Is there a Watergate Scandal Emerging at Volkswagen?

February 25, 2008

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Watergate is shorthand for a gradual but remorseless process through which a powerful leader becomes destroyed. Are there parallels in the current scandals at Volkswagen which have resulted in imprisonment for several middle-ranking executives? Will the very top leadership in Germany eventually be brought down?

Earlier this week [February 2008] Klaus Volkert, the former head of Volkswagen’s employee council, was jailed for his role in a corruption scandal.

According to The BBC, Volkert

was found guilty of incitement to breach of trust in the case, which involved employee representatives getting illegal privileges.

We have commented over the last year of the leadership troubles that have been hitting the corporate reputation of Europe’s premier car manufacturer.

I picked up the scent of something of interest, because of a little surge of numbers of visitors to this site searching for news about the VW company. That’s when I came across a Reuters report

Volkswagen supervisory board member Guenter Lenz has resigned his seat, becoming the latest casualty of a scandal involving the use of corporate funds to bribe the carmaker’s senior labour leaders. According to a statement from the Hanover works council, Lenz told employees on Tuesday at a plant staff meeting that he would now resign his board seat and his post as the site’s works council boss after previously ceasing to actively execute his duties. The public prosecutor’s office in Brunswick accuses him of aiding and abetting fraud and partaking in parties with prostitutes paid for out of a VW slush fund. Lenz, who has also resigned from the Lower Saxony state parliament, would accept a court sentence for his wrongdoing, the Hanover works council said.

The scandal has already cost the jobs of VW management board member Peter Hartz, group works council chief Klaus Volkert, as well as a member of the German federal parliament.

An earlier post [updated in October 2007] looked at the history of leadership problems at VW, concluding that
… the financial markets have absorbed the uncertainties regarding VW’s less secure future when and if the Volkswagen protection laws are removed. They are also unshaken by the leadership scandals, and by the risk that VW is falling behind Toyota in the development of its hybrid car range. (Strictly speaking, that is a wider concern for the future success of the German premium automobile marques, VW’s Audi, but even more so, BMW and Mercedes). At least Martin Winterkorn seems to be enjoying a leadership honeymoon.

Martin Winterkorn appears to have been parachuted in as someone untained with earlier scandals.

Back to Watergate

President Nixon’s downfall is now a classic of modern cultural mythology. The great leader is brought low, despite all efforts he made to protect himself.

At first, only the minor players in the drama are attacked. But as each each in turn is weakened, it becomes easier for a more important figure to come under attack. The drama is sustained with the prospect of defeat for the most powerful figure of all.

Forward to Volkswagen

Are we witnessing at Volkswagen a story that is gradually working its way towards the very highest of executives associated with the scandal?

I can only observe that denials are being made. The denials may be a necessary strategy to protect individuals from the hints that are emerging in the press.

Until something more substantial emerges, I shall not be naming names.

Acknowledgement:

Image of Watergate was downloaded from Professor Olsen’s fascinating history site


Interesting Times Ahead for Times Warner

December 10, 2007

jeff-bewkes.jpgThe arrival of Jeffery Bewkes as CEO signals interesting times ahead for the under-performing Times Warner giant

Time Warner Inc. (NYSE:TWX) has announced that its Board of Directors has elected Jeffrey L. Bewkes as Chief Executive Officer of Time Warner Inc., effective January 1, 2008.

Mr. Bewkes currently serves as President and Chief Operating Officer, and he will retain the title of President. Mr. Bewkes will succeed Richard D. Parsons as CEO, and Mr. Parsons will remain as Chairman of the Board

The announcement by the head of the appointments committee could serve as a model for communicating a well-executed leadership transition. It indicated

“Today’s decision is the culmination of a thoughtful and disciplined process that began in early 2006, when Dick Parsons initially approached the Board to discuss the timetable for the CEO succession ..”

“Jeff is the right person to be the next CEO of Time Warner, and I couldn’t be more delighted that he will lead this Company into the future,” Mr. Parsons said.

Behind the briefing

So what’s behind the briefing? The story is candidly told by CCN Money’s Jon Friedman, who states that Jeff Bewkes

needs to show the world that Time Warner isn’t merely some bloated, tired symbol of the out-of-breath media industry. He must demonstrate to Wall Street that he is on shareholders’ side.

Friedman further asserts that Parsons took control of Time Warner following a period of chaos.

