Siemens crisis deepens as Kleinfeld quits (FT)

Siemens crisis deepens as Kleinfeld quits
By Richard Milne in London

Published: April 25 2007 16:42 | Last updated: April 25 2007 20:39

Siemens was thrown deeper into turmoil on Wednesday after Klaus Kleinfeld said he would resign as chief executive of Europe’s largest engineering group before the end of the summer.

The move means the German industrial group has lost its two top officials within days amid the biggest corporate corruption scandal in Germany.

A successor to Mr Kleinfeld has not yet been chosen, but people close to the supervisory board said several external candidates were being approached.

“It is extremely disappointing. The fact is that [Mr] Kleinfeld has done nothing wrong; he has tripled the share price, doubled operating margins and he is leaving for an unspecified reason,” said Ben Uglow, an analyst at Morgan Stanley.

Mr Kleinfeld’s decision to step down at the end of his contract in September is the worst outcome for many Siemens investors. It follows the resignation of Heinrich von Pierer as chairman with effect from Wednesday.

Investors expressed incredulity as neither man has been accused or charged and both have denied any wrongdoing or knowledge of any of the alleged acts.

Siemens’ shares traded down 3.4 per cent in after-hours trading on Wednesday. They had earlier surged 2 per cent, after Mr Kleinfeld pre-released late on Tuesday better-than-expected second-quarter profits, in an apparent attempt to fight off the move to remove him.

Supervisory board members, led by new chairman, Gerhard Cromme, and deputy chairman and Deutsche Bank head, Josef Ackermann, had pushed the issue of Mr Kleinfeld’s future to the top of the agenda. “The company needs a new start,” said a person close to the board.

But analysts said the move was likely to destroy Siemens’ carefully cultivated relationship with the capital markets. It also raises questions on Germany’s corporate governance as supervisory board members, rather than shareholders, ejected him.

“If the person who built up the credibility with investors goes, then the shareholder representatives on the board should go too. There should be a total overhaul. Maybe the whole of the supervisory board should be changed so there would be a real new beginning,” said one of the company’s top five investors.

Investors said an outside candidate could fill the role, but expressed concern that Siemens’ restructuring would slow down.

Mr Uglow said: “The board says it wants a new start, but markets wanted continuity.”

Wolfgang Reitzle, head of industrial gases group Linde, was approached over the job, but declined.

Advisers to Siemens’ supervisory board admit a solution needs to be reached swiftly. They said it was unclear whether any successor could be brought in quickly.

Copyright The Financial Times Limited 2007