Aggressive management style of corporate governance

Siemens is Europe’s largest engineering group, manufacturing a diverse range of products from power plants to home appliances, computers to railway engines. Headquartered in Germany, the company has a two-tier board.

In 2007, the chief executive Klaus Kleinfeld, challenged the supervisory board to renew his contract or to accept his resignation. The proposal failed to get necessary votes in the supervisory board and he resigned.

Previously, Kleinfeld had successfully run Siemens’ American operations, listing the company on the New York Stock Exchange in the process. He had served as an outside director on the boards of the major bank Citigroup and the American aluminum company Alcoa. He was recognized as a capable leader. Under his guidance, the Siemens Group had recently reported a 10% increase in revenue and a 36% increase in profits.

But both the union and the shareholder representatives on the supervisory board disliked his aggressive management style. Rumors about him circulated among board members. Heinrich von Pierer, the head of the supervisory board, resigned and was replaced by Gerhard Cromme, a pioneer of corporate governance in Germany.

(Source: Bob Tricker. (2012). Corporate Governance: Principles, Policies, and Practices. Oxford: Oxford University Press)

(15 marks) Suggest three measures that Siemens AG could have incorporated to comply with the international codes of corporate governance.

(10 marks) Do you think aggressive management style of corporate governance is harmful for the long-term sustainability of Siemens AG? Justify giving two reasons.

(10 marks) What could be the two probable reasons for the shareholder representatives to dislike the operational approach of Kleinfeld? Explain each of these reasons.

(10 marks) If you were in place of Heinrich von Pierer, suggest two measures that you would have implemented in order to maintain a good board-management relationship.