July 28, 2013 3:25 pm

Loescher’s Siemens tenure looks tenuous

Peter Loescher©Getty

Peter Loescher: fate sealed by profit warnings and operational mishaps

When Peter Loescher was hired from Merck, the pharmaceuticals group, in 2007, the new Siemens chief executive moved decisively to clear up an international corruption scandal that had plunged the German engineering conglomerate into crisis.

Six years later, Siemens is back in crisis-fighting mode but, this time, Mr Loescher’s role seems destined to be that of sacrificial lamb, not saviour.

The Munich-based company’s statement late on Saturday that its supervisory board will this week “decide on the early departure of the president and CEO” seems to indicate that Mr Loescher’s days as Siemens chief are numbered.

A shock announcement on Thursday that Siemens would not meet its 2014 operating margin target triggered three days of frantic politicking by company’s power brokers to settle the question of succession.

Although Siemens gave no hint on Saturday of who might replace Mr Loescher, people close to the company said Joe Kaeser, its chief financial officer, had the support of the majority of the supervisory board.

Mr Kaeser has long been seen as a chief executive in waiting. Decades of Siemens service have given him a network and power base that Austrian-born Mr Loescher, the first outsider to run Siemens, has struggled to match.

Mr Kaeser’s tight grasp of financial details, coupled with his dry wit, meant that he frequently stole the limelight from the chief executive at meetings with journalists and the investment community.

Although the men have clashed about strategic priorities, people close to Mr Kaeser say he did not plot to force Mr Loescher’s departure.

Mr Loescher is known to have viewed as premature the decision on Thursday to abandon the 12 per cent operating margin target, some 15 months before it was due to be achieved. However, he was overruled by other members of the board, people familiar with the discussions, said.

Before the weekend supervisory board discussions, Mr Loescher came out fighting, telling the Sueddeutsche Zeitung newspaper that he would not resign.

“I’m facing headwinds now, but it’s never been like me to give up or strike the sails quickly,” he said. “My contract lasts until 2017 and Siemens needs its captain now more than ever.”

Indeed, it was by no means certain that the weekend’s deliberations would bring Mr Kaeser to the fore and the outcome will not be decided for certain until the supervisory board votes on Wednesday.

As chief financial officer, Mr Kaeser was responsible for setting the margin target. He was also co-author of a €6bn cost-cutting and portfolio trimming plan outlined by Siemens in November that will entail thousands of job cuts.

Mr Kaeser is therefore a more obvious friend of the capital markets than the company’s workers. At Siemens, like other German companies, 50 per cent of the supervisory board that decides on management appointments is made up of labour representatives.

However, after Siemens’ shares slumped 6 per cent on Thursday, Gerhard Cromme, the chairman, must have felt that he had to act.

Having stepped down as chairman of ThyssenKrupp in March following a spate of corruption problems and huge losses on overseas steel projects, Mr Cromme could ill-afford a second company under his watch sliding out of control. Another external appointee was not an option given the need to quickly restore calm.

Mr Loescher has been criticised by investors for failing to establish a deep network of contacts and support at the company. But, ultimately, his fate was sealed by a succession of profit warnings and operational mishaps that caused him to lose the confidence of workers as well as investors.

Siemens’ broad stable of businesses – stretching from medical scanners to express trains, industrial automation equipment and gas turbines – has never been an easy beast to manage.

But, in recent quarters, investors have been forced to stomach a succession of charges because of problems in solar, offshore wind and German express train projects.

Investor unease was exacerbated by a gradual erosion of Siemens’ profit margins that saw it fall behind rivals such as General Electric.

Siemens’ operating profit declined from a record €9.4bn in 2011 to €7.5bn last year, and return on capital employed – a key metric monitored by investors – declined from 22 per cent to 17 per cent.

Mr Loescher’s flagship target to boost Siemens’ revenues to €100bn by an unspecified date encouraged managers to go for growth rather than focus on margins. Investors complained.

Mr Loescher’s growth ambitions were also thwarted by his failure to pull off a big acquisition since the purchase of Dade Behring, a medical equipment supplier, in 2007.

Meanwhile, Siemens’ new infrastructure and cities division, launched amid much fanfare in 2011, failed to deliver profits that rival its stronger healthcare, industry and energy units.

Mr Loescher’s success in clearing up Siemens’ corruption scandals in 2007 will never be forgotten. But the job of ending the latest crisis now seems set to fall to another pair of hands.

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