* Abrupt exit of Siemens CEO shocks German business
* Some see well-planned putsch led by chairman Cromme
* Austrian outsider replaced by 33-year Siemens veteran
By Jens Hack, Maria Sheahan and Philipp Halstrick
MUNICH/FRANKFURT, Aug 4 Tension in the highest
ranks of German engineering giant Siemens had been brewing for
months when top managers gathered late last month to review the
state of the business.
The 166-year-old titan of German industry was having a
horrible year, its image tarnished by pricey delays to offshore
wind and high-speed train projects, and the closure of its solar
thermal business, which had lost 1 billion euros.
But few of those present could have guessed, as they entered
the sleek white Siemens Forum building in Munich, that
long-running resentments and rivalries were about to boil over
with dramatic effect.
The nine members of the management board, led by Chief
Executive Peter Loescher, had come together on a Thursday in the
midst of a German heat wave, one week before Siemens was to
publish its third quarter results.
With some executives taking part by phone, the discussion
took a gloomy turn, sources familiar with the talks said, as the
heads of the company's big divisions -- industry, energy,
healthcare and infrastructure -- warned about disappointing
orders and a deteriorating economic environment.
Some argued that Loescher's goal, announced less than nine
months before, to boost the firm's operating profit margin to 12
percent by 2014, looked unrealistic. Joe Kaeser, the finance
chief who had long viewed that goal with scepticism, agreed.
Loescher pushed back, but to no avail. The fateful decision
was taken: Siemens should abandon the profit goal.
Hours later, after a green light from in-house legal
experts, the company put out a terse "ad hoc" statement to
announce the news. It took the market by surprise and Siemens
It was the sixth time in Loescher's six years at the helm of
Siemens that he had misjudged the group's profit outlook and it
would be the last.
Within days, the 55-year-old Austrian, the first outsider
ever to run the company, was unceremoniously booted out.
Kaeser, a "Siemensianer" of over three decades whose disdain
for his boss was an open secret in the company and among
investors, was hoisted into the top job. Both Loescher and
Kaeser declined to be interviewed for this story, although
Kaeser told a German newspaper he had played no part in
The change at the top of Germany's second most valuable
company was shocking both for its speed and for the ruthless way
in which it was carried out in a country known for its cosy,
consensual approach to business.
It prompted a reaction from Chancellor Angela Merkel, who
faces an election next month. She called Siemens a "flagship"
and said she hoped it would soon return to "calm waters".
More importantly, the turmoil at Siemens has highlighted
weaknesses at the highest levels of German industry at a time
when the country is being held up as a model of manufacturing
strength in a region in crisis.
Loescher, the son of a sawmill owner, was hailed as a
saviour when he arrived six years ago from U.S. healthcare group
Merck after a bribery scandal at Siemens that claimed the scalps
of his predecessor Klaus Kleinfeld and chairman Heinrich von
He wasted little time, tackling the scandal head-on and
launching the biggest corporate restructuring in decades at
Siemens, a company of some 370,000 employees -- a third based in
Germany -- which traces its roots to an electrical telegraph
company founded by Werner von Siemens in Berlin in 1847.
But Loescher, a tall, reserved man who speaks five languages
including Japanese, soon ran into trouble.
Workers fought back against job cuts and the clean-up of the
bribery scandal cost hundreds of millions of euros. The new CEO
issued his first profit warning only nine months into the job.
Huge writedowns in the company's healthcare and solar
Under Loescher, Siemens failed to keep up with rivals such
as Philips and General Electric in terms of
innovation and profitability. Its stock now trades at 12.4 times
estimated 12-month forward earnings, at a discount to both
Philips and GE, which trade at multiples of 15.3 and 14.0,
according to StarMine data.
The size and complexity of its business portfolio -- it
makes products ranging from gas turbines, to trains, ultrasound
machines and hearing aids - have also been a problem of late.
Investors have been particularly critical of costly delays
plaguing the offshore wind and train businesses.
"It simply should not be possible for a Siemens executive to
sign a contract that can result in a half-billion euro loss for
late delivery," said Peter Reilly, an analyst at Deutsche Bank.