The AOL-Time Warner combo proved to be an utter disaster; the two factions hated each other and there was no spirit of cooperation. The stock flirted with single digits. By the time Parsons took over, Time Warner had become a corporate punch line, if not a punching bag for the media. A born politician, Parsons stepped in and smoothed the troubled waters by adding the informal title of “chief facilitator.” He sold off some noncore assets, tried to prop up morale at AOL and basked in whatever triumphs the company had, such as the booming properties in its vast film division, including such blockbusters as the Lord of the Rings, Matrix and Harry Potter series.

The New Man

According to Reuters

Jeffrey Bewkes’s ascension to the top executive post at Time Warner Inc, unlike his predecessor’s, surprised no one. His rare combination of financial savvy and knack for managing creative talent made him an obvious choice to succeed Richard Parsons, who was viewed in 2002 as a dark-horse candidate to run a company that controls some of the top brands in media: CNN, People magazine and paid cable network HBO

Bewkes had risen spectacularly within HBO, and has been associated with a string of media triumphs including The Sopranos. This is a view shared by other commentators, who acknowledge the leadership successes of the former No 2

The Shift

The shift, hardly indicated by that smooth press announcement, signals intent to change bigtime.
The master conciliator is succeeded by someone quite different. According to The Wall Street Journal

Mr. Bewkes’s management style is expected to signal a radical shift in Time Warner’s corporate culture. Where Mr. Parsons won over employees with a grandfatherly manner, Mr. Bewkes’s style is more no-nonsense. Mr. Bewkes, who started his Time Warner career at HBO more than 20 years ago, is widely expected to be tougher on the company’s performance, or lack thereof.

From Smooth to Hairy

If Mr. Parsons had a smooth leadership style, it seems that Mr. Bewkes has a more hairy one. Interesting Times ahead for Times Warner …


‘Tell me, Mr Murdoch, when did your father discover his perfect successor?’

December 8, 2007

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James Murdoch is now believed to have been identified as the heir to his father’s media empire, following his appointment as head of News Corp’s European and Asian businesses. What sense can be made of the appointment?

The most powerful man in Britain. The headline from the Daily Telegraph hints at the political as well as the commercial implication of the ascent of James Murdoch to his new post. My own headline is a tribute to the talents of Caroline Aherne in her role as Mrs Merton, a chat-show host with innocently barbed questions to her celebrity guests.

In her discussion with Debbie MacGee, the young wife of the TV magician Paul Daniels, Aherne produced one of the funniest of one-liners.

‘So, what attracted you to the millionaire Paul Daniels?’

It would take a Mrs Merton to ask the same sort of question of James Murdoch ‘Tell me, Mr Murdoch, when did your father discover his perfect successor?’ Or maybe: ‘What did he see in his youngest son, now that his older children have rejected any involvement in the family business?’ [OK. I’ve just proved how hard it is to write a good gag, or a good headline].

The Telegraph provided one of the best resumes of the spectacular rise of James Murdoch, and notes the political implications of his coronation.

James Murdoch is stepping down as chief executive of the satellite broadcaster BSkyB to head News Corp’s European and Asian businesses. He will take control of News International, publisher of The Times, Sunday Times, Sun and News of the World newspapers, as well as Sky Italia and the Star television business in Asia. He will not sever his ties with BSkyB, however. He replaces his father as non-executive chairman.

That could turn out to be very bad news for Gordon Brown. James Murdoch is an instinctive free-marketeer Tory. Friends say he “talks as if he thinks he is a latter-day Adam Smith”. Thanks to friendships with Al Gore and Bill Clinton, he has developed deep green instincts, which have made him a close confidant of the Tory leader, David Cameron.

The prodigal son?

The younger James showed all the dedication to following his father’s footsteps as did the younger George W Bush. He dropped out of a Harvard visual entertainment course, to found Rawkus, a hip-hop record label. But like Bush, he eventually returned to the fold.

In an earlier post on the Murdoch dynasty I noted

James is the youngest of three Murdoch offspring to a previous marriage. His sister Elisabeth seems the sparkiest of the three, but both she and brother Lachlan seem to have sought more independence, and have broken with promising roles within Murdoch’s media empire. But there may be other candidates to succeed father Rupert, who also has potential heirs from a more recent marriage.

Young James seems to have had a somewhat rumbustious time in his formative years (hardly surprising). His roles in the family firm have been conducted with inevitable publicity. Progress has been swift (hardly surprising). Results have been not totally convincing, but public skepticism has been somewhat weakened through his sure touch in leading the BSkyB business.

The formative years

The Telegraph provides a sketch of a near-stereotype of an over-achiever, shaped through early family influences.

