business

Siemens Taps Merck Exec as New CEO

For the first time in its history, the German conglomerate has selected an outsider for the role. Peter Löscher has his work cut out for him

Siemens' (SI) employees who hoped that their new boss would be less American in his outlook than outgoing Chief Executive Klaus Kleinfeld were in for a disappointment on May 20. After a special Sunday afternoon meeting in Munich, Siemens' supervisory board chose Peter Löscher, an Austrian who is a top executive at U.S. pharmaceutical giant Merck (MRK), to run the sprawling German electronics and engineering conglomerate. Though Löscher earned his MBA in Vienna, he has spent much of his career abroad, including a stint at Siemens' archrival General Electric (GE).

As an Austrian, Löscher brings a knowledge of German language, culture, and business practices that are all crucial for dealing with Siemens' employees and labor unions in the company's home country. At the same time, his international experience, including a posting to Japan, is crucial at a company whose biggest growth opportunities lie outside Europe, particularly in emerging markets around Asia, the Middle East, and Latin America.

Löscher, 49, also fulfills another key requirement for the job: He's an outsider and thus untouched by a spreading bribery scandal that has devastated Siemens' top management. Kleinfeld wasn't accused of complicity in the scandal, in which executives are accused of paying foreign officials to win contracts, but faced criticism that he didn't do enough to uncover its full extent. Kleinfeld, who had run Siemens U.S. operations before becoming CEO in 2005, resigned in April under pressure from Supervisory Board Chairman Gerhard Cromme (see BusinessWeek.com, 4/25/07, "Siemens' Boss Steps Down").

A Challenging Honor

Being an outsider also presents Löscher with a major challenge. He will be the first chief executive in Siemens' 160-year history who hasn't come up through the ranks. Even Kleinfeld, regarded as an aggressive upstart who challenged Siemens' consensus-oriented culture, has spent almost his whole career with the company. Löscher, who has worked primarily in pharmaceuticals and health care, faces a steep learning curve to become acquainted with Siemens' diverse business portfolio, which includes divisions that make power plants, factory automation equipment, trains, and lighting, in addition to medical equipment.

Löscher also lacks a deep network inside Siemens, which will be a handicap in exerting influence over the company's far-flung divisions. The business units operate practically as independent companies, and employee loyalty is often to the division rather than the corporation. Kleinfeld, who had worked in a number of different Siemens units, could draw on allies within the company for support and information. Löscher will be starting from scratch. Perhaps his experience at GE, where he was a member of the corporate executive council and CEO of GE Healthcare BioServices in Britain until last year, will help him understand the workings of a multinational conglomerate.

Löscher was not available for comment May 20, but he issued a carefully worded statement saying the appointment is "an extraordinary honor and major challenge."

Profitable and Problematic

Löscher's appointment would not have been possible without support from Siemens' workers, who hold half of the seats on the supervisory board. (The chairman, who represents shareholders, holds a tie-breaking vote.) In what appeared to be an attempt to reassure workers, the supervisory board also promoted from within: Siemens' Heinrich Hiesinger was offered a seat on the executive board. Hiesinger, chief of a Siemens unit that provides technology for managing large buildings, will take over responsibility for personnel before the end of the year, making him the point man for labor relations.

New CEO Löscher, whose appointment is effective July 1, will take over a company that is enjoying record profits but also struggling with scandal. A half-dozen previous top managers are under investigation by German prosecutors, and Siemens has admitted that hundreds of millions of dollars may have been misused. The U.S. Securities & Exchange Commission is also investigating bribery allegations at Siemens, which has a New York listing.

Meanwhile, both investors and employees are unhappy with recent developments at Siemens, for different reasons. Workers are angry about the major changes forced by Kleinfeld, including the sale or spin-off of telecommunications units (see BusinessWeek.com, 1/18/07, "Siemens' Culture Clash"). Investors applauded Kleinfeld's success in making Siemens more streamlined and profitable and were upset about his ouster, which they felt was never satisfactorily explained by Supervisory Board Chairman Cromme (see BusinessWeek.com, 5/7/07, "A Setback for German Reform").

In the May 20 statement, Löscher promised to run Siemens "for the benefit of customers, employees, investors, and stakeholders." He'll find dealing with all those constituencies a very tricky job.

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