Klaus Kleinfeld

A Job Lost in Translation

Klaus Kleinfeld, President and CEO of Alcoa, speaks at the Reuters Global Mining and Steel Summit in New York
Mr. Kleinfeld was one of the few German CEOs of a major American company. Source: Reuters

It wouldn’t be the first time that a German businessman in America tried to be funny and hit a wrong note. But in this case, the consequences were dire. At just twenty lines, the letter than ended the reign of Klaus Kleinfeld, a German national, over Arconic, a US metal parts company, was rather brief. Moreover, much of it must have been lost in translation, for Mr. Kleinfeld seems to have attempted irony but sounded menacing instead.

The addressee was Paul Singer, the powerful activist investor who, earlier this year, began an aggressive and sustained effort to remove Mr. Kleinfeld as CEO. Mr. Singer argued that Mr. Kleinfeld’s faulty leadership had destroyed shareholder value.

Mr. Kleinfeld pushed back against these criticisms and, until this week, managed to retain the support of Arconic’s board. This all changed on April 11 with his letter to Mr. Singer. Whether the note was a thinly veiled threat or simply a misguided attempt at humor remains unclear. What is undeniable, however, is that it cost the CEO his job.

In clumsy English (printed below), Mr. Kleinfeld makes reference to an allegedly carousing trip Mr. Singer took to Germany during the World Cup in 2006. “Quite a few people who accompanied you in Berlin in 2006 during and especially after the many matches you attended are still full of colorful memories about this obviously remarkable time,” the letter reads. “How you celebrated your soccer enthusiasm and the ‘great time’ you must have had in your Berlin weeks – unforgettable without a doubt – left a deep impression on them.”

In the postscript, Mr. Kleinfeld alludes to Mr. Singer’s alleged wild partying. “And by the way: ‘Singing in the rain’ is indeed a wonderful classic – even though I have never tried to sing it in a fountain.” Included with the letter was an official 2006 World Cup match ball.

Translated into German, Mr. Kleinfeld’s native tongue, the letter reads more formally than in English, and appears to have a facetious tone that might be used between friends. The problem is that Mr. Kleinfeld and Mr. Singer were closer to sworn enemies. In the context of their public power struggle, the letter can easily be interpreted in a more sinister light.

Until his firing, Mr. Kleinfeld had been one of the most highly visible German CEOs to lead a major US company. His reign began in 2008 as head of Alcoa, one of the world’s major aluminum producers. Last year, he presided over Alcoa’s breakup into two parts, with the newly formed Arconic taking over aircraft and automobile construction. Mr. Kleinfeld saw these areas as having high growth potential.

While investors initially welcomed the spin-off, Arconic’s share price stagnated. Not long after, Mr. Kleinfeld came under growing pressure from investors dissatisfied with his performance.

April-11-letter-from-Klaus-KleinfeldKopie (2)
Mr. Singer's actvist hedge fund, Elliot Management, released Mr. Kleinfeld's letter to the public on earlier this week. Source: Elliott

Leading the attack against Mr. Kleinfeld was Elliott Management, one of the world’s largest hedge funds, headed by Mr. Singer. On January 31, Elliott Management, which has a 13.2 percent stake in Arconic, launched a proxy war against the company, nominating five new directors to the board and demanding that Mr. Kleinfeld be fired. The conflict had promised to come to a head during Arconic’s annual shareholder’s meeting in May.

However, after receiving the letter last week, Elliott Management’s chief legal officer, Richard Zabel, immediately wrote to Arconic’s board to complain. “While much of what it says doesn’t make sense, we do understand Dr. Kleinfeld to be making veiled suggestions that he might intimidate or extort Mr. Singer based on Mr. Singer’s family trip to Germany in 2006 . . . ” Mr. Zabel also called the insinuations in Mr. Kleinfeld’s letter “completely false.”

Last Monday, Arconic’s board officially announced that Mr. Kleinfeld would be stepping down as CEO, the result of a mutual agreement. While a company statement claimed that letter showed “poor judgement”, the board continued to defend Mr. Kleinfeld’s stewardship of the firm.

“Elliott Management’s central objective – a CEO change – has been realized at Arconic,” the company said. “It is Elliott Management’s decision whether to continue to burden Arconic and its shareholders with its highly disruptive and distracting proxy fight, or to support Arconic in facilitating an effective CEO search and a strong transition.” For its part, Elliot Management has vowed to continue to press on with demands for changes at Arconic, accusing the board of being complicit in Mr. Kleinfeld’s “poor leadership.”

Arconic’s stock price initially jumped on Monday following the news of Mr. Kleinfeld’s departure. Shares have since fallen back to their previous level.

So far, Mr. Kleinfeld has yet to comment publicly on the letter. According to sources close to the former Arconic CEO, he has received several offers from companies in the United States and Europe. Three of those suitors are reputed to be from companies larger than Arconic.

 

Thomas Jahn is Handelsblatt’s New York bureau chief. To contact the author: jahn@handelsblatt.com