Ongoing Crisis of Confidence in ThyssenKrupp Corporate Governance and its Supervisory Board
Here is an update on our earlier article on the effect of defective corporate governance at Thyssen Krupp.
On February 12, 2013, the ThyssenKrupp Interim Report on the 1st quarter 2012/2013 was published. Here are extracts from one of the Press Releases at this date:
….Heinrich Hiesinger, Executive Board Chairman of ThyssenKrupp AG: “We are well on track to achieve our operating targets for the full year. However, we cannot be satisfied with the Group’s current earning power. The Strategic Way Forward is aimed at significantly improving the Group’s value potential, and we will continue to work vigorously towards this goal. All the Group’s businesses must contribute to this. Changes in leadership model and leadership culture………
………To strengthen the performance of the Group and enhance its leadership culture Groupwide, a new leadership model is being created under our corporate program ACT. A matrix organizational structure is being introduced to optimize the way business units, functions and regions work together. With the reorganization of the Executive Board effective January 1, 2013, structural changes have already been implemented. According to their function the business area management board members now report directly to the Chief Executive Officer, the Chief Financial Officer, or the Chief Human Resources Officer of ThyssenKrupp AG. At February 1, 2013 the previous corporate functions were reduced and reorganized. In the future each corporate function will bear global responsibility for standards and processes. The business areas will have central functions analogous with the structure at Group level to optimize cooperation between the Group and business areas. In the coming months all further structures and processes will be planned in detail, also to include the regions. The Group plans to begin working in this new structure from October 2013………
On Mar. 08, 2013 in a Press release, it was announced that:
Dr. Gerhard Cromme (70) will step down as Chairman of the Supervisory Board of ThyssenKrupp AG effective March 31st, 2013. Concurrently he has requested the Alfried Krupp von Bohlen und Halbach Foundation to revoke his delegation into the Supervisory Board of ThyssenKrupp AG also effective March, 31st, 2013.
Dr. Cromme will also step down as Vice Chairman of the Board of Trustees and as a member of the Alfried Krupp von Bohlen und Halbach Foundation.
After having served in different leadership roles at Krupp and the respective successor companies for more than 27 years Dr. Cromme states:
“With this step – after 12 years as Chairman of the Supervisory Board of ThyssenKrupp AG and acting in responsibility towards the company, its employees as well as its shareholders – I want to support a renewal regarding the Supervisory Board. Over the last 200 years the company has always successfully overcome several critical situations and I am convinced it will be the same this time. I will remain strongly attached to the company and its employees.”
Dr Cromme was falling on his sword after earlier criticism of the failure of the Supervisory Board, which he chaired, to prevent management from committing grave strategic policy errors and allowing it to continue on its misguided course for many years. It might be thought that, in the same way that Dr Hiesinger was clearing the decks with the Management Board, the Supervisory Board was girding its loins for a similar exercise. Investors certainly reacted with that hope, with shares jumping 6% upon the announcement of Cromme’s resignation.
On Mar. 13, 2013, however, we have a further Press release:
….In separate consultations and discussions shareholder and employee representatives of the Supervisory Board of ThyssenKrupp AG have agreed to elect Professor Dr. Ulrich Lehner in an extraordinary meeting on March 19, 2013 as the new Chairman of the Supervisory Board.
The entire Supervisory Board supports the strategic way forward of the Group and the associated cultural changes initiated by the Executive Board. The current challenges, the contemporary sale of Steel Americas and the necessity to continue with the comprehensive change process require a strong Supervisory Board. For this reason the shareholder and the employee representatives have decided on an internal solution. Prof. Dr. Lehner, who has been a member of the Supervisory Board of ThyssenKrupp AG since 2008, has already announced to restructure the Supervisory Board parallel to the strategic way forward of the Group and that the topics Corporate Governance and Compliance will become core areas for the future work of the Supervisory Board………
In other words, the Supervisory Board has decided to select one of its own long-standing and trusted members to undertake the renewal and cleansing process.
Here is an extract from the Board’s statement on governance that we quoted in our earlier article:
….At ThyssenKrupp good corporate governance is an issue which embraces all areas of the Group. It promotes the trust of investors, financial markets, business partners, employees and the general public in the management and oversight of the Company and is essential to the Company’s sustainable success………
What does this series of press releases tell us about the state of corporate governance at Thyssen Krupp? Surely that the views of the investors and the outside world count for little compared with the perceived importance of preserving the current control structure. The thought that “justice must not only be done but be seen to be done” doesn’t seem to have rated high on the agenda of those planning attendance at that Extraordinary Meeting on 19 March. More sadly, “leopards don’t change their spots” and it is surely fundamental to achieving changes in behaviour on the Supervisory Board that the new chairman is not drawn from the ranks of those whom Dr Hiesinger earlier described, in a different context, as “old boys networks” and “blind loyalty”
How would our survey of stakeholders judge the plans of the Supervisory Board?
Ethics: No change here. 5/10
Commonly agreed Goal: the incoming chairman will “restructure the Supervisory Board parallel to the strategic way forward of the Group”… and… “the topics Corporate Governance and Compliance will become core areas for the future work of the Supervisory Board.” Surely this is no more than the minimum that might be expected 3/10
Strategic management: the new Executive is leading Thyssen forward and the consensus of stakeholder opinion would be that the Supervisory Board is now supporting sensible policies 7/10
Organisation: the new CEO is reshaping the Group and the market opinion would probably be supporting. In terms of the element of organisation that the Supervisory Board represents, if the same people are sitting in the same seats, how much change is likely to happen here? Stakeholders would be unlikely to approve these modest changes 3/10
Accountability and communication: from the record of recent press releases, concern for the opinions of stakeholders outside the core control group would seem to figure no higher now than before. A big black mark in our book! 1/10