Can A U.S.-Style Boss Rev Up Siemens?

CEO-designate Kleinfeld cut his teeth in America, but he may meet resistance from labor and pols at home

It's safe to say Klaus Kleinfeld didn't have much trouble adjusting to life in America after Siemens (SI ) made him chief operating officer of its U.S. units in 2001. Kleinfeld soon won invitations to join the boards of a dozen prestigious organizations including the Metropolitan Opera and Alcoa Inc. (AA ) He ran two New York marathons and frequented the city's jazz clubs. Under Kleinfeld, who was promoted to CEO of Siemens' U.S. unit in 2002, the company played a big role in building Houston's Reliant Stadium, scene in February of that most American of events, the Super Bowl.

Now, Kleinfeld, 46, is set to become the latest German manager to parlay U.S. experience and attitude into a top job at a German corporate icon. On July 7, Siemens announced that, effective in January, Kleinfeld will succeed Heinrich von Pierer as CEO of the $89 billion Munich conglomerate, which makes everything from light bulbs and power plants to trains and mobile phones. The question is whether the energetic Kleinfeld will fare better than some other German bosses who tried to import U.S.-style management techniques, with their emphasis on speed and profit. "Kleinfeld stands for the modern approach in German industry, of trying to cope with globalization and move out of the old, well-trodden path," says Jens van Scherpenberg, head of the Americas Research Unit at the German Institute for International & Security Affairs, a Berlin think tank.

THE RIGHT STUFF?

Trouble is, others who fit that description haven't always fared so well. Remember Thomas Middelhoff, the self-styled "American with a German passport"? He was ousted as CEO of media giant Bertelsmann in 2002 after disagreeing with the controlling family over plans to go public. Then there was Ulrich Schumacher, CEO of chipmaker Infineon Technologies (IFX ), who led a successful initial public offering on Wall Street but lost his job in March. Schumacher alienated board members and labor representatives with his inclination to act without consulting others -- a no-no in consensus-driven Germany.

Kleinfeld, a member of Siemens' corporate executive committee, seems to be a different breed. By tapping Kleinfeld as his successor, von Pierer clearly hopes his young protégé will be more in the mold of Deutsche Telekom (DT ) CEO Kai-Uwe Ricke, the 42-year-old who has led a turnaround at the telecom giant. Kleinfeld isn't talking to the press, waiting at least until July 28, when the Siemens supervisory board is expected to ratify his appointment. But those who know Kleinfeld, who joined Siemens in 1987, say he combines an ability to push change with an antenna for human nature. "He's young, and he belongs to another generation, but he's also a Siemens guy who knows Siemens culture," says Roland Berger, chairman of Munich-based Roland Berger Strategy Consultants.

The CEO-designate has already begun to make changes. His fingerprints were on Siemens' decision, also announced on July 7, to merge the mobile phone division with the land-line telecom unit. In the U.S., Kleinfeld managed to get Siemens' disparate fiefdoms to cooperate more on marketing. One result was the contract to provide everything from telecom equipment to computer networks for Houston's $750 million Reliant Park convention and sporting complex.

In fact, Kleinfeld probably won the top job because he showed he could get Siemens divisions to work together to win big orders. The company has struggled for years to prove that synergies among branches justify the inherent unwieldiness of a far-flung conglomerate. He also got Siemens' legions of proud engineers to see things more from their customers' point of view. After a $553 million loss in 2001, Siemens reported an $810 million profit for its U.S. units in 2002 and a $561 million profit in 2003, after which Kleinfeld returned to Germany. "He was instrumental in getting it working," says Gerhard Schulmeyer, Kleinfeld's predecessor as CEO of Siemens in the U.S.

Back home, Kleinfeld will have to spend a lot of time smoothing out relations with politicians and unions. In the U.S., where Siemens had sales of $16.6 billion in 2003, the company cut staff by 15,000 to 65,000, by selling or closing unprofitable units but also by shifting work to lower-wage countries such as India. Von Pierer has reduced the German workforce by more than 50,000, to 167,000, since becoming CEO in 1992.

INVESTOR PRESSURE

But by imposing cuts gradually, the diplomatic von Pierer managed to avoid serious confrontation with Germany's powerful labor unions and their allies in Parliament. That is becoming more difficult. Labor leaders are sore that they were forced recently to give in to demands that workers at a mobile phone factory put in extra hours without extra pay: Siemens threatened to shift the work to Hungary. "Siemens has damaged its image with that kind of action," says Wolfgang Müller, a worker on the supervisory board.

Siemens' shareholders are another restive constituency. The company's shares have fallen 8.9% this year, vs. a 6.9% gain for rival General Electric Co. (GE ). While Siemens is profitable, earning $1.45 billion on sales of $21 billion in the last quarter, there are problem areas. The telecommunications equipment businesses have wobbly margins, and the transportation unit is in the midst of a costly recall of defective streetcars. Kleinfeld will face pressure from investors to slim down the company. Some analysts also say it would make sense for Siemens to put its mobile-handset business into a joint venture with another manufacturer such as Samsung Electronics Co.

Kleinfeld will have to do a lot of creative thinking. But people who have worked with him say he's good at that. "He was exceptionally exact but not narrow-minded; on the contrary, very independent and creative," says Peter Fassheber, a retired professor at Georg-August University in Göttingen who supervised Kleinfeld's research in the early 1980s. Kleinfeld focused on the intersection of psychology and economics. If Kleinfeld can reconcile human nature with economic reality at Siemens, he might just succeed.

By Jack Ewing in Frankfurt

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