ThyssenKrupp managers will be in the hot seat at this year's annual shareholders conference. They need to explain heavy losses, bad investments and corruption at the once-mighty German steel conglomerate.
ThyssenKrupp managers and board directors will have to explain a 2012 net loss of 5 billion euros ($6.4 billion) on Friday (18.01.2013), to shareholders who are already angry after learning in December that they won't receive an annual dividend for the first time in company history.
As the German steel group's woes compounded last year amid bad investments and corruption allegations, several shareholder groups announced they would refuse to grant discharge to the supervisory board, headed by Gerhard Cromme.
Moreover, the Association of German Supervisory Board Members (VARD) urged Cromme to step down voluntarily.
Germany's biggest steel conglomerate employs about 170,000 workers worldwide and has revenues of about 50 billion euros. However, it has accumulated a mountain of debt in recent years as a result of major investments gone awry.
Aspiring to become a global player in the steel industry, ThyssenKrupp built two steel plants in the United States and Brazil. But the planned costs of 3.6 billion euros skyrocketed to 12 billion euros after cost overruns and falling global steel demand. The steelmaker now lists the two mills at a value of 7 billion euros, but chief executive Heinrich Hiesinger said recently he hoped to sell them for 3 to 4 billion euros.
Cromme in the firing line
In recent months, Cromme has moved into the focus of criticism for failing to properly control management's controversial investment decisions.
Cromme has defended himself, repeatedly stressing the supervisory board wasn't sufficiently briefed on the problems that had been mounting within the group's Steel Americas operations.
However, in a study undertaken by the US shareholders' consultancy ISS, board members were criticized for being unwilling to admit to the mistakes they made. ISS recommended the shareholders not to grant discharge of liability to the board.
In addition to the lack of supervision, ThyssenKrupp is facing corruption allegations in connection with projects in Kazakhstan and Uzbekistan., as well as price-fixing charges in the steelmaker's rail business.
The German cartel office has already slapped a hefty fine of 103 million euros on ThyssenKrupp over the accusations of price-fixing on railroad track steel, over which the German state-owned railways, Deutsche Bahn have now claimed damages of several hundred million euros.
The company image has been further tarnished by a series of compliance violations within its management board which cost compliance chief Jürgen Claasen his job in December. Head of technology Olaf Berlien and Edwin Eichler of the group's steel division also had to go.
Among the violations was luxury travel organized by managers for themselves and for journalists, including a trip to the Formula One Grand Prix in Shanghai.
Describing the sacking of three out of six ThyssenKrupp managers as an act of internal cleansing, Chief Executive Officer Heinrich Hiesinger admitted that the scandals had caused a loss of trust and credibility.
Nevertheless, CEO Hiesinger and board chairman Cromme still enjoy the full backing of German industrialist and family patriarch Berthold Beitz. Beitz is the head of the powerful Krupp Foundation, which is the steelmaker's biggest shareholder, owning a 25-percent stake in the conglomerate.
Beitz regards Cromme as his heir-apparent in the Krupp Foundation and will seek to maintain what could be called an old-boys network that once made the 200-year-old steelmaker great.
However, the 99-year-old Krupp family patriarch might still have a hard time trying to shove his successor out of the line of fire at the shareholders' gathering on Friday.