He is fiercely competitive – the result of all those Murdoch family meals when, by his own admission, his father often pits sibling against sibling in a competition for his affection.
“I don’t think I’ve ever met anyone more competitive,” says one former colleague. “He’s like a coiled spring. If he thinks he’s being challenged unfairly, he literally stands up at the table in a meeting or even at lunch and wags his finger in his challenger’s face and says: ‘No, no, no. You’re wrong!’ ”

The governance issue

The BBC raises the governance issue as follows:

British investment institutions dislike chief executives becoming chairmen of their respective companies. So Sky’s British shareholders are bound to complain about James Murdoch’s elevation to the chairmanship. However, Sky non-executives have sounded out the group’s leading US shareholders – including Templeton, Capital and Janus – and believe they are supportive of the management re-organization.

But the younger Murdoch comes with good references. Father Rupert is quoted in the Telegraph as saying:

“James is a talented and proven executive with a rare blend of international perspective and deep, hands-on experience in improving operational results,”

Maybe his father would have given such a reply he had been a guest of Mrs. Merton, and had been asked one of those innocent questions on his son’s spectacular rise to business success.


Bush Brown Mills & Boon

July 29, 2007

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Tony Blair was said to have had an unhealthily close relationship with President Bush. The new Prime Minister, Gordon Brown, meets George Bush this weekend. But are we at risk of making sense of their first encounter in terms better suited to romantic fiction?

The widespread view over here is that Tony Blair became too much in thrall to George Bush. The ‘poodle’ metaphor might have become clichéd, but it has outlasted other more nuanced terms. Maybe there will be a historical revision, but for the moment the story has been established, and the ending settled in the public’s recollections of both leaders and their relationship.

Gordon Brown became Prime Minister after a long and bitter succession battle. Maybe, again, the official line will soften the accepted version of the story. The official line is that the two men had a long-standing friendship which carried them through the long period of Blair’s dominance as Prime Minister, and Brown’s not inconsiderable political influence as a highly effective Chancellor of the Exchequer. In this version, any discussions between them did not amount to a deal that Brown would not complete with Blair for the top job after the sudden death of Labour’s leader John Smith. Blair would smooth the way for Gordon’s succession, but not with a time-scale attached to the arrangement, which as I have just said, was not in any way a deal.

In the version presented through the media, there was a deal, and in time Brown became increasingly convinced that he had been conned, and would not be given Blair’s support in a future leadership contest. The Blair/Brown relationship was to become as dark as the Blair/Bush one was to burgeon into an idyllic friendship of sweetness and light.

That was then

Gordon eventually takes over and ‘sends out signals that changes are on the way. It’s tricky because he can’t change too much of the things he was assumed to be partly res;onsible for. He might be accused of being Blair’s poodle! would be then accused of heavily involvement in under Tony. But it is thought that he will meet those two Kiplingesque impostors of threat and opportunity . over Iraq, and thus inevitably the Anglo-American relationship

Now Gordon journeys to Camp David to meet Blair’s old buddie. The meeting has attracted a little attention in the UK political circles, less so in America. The White House press machine seems to have reached an embattled compromise with the media in its standardized delivery of standardized news stories. The travelling members of the Washington Press Corp dutifully attends at Camp David and reports on the information provided. The item will slot into the back end of news reports in its rightful place after the breaking news of personalised tragedies, and the doings of celebrities from the overlapping celebrity worlds of sport, entertainment, and violent crime. No big deal. Gordon gets his allotted coverage, roughly that allocated to the meetings of the last and next international visitors with the President.

Does it the meeting matter?
Interested journalists seem to think it does.

Maybe this is so, although I am inclined to think the idea is too close to that romantic tale of a first encounter, and of the critical importance of first impressions. A misunderstanding leads to many a twist and turn before the two principal characters find their true relationship. Its too close to Mills & Boon, as we like to say.

First impressions are important, not least in the world of business. Rickards and Clark cited several examples of the importance attributed by business leaders to first impressions. It’s up there with other assumptions, such as the idea that trust, once lost, is never regained. That’s a more deterministic version of the ‘first impression’ assumption.

Here we have a chance to evaluate these notions in a well-documented (if well-packaged) form, as well as the suggestion that a new leader can expect a honeymoon period. In Gordon’s case, this is measured by the so-called Brown Bounce in opinion polls.


Alliance Boots and an an offer Richard Baker couldn’t refuse

July 21, 2007

boots-directors-group.jpgRichard Baker quits as CEO of Alliance Boots after discussions with all-powerful Stefano Pessina. Although offered a new job with a generous remuneration package, he judges the role to be too toothless,and leaves the company.

