View from City Road: Crisis in Germany's cosy boardroom

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The Independent Online
For the scores of Balsam/Procedo creditor bankers who convened outside Frankfurt yesterday there was a bitter sense of deja vu. For many of them this is the third bruising German corporate disaster this year: Metallgesellschaft, Schneider, and now Balsam/Procedo, costing billions of marks in bad debts and battered reputations. One collapse may be regarded as bad luck; two carelessness, but three . . . Are we witnessing a wider malaise in German business or is this just an unpleasant aberration?

The situation looks bad, certainly, but Germany's embarrassment as yet hardly looks any worse than our own spate of corporate disasters - Maxwell, Brent Walker, Polly Peck and others. In a bid to save face, the powerful German establishment banks argue that they have been the victims of 'abnormal' business practices, by which they basically mean fraud. In all three cases, the creditor banks were deliberately misled, in the cases of Schneider and Balsam apparently criminally. All to a greater or lesser extent have also involved the dreaded 'D' word - derivatives. Large amounts of money were squandered playing the newfangled markets.

German bankers are at pains to point out that, however good the system of corporate governance, it can never be a guarantee against clever businessmen determined to circumvent the rules. Three in a row nevertheless smacks of complacency. The intricate, close ties between the banks and industry, claimed as one of Germany's strengths, appear to have dulled critical faculties, exposing banks to charismatic borrowers such as Jurgen Schneider, Friedel Balsam and Heinz Schimmelbusch of Metallgesellschaft.

The German banking community will need to look long and hard at the downside in nurturing such cosy boardroom ties, which in any case begin to look increasingly anomalous in today's global business environment. None the less, three corporate failures - albeit spectacular ones - should not prompt over-hasty generalisations about the fragility of corporate Germany. On the contrary, most of the evidence points to a massive restructuring offensive whose speed has confounded the sceptics. The recession is still claiming victims, but the majority of German firms seem to be emerging from it more competitive than ever.