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RPT-Lifting the Lid-Siemens cloud follows Alcoa's new CEO

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NEW YORK, Aug 1 (Reuters) - A year ago, Alcoa Inc AA.N brought Seimens Chief Executive Klaus Kleinfeld across the Atlantic to take the helm of the U.S. aluminum giant.

This week, his baggage arrived.

The 50-year-old German native is among 11 former Siemens AG SIEGn.DE executives from whom the engineering company said it will seek damages for presiding over an organization that is suspected of paying billions in bribes to win business around the globe.

That move by Siemens followed a court’s decision this week to fine a former company telecoms sales manager, Reinhard Siekaczek, $170,000 and impose a two-year suspended prison sentence for what the judge said was his role in helping run a slush fund to “grease palms for business.”

The Siemens bribery allegations had been swirling before Alcoa hired Kleinfeld as president and chief operating officer, and appeared to be a key reason why Kleinfeld left his job as the German company’s CEO, a job he held only since 2005. He was named CEO of Alcoa in May.

In a Friday memo to Alcoa employees that was obtained by Reuters, Chairman and former CEO Alain Belda and Kleinfeld moved to reassure workers the Seimens issue would not affect Alcoa or Kleinfeld’s future there.

Kleinfeld was not available for comment, a spokesman said.

Alcoa conducted its own legal review of two separate investigations commissioned by Siemens and found that Klaus had handled the matter well, Belda wrote.

“He chose to be the first person investigated and, at the same time, kept the company focused on delivering better performance,” Belda wrote.

German prosecutors have denied reports they planned to question Kleinfeld on the bribery scandal, but the issue puts a cloud over him as the company navigates the global metals and mining market that is a swirl with mergers and acquisitions.

“Clearly this is a distraction for Mr. Kleinfeld,” said Howard Sherman, CEO of governance research firm GovernanceMetrics.

“The irony is that Alcoa itself is subject to a U.S. government investigation. Call that bad karma,” he said.

In May, the U.S. Department of Justice said it would investigate whether Alcoa committed fraud and bribery in relations with customer Aluminum Bahrain B.S.C., also called Alba.

UNDER THE MICROSCOPE

Kleinfeld’s situation in Germany warrants close observation, experts said, but it was still too soon to say whether the Siemens problems would drag him down.

“There are two ways (for Alcoa) to deal with this,” said Joseph Carcello, co-founder of University of Tennessee’s Corporate Governance Center. “Circle the wagons and hunker down for a battle, or the other approach, if there’s even a whiff of wrongdoing ... you’re gone.”

“But just to cut the guy loose just because there’s an investigation, I don’t think that’s fair,” he added.

Alcoa’s shares have not suffered because of the issues around Kleinfeld, though they are down 11 percent so far this year. That’s better than the Standard & Poor’s 500, which is off more than 14 percent over the same period.

Analysts remain positive on the stock, with 11 of 17 forecasters rating it “buy” or “outperform,” largely due to the strong fundamentals in the global aluminum market, and hedge fund Highfields Capital Management said it may boost its 2 percent stake to as much as 8 percent.

Still, some experts said despite the company’s assurances that the Alcoa board was on top of the issue, allegations against a top executive should merit a look by an independent eye.

“Because it’s the CEO, the board cannot solely rely on what they get from the insiders. They need to go outside to get advice,” said Paul Lapides, director of the corporate governance center at Kennesaw State University.

And with several scandals in recent years that have rocked boardrooms, directors are increasingly sensitive to criticisms that they are not keeping close tabs on their management.

“We’re in an era of increased focus on corporate governance. Boards themselves are very risk averse,” said Nell Minow, editor and co-founder of The Corporate Library.

“If (board members) are not active before they all get on the phone to their lawyers, they will be when they get off the phone.” (Editing by Leslie Gevirtz)

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