Reckless driving at Daimler-Benz

Patrick Tooher investigates the tales of strife afflicting one of Germany's biggest groups
IT IS 2am on a fine summer's evening in the centre of Rome. Three German tourists - two men and a woman - stroll merrily along the magnificent Spanish Steps. They have just finished an agreeable meal in one of the area's many chic restaurants. One of them clutches a bottle of wine recently retrieved from their luxury hotel nearby.

Their exuberant behaviour alerts the police, who stop the revellers and demand identification, but their papers are back at hotel reception. Confusion follows - the Germans do not speak Italian, the caribinieri speak no German -and tempers flare.

What happens next is unclear. According to an official statement by the Rome police department, "The young lady in particular addressed the uniformed officers in unfortunate language."

She is bundled into a police van and taken down to the local station, where she is later reunited with her two colleagues, passports in hand. The trio are detained for two hours until their identities are confirmed, and then released.

All innocent fun, perhaps. But one of those questioned is none other than Jurgen Schrempp, the newly installed chairman of Daimler-Benz, Germany's biggest industrial group. Schrempp was celebrating the 31st birthday of his personal assistant, Lydia Deininger. They were accompanied by Hartmut Schick, the 34- year-old head of Daimler's planning department.

A damage-limitation exercise ensued. Mr Schrempp told a Stuttgart newspaper that he regretted the incident, which occurred a week ago last Wednes- day. However, he denied any charges had been brought and insisted the bottle of wine was full, not half-empty as earlier reports had claimed.

But the embarrassment to one of Europe's most powerful businessmen did not end there. Last week, the German business monthly Manager Magazin carried extracts from a leaked private letter, apparently written by Daimler's former finance director, Gerhard Liener, in which he launched a vicious attack on his erstwhile boss and on Mr Schrempp's predecessor, Edzard Reuter. Both Mr Liener and Mr Reuter retired from the Daimler board two months ago.

The 76 pages of personal invective, addressed to Mr Reuter and tapped out on Mr Liener's lap-top, lifts the lid on probably the biggest boardroom bust-up in German corporate history. In the letter, which apparently was never intended for publication, Mr Liener accuses Mr Reuter of grave managerial mistakes, financial ineptitude, personal arrogance and putting his own image above that of the company.

He claims Mr Reuter's impatient, autocratic management style meant investment decisions involving billions of marks were often decided at meetings lasting less than half an hour.

And Mr Liener takes particular aim at Mr Reuter's indifferent attitude to his brainwave - the listing of Daimler's shares on the New York Stock Exchange two years ago.

It was the first time a German company had sought access to American capital markets. Mr Liener was hailed in some quarters as a visionary for recognising that German companies could no longer rely exclusively on domestic capital markets, but was vilified as a traitor elsewhere for opening up opaque German accounting practices to closer Anglo-Saxon scrutiny.

Mr Reuter's track record is an easy target.In the late 1980s and early 1990s, he inspired the creation of an integrated technology group using profits from the Mercedes car division as a milch cow. Acquisitions included MTU (engines), Dornier (aerospace), AEG (electronics, railways), MBB (aerospace), Cap Gemini Sogeti (software) and Fokker (regional aircraft).

But the diversification strategy was ill-conceived. The synergy between trains, planes and cars was lost on analysts, and Daimler's shares, which are also listed in London, tumbled. From a peak of DM52bn (pounds 23.5bn) in 1986, Daimler's market value has shrunk to DM31bn. In 1993, it plunged into the red for the first time since the Second World War. Forecasts for this year suggest a net loss of DM2bn, after a DM895m profit last year. Investors fear the dividend may be skipped. Most aggrieved are the US institutions that subscribed to the New York listing (see chart).

All this from a company with annual sales in excess of DM100bn - four times the size of the nearest comparable British company, GEC.

"The article explains how Daimler got themselves into the mess they are in in the first place," says Keith Hayes, automotives analyst at the US investment bank Merrill Lynch.

Mr Liener's outburst cost him dear. He wasstripped of all remaining consultancies with Daimler, including a reported DM1.3m-a-year post as special adviser on international affairs to Mr Schrempp, a close friend. (It is interesting to note that throughout the magazine article, Mr Liener is at pains to relate how he, not Mr Reuter, discovered the man who would become the new Daimler boss).

Among Frankfurt's close-knit financial community, Mr Liener is persona non grata. "I have zero feelings for Liener," says Magnus von Schleefen, of the blue-blooded stockbrokers Schroder Munchmeyer Hengst.

"Speaking out like this is very unprofessional. We all know that Reuter might not have been the number one manager out there. But if Reuter was making all the decisions himself, it shows how weak Liener was. Every management board member is responsible for all the decisions and actions of the company. If Liener says he was not responsible, he should have left 10 years ago."

So why did Mr Liener speak out and risk everything?

Manager Magazin suggests Mr Liener, 63, was incensed to find that Mr Reuter, four years older, had been instrumental in forcing him to stand down from the Daimler board in May, two years before the finance director's contract was to expire.

But conspiracy theorists see another hidden hand at work. Mr Liener is understood to have shown the letter to several close friends, one of whom then leaked it to Manager Magazin.

By highlighting the sins of past managers, they say, the article could be a prelude to even more bad news on the financial front. There is talk of a further provision within the loss-making Dasa aerospace division of at least DM2bn, mainly relating to Daimler's ill-fated investment in the Dutch aircraft manufacturer Fokker. "Someone has got to take the blame. Why not Liener and Reuter? A big charge would call into question the entire strategy of the group in the last 10 years," says one analyst.

Their reputations certainly lie in tatters. But perhaps the biggest casualty could be Mr Schrempp - after all, he had sat on the main Daimler board since 1987, and was personally responsible for the Fokker acquisition.

But only two months into the job, he may receive the benefit of the doubt. And it seems he is learning fast. "In future," he told a Stuttgart newspaper, "I won't drink good wine of an evening in Rome and get into a jovial mood on the Spanish Steps."