Joe Kaeser

The king of Siemens

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All hail the king. Source: Reuters

It’s no surprise that everyone at Siemens calls the boss “King Joe.” Since Joe Kaeser took over as CEO in 2013, when profits at the multibillion-euro engineering giant were badly lagging, he has pushed through a series of sweeping changes with a speed and fearlessness that has little parallel in the company’s storied history.

The 60-year-old Bavarian has thrown out high level managers, offloaded a number of assets — selling off Siemens’ stake in its prominent home appliances business, merging its rail operations with French rival Alstom, spinning off lighting business Osram — and readied what promises to be next year’s massive initial public offering of Siemen’s highly profitable healthcare group, Healthineers. Mr. Kaeser has also led the firm to achieve one of the best looking balance sheets of its history — with a €10 billion (around $11.8 billion) pretax profit. Investors have approved of Mr. Kaeser’s leadership, and since he took the helm, Siemens’s stock price has risen by more than 50 percent.

Mr. Kaeser is widely credited with turning Siemens around and restoring a sense of self-confidence within the conglomerate even as its American competitor, General Electric, has struggled of late. Though power divisions at both companies have been hit by a decline in demand for products related to coal and natural gas, Siemens has  done a better job weathering the storm. “Kaeser has stopped the decline,” said one of Siemens’ former CEOs.

But the positive results, according to Mr. Kaeser, are no reason for complacency. He is far from finished with the overhauls he says are necessary to prepare the company for disruptions in many of its traditional businesses and the digitization of manufacturing processes. Many of the planned changes will be painful to current employees. The CEO wants to dismiss 6,900 workers — some 3,000 of them in Germany — as part of a downsizing plan. Unions have stridently opposed that plan, as have a number of politicians. Martin Schulz, the leader of the Social Democratic Party and Angela Merkel’s chief rival in last September’s elections, characterized the proposal to cut workers and close facilities as “totally unacceptable.” He accused Siemens managers of being “irresponsible “ and of “endangering the economy of Germany.”

Mr. Kaeser responded to those criticisms in an open letter to Mr. Schulz, writing that “populist and aggressive slogans” served to aid the company’s competitors. “You accuse us of ‘irresponsible management,’” Mr. Kaeser wrote. “But perhaps you should also consider who is really acting irresponsibly: those who proactively tackle foreseeable structural issues and seek long-term solutions, or those who avoid responsibility and dialogue?”

Siemens ensures good employment and tax revenues, and, in return, the government helps the company close deals.

Mr. Schulz, however, is far from the only critic of Mr. Kaeser’s management style. While the Siemens chief portrays himself as making the changes necessary to secure Siemens’ future, others see far less noble motives and believe the CEO is instead bowing to immediate market whims. In this view, he is driven by the expectations of big investors like Blackrock and by market pressure on global conglomerates to pare down and focus on more profitable businesses. Mr. Kaeser, those critics say, is acting with a kind of anticipatory obedience, providing lush returns now in order to preempt attacks from activist investors later.

The CEO believes that argument is misguided. “Only those who operate profitably can secure long-term and sustainable jobs,” he says.

Mr. Kaeser’s biography is “the key” to understanding his management style, says Christian Stadler, a professor of strategic management at Warwick Business School who has researched Siemens. The CEO does not have an engineering background like executives past. Rather, he earned his degree in business administration before joining Siemens in 1980. Anyone who, like Mr. Kaeser, has a financial background “places more value on capital markets than an engineer would,” said Mr. Stadler. Mr. Kaeser’s predecessors had already begun orienting the conglomerate towards interests of the investors, added Mr. Stadler. But “the tempo,” he said, “has certainly increased again with Kaeser.”

Many employees, among them members of Siemens middle-management, share a similar view, speaking of the company as if it were a kind of lost paradise. Siemens used to be a corporation where engineering quality was paramount, said some employees. Now, they add, departments are measured by profit margins and efficiency, and not solely by the quality of their inventions. Many employees view the boss’s advocacy of “change” as a euphemism for “cuts.”

With around 115,000 employees, Siemens is a vital guarantor of prosperity for many regions of Germany. For this reason, officials in the economics ministry are worried about the proposed cuts and argue that they were informed of the plans late, testing an alliance between Siemens and the government that has worked well until now.

That alliance works like this: Siemens ensures good employment and tax revenues, and, in return, the government helps the company close deals with foreign governments. Mr. Kaeser is the country’s most politically inclined CEO. No other executive is more involved in the machinery of government, and he is proud of his proximity to Chancellor Angela Merkel. Given Siemens’ considerable dependence on government cooperation, the conglomerate is particularly sensitive to political pushback related to its downsizing plans.

Yet, Siemen’s is far from the only conglomerate that is making cuts and spinning off businesses. Dutch group Philips has divested its consumer electronics business and now consists of two separately listed companies: Philips, a medical equipment maker, and Philips Lighting, a direct rival to Siemens’ spin-off Osram. Siemens’ struggling US competitor, General Electric, now appears to be pursuing a similar strategy. Earlier in December, General Electric announced it will cut 12,000 jobs in its power division, many of them in Europe. Both conglomerates are increasingly focusing on digitalization and automation through artificial intelligence.

For Siemens, that likely means less heavy industry, and more computer programming. “In the end there will possibly be two companies,” said one high-level source in Siemens familiar with Mr. Kaeser’s thinking — an industrial Siemens that makes machines and the software that operate them, and the medical technology business, Healthineers. The latter could become larger and more important than the rest.

The firm is already moving in this direction, becoming more like Apple, Microsoft, Google and Facebook. These firms are each worth multiples of Siemens’ shares today. Nevertheless, Siemens alone provides more jobs – 370,000 directly and indirectly — than all these companies put together. The future Siemens, in other words, may well up end up with higher profits but with far fewer employees.

For some at Siemens, it’s a source of pride that activist investors have not yet stepped in to force executives’ hands when it comes to such plans. Last year, Swedish investor Cevian demanded that ABB, a Swiss rival of Siemens, break itself up. “The reason that no activist shareholder has joined us yet,” a source within the Siemens said, “is that we’ve always done exactly what an investor would also do. We’re always one or two steps faster.”

A version of this article first appeared in WirtschaftsWoche, a sister publication of Handelsblatt Global. To contact the authors: simon.book@wiwo.de and matthias.kamp@wiwo.de

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