Some insiders believe Loescher simply failed to recognise
that another profit warning would sink him.
"He really underestimated the impact of this," said one
source close to the company who requested anonymity. "He can be
naive on things like this."
Others see him as the victim of a well-organised putsch, led
by Chairman Gerhard Cromme, with the tacit consent of Kaeser.
"It looks to me like he was set up for a fall," said Pascal
Boeuf, a fund manager at UBS. "There are signs that this putsch
had been planned for some time."
What does seem clear is that Cromme, who brought Loescher on
board in 2007, worked actively in the hours after the profit
warning to lay the groundwork for his exit.
Cromme, who declined comment, had been forced to step down
as chairman of ThyssenKrupp just four months before,
under fire for rubber-stamping bad investments by the steel
group's management. The same couldn't be allowed to happen at
It is also clear that relations between Loescher and Kaeser
were fraught. One source told of a shouting match between the
two in an elevator over Loescher's attempt to muzzle the
outspoken Kaeser on conference calls with analysts.
At a recent shareholders' meeting in Munich, the two were
asked pointedly about their relationship. Loescher played down
the tensions, but Kaeser's response did little to ease concerns:
"We complement each other like light and darkness," he said.
A former employee says the two hate each other "like the
"YOU CAN'T DO IT THIS WAY"
Still, Loescher did not see the axe coming even after the
profit warning sent Siemens stock sliding 8 percent. The next
day, a Friday, he gave an interview to Germany's Sueddeutsche
Zeitung in which he spoke of "headwinds" and vowed to stay on.
Little did he know that phone calls to organise his exit had
begun the evening before, shortly after the "ad hoc" release
landed, and that two meetings of board members to discuss his
fate had already been set for Saturday.
The first of these meetings was held at the Kempinski Hotel
at Munich airport and heard the views of the 10 members of the
Siemens board who represent the interests of shareholders.
The other was made up of 10 Siemens labour representatives,
who by German custom hold half of the board seats. Their meeting
took place at the Siemens Forum building where the profit
warning had been decided two days before.
At the Kempinski, Cromme quickly made clear that Loescher
must go, sources familiar with the talks told Reuters. One
described the chairman's plan as "meticulously prepared".
But Josef Ackermann, the former CEO of Deutsche Bank, pushed
back, according to another source, at one point telling Cromme:
"Gerhard, you can't do it this way".
Two board members -- Michael Diekmann, the head of German
insurance group Allianz, and Nicola
Leibinger-Kammueller of technology firm Trumpf -- sided with
Ackermann. Six others supported Cromme, making it 7 to 3 in
favour of ditching Loescher. Neither Ackermann, Diekmann nor
Leibinger-Kammueller would comment.
Meanwhile in the city centre, the 10 other board members
were reluctant to take sides on Loescher's future. But they
feared if they remained neutral, denying Cromme the majority he
needed to push out Loescher, then the chairman himself would
fall, to be replaced by Ackermann, whom they viewed with
In the end, the decision was taken to go along with Cromme
and his plan to install Kaeser as CEO. Loescher's fate was
Can Kaeser, a Bavarian who changed his name to Joe from
Josef during a stint in the United States, get Siemens back on
Ben Uglow, an analyst at Morgan Stanley, believes his
intimate knowledge of Siemens and focus on shareholder value are
"relatively unique", giving him as good a chance as anyone.
Still, the challenge is daunting.
Kaeser will have to face down the unions and pare back
Siemens' unwieldy business portfolio in order to boost
profitability. Crucially, he must show he can say no to
contracts that could come back to bite the company.
"Siemens has had an execution problem, and I do not expect
that to change," said one fund manager who works for a top-10
investor in Siemens.
The economic environment, in Europe and Asia, won't make
things easy. On Wednesday, Kaeser acknowledged that a pickup in
China was taking "significantly longer than hoped".
And then there are the lingering tensions arising from
Loescher's abrupt ejection, and suspicions that Cromme and
Kaeser may have colluded to dislodge him. One executive
described the battle between Ackermann and Cromme as "red hot".
"Cromme has to go," the fund manager said. "Only then can
Siemens successfully manage to reinvent itself."