudslinging among Germany's corporate titans seems to be on the rise now. As the country's lengthy recession bites into profits, corporate executives are being made to pay--in public--for their mistakes. Schimmelbusch is a freewheeling Austrian who reveled in his role as an outsider breaking the rules of Frankfurt's conservative business society. Schmitz is a buttoned-down former chemical-industry executive who, as MG chairman, oversees Deutsche's 10.65% stake in the conglomerate. And both are digging in their heels. One source close to Schimmelbusch maintains the two have been feuding ever since Schmitz took over as MG chairman last March and that Schimmelbusch offered to quit as early as last May. Schmitz denies any previous disputes.
The hostilities now may be headed for the courts. Hildegard Becker-Toussaint, a spokeswoman for the Frankfurt prosecutor's office, says prosecutors in December launched an investigation into the actions of Schimmelbusch and Meinhard Forster, MG's ousted chief financial officer. Becker-Toussaint says they are suspected of disloyalty, potentially a criminal charge. Schimmelbusch is also being investigated for possible tax evasion. "According to my attorneys, neither [allegation] has any merit," says Schimmelbusch. Forster declined to comment.
CENSORED. On Mar. 2, Frankfurt police and prosecutors raided MG's headquarters, Forster's house, and Schimmelbusch's apartment. At MG, investigators sealed off several rooms and carted away nearly 300 files. Schmitz says the MG supervisory board may also pursue unspecified "civil proceedings" against Schimmelbusch.
Schmitz repeatedly has alleged that Schimmelbusch misled the supervisory board. Minutes of management board meetings that Schimmelbusch gave Schmitz, the banker claims, "had been censored" and lacked "any indication of peculiarities" in MG's fast-growing oil business. The contention adds fuel to the growing debate in Germany over the role of supervisory boards. Corporate critics say they are little more than rubber-stamp bodies with no real power. But Schmitz says that as soon as he became MG's supervisory board chairman, he started asking for minutes of management board sessions.
Schimmelbusch says he refused to hand them over, arguing that at German corporations this "was never done." Nonetheless, observers feel that German corporate law entitles a chairman to any information he requests. So Schimmelbusch says he agreed to give Schmitz "a list of results" from each meeting detailing "decisions taken."
Schmitz apparently found these reports less than forthcoming. He says Schimmelbusch "was fully informed about the [oil-trading] activities in North America." Schimmelbusch also "made me believe, whenever we touched on the subject, that a system of controls was all in place and perfect," Schmitz says. "But it was not."
Schimmelbusch got MG into the oil business in the U.S. in 1991, partly to offset the drag on MG caused by plummeting world metals prices and the German recession. By offering customers fixed prices for as long as 10 years, MG captured 2% of the American oil-products market. MG offset its sales obligations by purchasing oil-futures contracts on the New York Mercantile Exchange. But when crude prices plunged last fall, MG was left with large losses on its futures portfolio.
Although Schimmelbusch concedes his oil strategy may have been "too expansionary," he says he always kept Schmitz fully posted on where MG was heading. He says he held "a very in-depth corporate strategy discussion" last July 7, "on the initiation of the chairman." Then, over the summer, Schmitz called in auditors from the international accounting firm KPMG to review the books of MG's U.S. and London units. The firm recommended sharply boosting the reserves of MG's U.S. energy operations. Schmitz says he never attended the July strategy session and did not receive the auditor's report until he met with Schimmelbusch in early December to discuss MG's worsening oil situation.
NO ARMISTICE. The oil business is likely to receive even more scrutiny in coming weeks. A former MG employee, W. Arthur Benson, a trader who crafted MG's petroleum strategy, has sued MG and Deutsche in the U.S. Benson was dismissed on Feb. 4. Charging libel and defamation, he claims MG and Deutsche stated he "was personally responsible" for more than $1 billion in oil losses.
Benson declined to comment on his suit, as did officials at MG. Schmitz says that "we are on perfectly safe ground in the way we interpreted our [oil] positions." But the war of words between Schmitz and Schimmelbusch is anything but over. Schimmelbusch says he is setting up a new business with "an Eastern European angle" as he continues to plot his strategy against Deutsche Bank, and MG. "I will defend myself with all available instruments," he says. Even if that carries Germany's headline-grabbing slugfest to new heights.
'I WILL DEFEND MYSELF'
During a three-hour interview in New York, former MG CEO Heinz Schimmelbusch discussed his firing with Senior Editor Frank Comes, Senior Writer William Glasgall, and International News Editor Christopher Power.
Q How did MG get into energy?
A In 1989 and 1990, we traded a little over 30 commodities. We were always looking to add ones in which we could use our knowhow in trading and logistics. We decided to have an expansionary strategy--metals in London and energy in New York.
Q Did you explain your oil-trading plans with Deutsche Bank?
AWe had very intensive contacts with Deutsche Bank in New York and Frankfurt on this hedging strategy.
Q Was MG's board kept posted?
A On July 7 , a prepared, very in-depth corporate strategy discussion on the initiation of the chairman of the supervisory board was conducted. Why is it totally approved in July, and why not in December? Strategies don't change every second.
Q Could you have corrected your losses after oil prices plunged?
A This was very manageable. I was not very excited about this one. I had a specific strategy in mind--put options, financing accounts receivable. This was a liquidity issue more than a loss issue.
Q Did you offer to Quit?
A Between Dec. 3 and Dec. 17, I offered my resignation several times.... The CEO has to carry overall responsibility and offer his resignation. That's the rule.
Q Will you sue over your dismissal?
A I will defend myself with all appropriate instruments.
Q What are your other plans?
A I will try to build a business. It's a new company, a consortium. It has an Eastern European angle.
Q Are you afraid to return home?
A I am frightened. The feeding of the press--because I incurred oil losses,
I am responsible for the reduction of the corporate population by 7,500. This has triggered threats against my life in Germany.
'I HAD TO FIRE HIM'
Seated in a black leather armchair, Ronaldo H. Schmitz, a Deutsche Bank director and chairman of Metallgesellschaft's supervisory board, discussed the ouster of CEO Heinz Schimmelbusch during an interview in Frankfurt with Bonn correspondent Karen Lowry Miller.
Q Why's this become such a public issue?
A This is the biggest corporate failure since the war, and I think it deserves a high level of debate and attention.
Q Many other German companies have suffered big losses. Why have their managers escaped punishment?
A Most companies suffered losses because the economy turned down. And when the management has the right strategy, you give them a chance to get the job done. That differs from what we had at Metallgesellschaft.
Q Were you informed about what was happening in the oil business?
A The [MG management] board and Schimmelbusch had been given ample opportunity in 1993 to come forward with specific information...and explain about important risks and unusual developments, which they did not.
Q Did you ask about risks?
A Very definitely. The question was asked whether there were special risks to be reported about and whether the systems to control trading were adequate.... In every one of those discussions, it was made clear that the
Metallgesellschaft systems were perfect.
Q Is there a history of antagonism between you and Mr. Schimmelbusch?
A No. I was told by Mr. Schimmelbusch and board colleagues that they had very much welcomed my appointment as chairman.
Q Why did you choose to fire Mr. Schimmelbusch?
A Choose to? I had to.... The company at that point was on the verge of bankruptcy. What further grounds does one want for firing a chief executive officer?
Q What about MG's oil-hedging strategy?
A It was not a hedging strategy. Future delivery contracts were hedged assuming prices would continue to rise. There was no provision for a fall.