I managed to extract the above happy families portrait of the Alliance Boots board before the airbrushing began. In our story today we learn why the photograph will shortly change. This version shows, left to right, Steve Duncan, Stephano Pessina, George Fairweather, Richard Baker, Scott Whewhy and Ornella Barra. Now read on …

The story so far

Cherished British Drug company Boots merges with European partner, whose wealthy owner, Stefano Pessina, becomes deputy chairman in the new company, Alliance Boots.

The amicable arrangement suggested that in any leadership transition, Mr Pessina would be a cuckoo in the nest. In short order, chairman Sir Nigel Rudd resigned. further friendly discussions were followed by a takeover by private equity firm KKR. The move was presented openly as a vehicle which would install Pessina as its main driver

KKR and Stefano Pessina had made it known that they wanted to keep the top team intact. But for all the continuing expressins of good will, the inevitable was to happen.

Thursday July 12th 2007, Richard Baker decised to accept a severance deal that would be worth some £10 million. It seems as if they made an offer for him to stay, or decline with honor. In an interview with the he says

“Stephano is a gentleman. He has been as good as his word with me every step of the way..I am confident about the future of the company ..I have looked everyone in the eye at Nottingham [corporate HQ] and told them that”

.

Another top retail executive, Scott Wheway, is also leaving, again in an amicable fashion.

Not too difficult to predict

The story has been followed in earlier posts. It struck me that in the original merger between Boots an Alliance, the new board had a majority of former Boots executives. But the Alliance side was the more profitable, and Stephano brought with him a sizable shareholding and considerable personal wealth.

It was not difficult to predict what would happen. I noted earlier this year that

If takeover is successful, I am not expecting many of actual board members to retain their positions.

And so it has come to pass. Not brutally. But Pessina has enough power to be magnanimous. Mr Baker may not have had much temptation to stay on when the alternative was a £10 million incentive to leave, with more chances of securing a new leadership role elsewhere.

Leadership lessons

I’m not sure of the leadership lessons here. Perhaps it is that self-made billionaires are not all ego-crazed narcissists. Maybe absolute power is not always accompanied by absolute ruthlessness.


Boeing, theater of dreams and Airbus nightmare

July 8, 2007

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Boeing launches its much-awaited Dreamliner 787. For Airbus is must seem more like a nightmare. In this fantasy battle, their champion, the Airbus 380, appears to be as potent as Superman in Kryptonite underpants. Can the European aero-dream still turn out all right in the end?

In Seattle they build planes. And, at the moment they are also very much in the Hollywood territory of selling dreams. The fantasy object is the new Dreamliner. High-tech, high-flying, the i-phone of the skies, the flying apple of the mind’s eye.

Meanwhile, some six thousand miles to the East (well within the 8000 mile range of the Dreamliner), Airbus executives put a brave face on for the ceremonies.

The power of the dream

Who can doubt the power of the dream? Who knows what happens if we stop believing, as James Barrie reminds us in Peter Pan, and Terry Pratchett points out in The Hogfather.

The selling of the dream has been a signal success, with press release claims that the 787 is already the fastest-selling commercial airplane in history with over 600 orders valued at more $100 billion at current list prices.

Even those us immune to the romance of the tale know that the 787 is the next giant leap of a line of aircraft of great consequence in the history of civil aviation. The 707 was a first. The 747, affectionately known as the first Jumbo jet. Now the 787, the star in the theater of aero-dreams.

Airbus versus Boeing

From the American side of the Atlantic the battle is a no-contest. Here’s the view of Lance Winslow, a not totally unbiased correspondent assessing the Dreamliner against its most direct competitor the Airbus A-350

Is the A350 really that spectacular? Hard to say, but one thing is for certain it is certainly no match for the robust, daring and dashing Dreamliner of today. Airbus’s attempt to compete with the Free Market Boeing Company has once again earned itself a distant second place or last place in the battle for the sky. The A-350 will use the same fuselage as the A330, but the wings will be made of composite. This is hardly a reciprocal response to Boeing’s cutting edge technology and advancements in design. But we have come to expect mediocrity from Airbus. When flying do you really want to ride in a bus while traveling at 30,000 feet in the Air? Think about it.

The Free-Market Boeing versus EU-subsidized EADS is important issue which will continue to be brought into the debate. The article also gets to another the key factors in the argument, the technical merits of the competing products.

