JOE KAESER was six months into his new job as chief
financial officer of Siemens in November 2006, and already, he had a list of accomplishments to show for it.
The executive had helped to arrange a joint venture between Siemens and Nokia that combined their telecoms-network units, guided Siemens in completing its largest US bond offering and converted the company's financial statements to international standards.
What Kaeser, 52, a Siemens employee for his whole working life, didn't know was that he was about to face his toughest challenge yet.
On November 15, 2006, police raided Siemens's Munich corporate offices as part of a probe into alleged bribery and kickbacks that would eventually spread to 12 countries. Chief executive Klaus Kleinfeld stepped down in 2007 after the company's board indicated it would not renew his contract. He wasn't charged with wrongdoing.
Siemens, a manufacturing bellwether whose products range from power turbines to medical scanners and whose operations span the globe, ended up pleading guilty to violating provisions of the US Foreign Corrupt Practices Act and paying $1.6 billion (R11.7bn at current exchange rates) in fines to US and German regulators.
Kaeser was never charged with wrongdoing. As a member of Siemens's management, he was initially under suspicion, he says.
After an independent investigation found he had no involvement in the scheme, he was able to help review and fix the company's books going back to 1999.
"That was quite a rough time," Kaeser says in a February 9 interview. "It was a very dark chapter of Siemens history," he adds.
"Looking back now, I probably would feel compelled to say it was a blessing for Siemens that it got caught then and that this company had the opportunity and the chance to turn everything around."
Shareholders approved a settlement between the company and nine former executives in connection with the probe in January.
Under the deal, the executives, including former chief executive Kleinfeld, would pay the company damages for failing to halt a culture of using bribes to win contracts.
Two former managers are scheduled to stand trial in a Munich court this week over allegations of breach of trust and aiding bribery.
Kaeser's challenge now is to bolster profits at the company as the global economy recovers from recession. Kaeser, who joined Siemens in 1980, works closely with chief executive Peter Loescher, who became the first outsider to head Siemens when he was hired in 2007 following Kleinfeld's departure.
Loescher, 52, changed Siemens's structure to focus on three main divisions - industrial, health care and energy - and replaced half of the company's top 100 executives.
The restructuring reduced costs, enabling the company to increase pre-tax operating earnings at the three units in financial 2009, although revenue and orders fell amid the downturn. "That actually would suggest that the moment our business recovers and grows, we will get a lot of incremental margin dropping to the bottom line," Kaeser says.
Siemens shares have benefited as the cost-cutting moves helped to bolster profits. The company's stock climbed 71 percent in the 12 months to April 7 to e75.06 (R730 at current exchange rates), outpacing the 44 percent gain in Germany's DAX index in the same period.
Kaeser says he's uncertain about when a sustained recovery will take place. "There are signs of hope, but there is no consistent picture of what the industrial world will do going forward," he says.
Siemens executives were similarly cautious even after announcing that profits had exceeded analysts' expectations for the first three months of financial 2010.
The company affirmed its guidance for sector profit from the three main divisions of e6bn to e6.5bn for the full financial year, which will end on September 30.
Kaeser said in February that Siemens might revise its profit targets when it released results for its second quarter on April 29.
Even if demand picks up this year, Kaeser says it is unlikely that revenue will return to pre-recession levels any time soon. "Our viewpoint of our global business is that it takes years until we are back up at levels of 2008, where we came from - probably 2011, if not 2012," he says.
When growth does resume, Kaeser says, the geographical mix will be different, driven by demand from China, India and Brazil rather than Europe and the US.
Kaeser says Loescher's changes in 2007 helped the company weather the downturn but that long-held policies also played a part. These include never using short-term financing to fund long-term assets, a strategy that shielded the company when money markets froze in 2008.
"We've always been extremely stable and rigid on that matter, and it paid off massively," Kaeser says.
Siemens has no bonds due this year. Next year, two issues totalling e3.55bn will mature.
Kaeser also credits European monetary union with helping to keep the region together during the financial crisis. "I feel very positive about it because if you hadn't had the euro in the last 18 to 24 months, it would have been a big challenge for European leaders to keep everyone together," he says.
With credit markets now stable, Kaeser says the company may choose to refinance some debt this year while rates are low, rather than risk a rise in borrowing costs next year. "I don't want to be caught flat-footed a year from now with fiscal or monetary actions that negatively affect our company," he says. - Bloomberg