Siemens Seeks Insider Boost by Naming Veteran Kaeser CEO

As Siemens AG supervisory board representatives met over the weekend to discuss the ouster of Chief Executive Officer Peter Loescher, his successor traveled 110 miles to his home Bavarian village of Arnbruck to celebrate the arrival of a new fire truck.

Joe Kaeser, named as CEO of Europe’s biggest engineering company yesterday, is as much of a Siemens insider, rooted in its southern German home state, as Loescher was an outsider. The 56-year-old Kaeser has worked at the Munich-based company for 33 years, and seven of those as chief financial officer.

Kaeser’s respect for local traditions endear him to the workforce in the company’s main power centers of Munich and Erlangen. At the same time, he wins plaudits from investors for his communication skills and efforts to sell underperforming businesses as well as his experience managing several of the company’s units, with stints in both California and Asia.

“He’s an inspirational personality and he’s in the position to know the business of Siemens inside out,” said Boris Boehm, who helps manage about 1.4 billion euros ($1.8 billion), including Siemens shares, at Aramea Asset Management. “I want less vision and more concentration on profit. Kaeser is a numbers man, which is a positive.”

When Bloomberg News on July 30 reported he had been approached by the supervisory board to take on the CEO job, Siemens stock rose as much as 2 percent. Today, the shares were up 1.6 percent as of 10:17 a.m.

Insider’s Knowledge

While Siemens opted for a clean slate with Loescher in the wake of a corruption scandal, the company now needs an insider’s knowledge of the business to reach profit goals and catch up with competitors, said investor Boehm. Loescher, the first CEO to come from outside the company in its 166-year history, was ousted after five profit-forecast cuts in his six-year tenure.

“It’s very hard to manage a company of that complexity without having networks that you’ve built over years,” said Christian Stadler, who teaches strategic management at Warwick Business School, England. “That’s a very decisive advantage for Joe Kaeser.”

Kaeser has spent his whole career at Siemens since joining as a business administration graduate from Regensburg’s University of Applied Sciences in 1980. That hasn’t stopped him gaining experience around the world.

Giving Praise

A four-year spell as finance head of Siemens’s San Jose, California-based microelectronics unit helped Kaeser cultivate an interest in American football and cemented his preference for the nickname Joe over the Josef on his birth certificate. Kaeser, who also spent some time in Asia, became chief strategy officer in 2004 before being promoted to the top finance job in 2006.

Kaeser, who was born in Arnbruck, nestled in the Bavarian forest on the border with the Czech Republic, and still has his family home there, has sought to motivate employees and aides with personal gestures. After Siemens sold a majority stake in its Siemens Enterprise Communications after a stressful set of negotiations in 2008, Kaeser personally thanked everybody involved, said a person familiar with the matter.

Investors also welcomed the “One Siemens” initiative pushed by Kaeser and introduced in 2010. The intention was to measure the company once every six months against its peers and set targets accordingly. While the program still exists, it was subsumed by Siemens’s 100 billion-euro revenue goal.

Bringing Calm

“Our top priority will be to bring calm to our company and stabilize its internal order,” Kaeser said at a press conference in Munich yesterday. “Many Siemens businesses are currently quite successful. What counts now is to stabilize and expand these businesses. We’ll largely leave things the way they are and change only a few things.”

Since Loescher, who was recruited by Chairman Gerhard Cromme, took over in July 2007, the shares have declined 22 percent. Volkswagen AG has more than doubled in that period, while BASF SE, the world’s biggest chemical company, jumped 37 percent and Germany’s largest drugmaker Bayer AG climbed 51 percent.

The company yesterday reported a 31 percent drop in quarterly operating profit. Siemens had a profit margin of 9.5 percent in 2012 when competitors ABB Ltd. and General Electric Co. had margins of 10.3 percent and 15 percent, respectively.

“It’s too early to talk about a number which could replace our 12 percent target,” Kaeser said in Munich. “Siemens’s DNA is electrification. That’s where we will focus the value-creation chain.”

‘Cost Cutter’

To revive profits, Kaeser should focus on fewer businesses, sell underperforming assets and make sure that the company incurs fewer charges for mismanaged projects, investors and analysts have said.

“He’s probably more of a cost-cutter, so the portfolio streamlining efforts will likely continue and even accelerate,” said Societe Generale analyst Gael de Bray, who rates Siemens a hold.

Siemens agreeed to sell its share in a six-year phone gear venture to Nokia Oyj for 1.7 billion euros earlier this month, with Kaeser leading the negotiations for the German company.

Siemens also this year separated from its Osram lighting business as part of a drive to sell units with low profitability or growth prospects. Earmarked for sale are also a water business and units offering parcel automation, airport logistics and airfreight.

Other Opportunities

Kaeser has almost become CEO of other German companies on at least two prior occasions. In 2009, family-owned holding company Franz Haniel & Cie GmbH approached Cromme, intending to make Kaeser their new chief, according to two people with knowledge of the talks. Cromme vetoed the bid, saying Kaeser was needed at Siemens.

Kaeser also was this year under consideration to replace Linde AG CEO Wolfgang Reitzle when he steps down next May, according to two people familiar with the matter.

He was also passed over for the Siemens CEO job in 2007, when the company appointed Loescher, then a little known Merck & Co. executive, to replace Klaus Kleinfeld, who had resigned in the midst of Germany’s biggest-ever corporate corruption scandal. Representatives for Franz Haniel, Linde and Siemens declined to comment.

The fear of losing Kaeser to someone else was an important factor in Siemens choosing him as CEO, one person familiar with the matter said.

“The only person who can lead Siemens is someone who knows its operations from experience,” said Wolfgang Niclas, an employee representative for the IG Metall union at Siemens’ main manufacturing site in Erlangen. “Loescher was unable either to convince employees to join him or to make the correct business decisions.”

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