Meanwhile in Europe …

In Europe, the financial press is more preoccupied with the boardroom battles within EADS, the corporate parent of Airbus. The Financial Times suggests that the efforts to restructure its complicated dual-management structure appear to be centering on co-chief executive Tom Enders.

Mr Enders is a controversial figure in France after he publicly criticized political interference from Paris and suggested the possibility of sensitive asset disposals. However, Daimler, the core German industrial shareholder in EADS, is determined that Mr Enders should not be sacrificed in any final deal.

We will continue to follow the twists and turns of this board-room battle. My point here is that persistent stories of corporate infighting may be indicating that the overall position is highly unsatisfactory. Boeing, we may presume, is doing very nicely. So nicely, that there are few rumors of boardroom clashes. In contrast, EADS leadership is forced to attend to the battles over its international border disputes.

The Chequer Board

What if anything can EADS, and more specifically the larger part of the outfit which is Airbus, do to break out of its nightmare? Incidentally, a deadline is approaching (July 16th) which dragged the New French President into the battle.

Let me put a few pieces on the chessboard. Louis Gallois, head of Airbus, is widely admired, and believed to be needed to stick it at Airbus, and see though Power 8, the strategic plan to streamline the business. This is a production and commercial imperative. He is co-CEO of EADS with Tom Enders at present.

Arnaud Lagardère of the media group of the same name is French Co-chairman of EADS . His German co-chair is Rudiger Grube.

Nicholas Sarcozy and Angela Merkel are also in play, with special concerns for their national interests (and for their own political positions). EADS Shareholder DaimlerChrysler has signaled willingness to increase its holding, a positive gesture to Sarcozy who would like to reduce the holding of the French Government. DaimlerChryser’s bid is linked to their interests in keeping Tom Enders in play.

The rumors in the French press

Rumors suggest the game will involve taking Enders off the board. This has been denied emphatically by the company.

The current form of the EADS/Airbus nightmare will be shared more widely in Toulouse after this month’s summit meeting.


Prime Minister Brown – At last, at long last

June 28, 2007

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Tony Blair exits after a last Prime Minister’s question time. The house settled for a dignified and good-humored farewell. Rumors leak out of names in Gordon Brown’s cabinet, and of a new job for Tony Blair.

Today’s political comings and goings are recorded for posterity in infinite detail. The leadership transition is now beyond the control of any one person. The ritual kicks in. It is worth noting, as it is a relatively rare event. The essential features for a century or so is that the incoming Prime Minister is received by the Monarch, is invited to serve, and accepts, almost always without hesitation. Sometimes it is possible for this to be preceded by a visit from the outgoing PM to hand in the bunch of keys and Rent Book for No 10 Downing Street.

Goings on at The Palace

In today’s ritual, the ceremony unfolds with TB being driven to Buckingham Palace in the Prime Ministerial vehicle, spending an hour with the Queen, and leaving as ex- Prime Minister Blair, in a more modest car. Conversely, Gordon arrives in a humble People Carrier, meets the Queen, does the business, and returns in the swanky Prime Ministerial car and with the keys and rent book for No 10.

The traditional speech on the steps of No 10. Slightly creepy because the area is mostly clear of people for security reasons. Prime Minister Brown predictably speaks of ‘doing his utmost’ (a translation of a school motto?).

The last and first leaks?

Possibly the last leak of the Blair administration. The rumor was right. Before the day is out, Tony Blair is to resign his Parliamentary seat and take up a job as special envoy to The Middle East. His mandate is particularly to assist in a resolution to the Palestinian issue, on behalf of the UN, EU, America and Russia.

Seems Tony mentioned it in a telephone conversation to his old friend Bertie Ahern. Bertie blabs to the press. These are two men who kept schtum with many a secret during years of delicate negotiations over the future of Northern Ireland. But this is what happens when demob-happiness kicks in.

The new manager draws up his team sheet

Meanwhile, in the quiet of his new manager’s office, Gordon completes the names on his team sheet. Even without Bertie’s help, more rumors trickle out. The late-night editions of tomorrow’s papers speak confidently of some names and appointments.

There have been more rumors of surprises on the team-sheet. We will have to wait just a little longer for the names, and the positions in which they have been selected to play.

A new job for Alan?

An obvious rumor. Alan Johnson will have a nice consolation prize, after losing out to Harriet Harman in the deputy leadership battle. a more surprising rumor is of a new job for Sir Alan Sugar in revitalizing British Business Leadership. Possibly in Business Education. Now that will offer some scope in future posts on leaders we deserve.


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