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As Siemens Picks a New Unit Head, the Race Is On for the Top Job

Oliver Sachgau

(Bloomberg) -- Siemens AG’s supervisory board meets Wednesday in Munich to select a new leader for its soon-to-be spun off energy division, a choice on which an even bigger decision hinges: who will be the next CEO of the German engineering giant.

Two Siemens veterans are front-runners to take over the Gas and Power subsidiary from Lisa Davis, who is unlikely to continue in her role, according to people familiar with the situation. One is Michael Sen, who has spent most of his career at the company and has held roles including head of investor relations and most recently overseeing two other spinoffs. The other is Chief Technology Officer Roland Busch, said the people, asking not to be identified discussing private matters ahead of the board meeting.

There’s obvious appeal to the energy position. With annual revenue of about 30 billion euros ($33 billion), the separated business would be a candidate for Germany’s prestigious DAX index, allowing its chief executive officer to join the hallowed club of 30 top corporate leaders. Both Sen and Busch have shown an appetite for bigger mandates, with the former in particular keen to run Siemens’s finance department, a role for which he was passed over some years ago.

Risky Choice

But the risk for both men is that by accepting the position, they will take themselves out of the race for the more prestigious job running Siemens. Chief Executive Officer Joe Kaeser’s contract runs for another two years until the annual general meeting in 2021.

“Kaeser has transformed Siemens to an immense degree,” said Daniela Bergdolt, a Munich-based lawyer representing individual investors at the DSW German association for shareholder protection.“We’d expect a successor to tackle that, and that they can lead Siemens to keep being a leader in industry.”

The CEO has toyed with the idea of moving up to the chairman position after that. After orchestrating some of the most sweeping portfolio changes in the company’s history, Kaeser’s ambition lies less in an operating role, and more in the oversight that comes with being chairman, people familiar with the matter said. Among Kaeser’s most dramatic moves was to select the energy business for a spinoff, having already hived off the health-care, lighting and renewable energy assets.

A spokesman for Siemens declined to comment ahead of the board meeting.

Scheduled for separation next year, Sen would appear like a natural fit to run the business. Currently responsible for the separated Siemens Healthineers and Siemens Gamesa Renewable Energy SA, Sen’s experience with Siemens Gamesa would prove useful for a job leading Gas and Power. When that division gets spun off in 2020, it will absorb Siemens’s 59% stake in Siemens Gamesa.

Previous Experience

Sen, 51, also has experience separating out units. Shortly after being passed over to become Siemens finance chief 2013, Sen left the company where he had spent his entire career and joined utility E.On, where he made CFO and oversaw the hiving off of the fossil-fuel business.

Taking the power job would nonetheless be a compromise for Sen, who has been mentioned as a possible successor to Kaeser in German media reports. But if he were to take the position, it would clear the path for Busch -- another Siemens lifer -- to ascend to the top job. Busch, 55, has been chief technical officer since late 2016, and a member of the management board since 2011.

He has also shown aspirations to oversee his own empire. It’s a career path that was blocked last year when competition authorities denied Siemens and Alstom SA their planned merger of rail assets, which Busch was supposed to oversee as chairman.

Big Prize

While the Siemens CEO position is arguably the bigger prize, it’s also a position that no longer carries the same gravitas as it did under Kaeser and his predecessors. Siemens CEOs were traditionally the de-facto ambassadors of corporate Germany, accompanying chancellors on important global missions and running an empire spanning diverse products, from power turbines to high-speed trains to factory equipment and medical scanners.

But in the last two decades, that all-encompassing conglomerate structure has given way to a much leaner Siemens, partly through spinoffs, partly through other disposals that removed once central assets like telecom equipment and health care.

Kaeser has aggressively pushed the company to become more focused, saying he’d rather be in charge of a smaller house than handing the keys to an aggressive activist investor or having to sell units under duress. The downward spiral of rival conglomerate General Electric Co. has likely urged him on.

Busch and Sen would be left with what Kaeser has called an industrial core comprised of factory automation, building automation and industrial software, along with stakes in the spun off entities.

Involved Chairman

Another possible complicating factor for any successor would Kaeser’s proximity to strategy and finance stemming from his years as CEO, and before that CFO. It’s a balance that German corporate governance guidelines have sought to address by suggesting a CEO should accept a two-year cooling-off period at the very least before becoming chairman, in order to allow the successor some breathing space. Most recently, Daimler’s AG’s longtime CEO, Dieter Zetsche, agreed to such a grace period before becoming chairman in a few years.

If Kaeser succeeds in moving directly into the supervisory board -- a leap that requires shareholder approval -- it’s likely his presence there will be felt more than the average chairman. On paper, the job isn’t to interfere in the day-to-day activities overseen by the CEO. Supervisory boards principally check the executives, sign off on strategy and set the pay of top managers.

But German corporate history is littered with examples of chairmen who wielded considerable power behind the scenes. Norbert Reithofer, chairman of BMW, is seen as a powerhouse whose approval matters in major decisions, as are Werner Wenning at Bayer AG and Wolfgang Reitzle at Linde Plc, who was known to have directed much of that company’s merger with Praxair Inc.

Whoever leads Siemens in the future inherits a smaller, more focused company, with scaled-back ambitions. Kaeser’s overhaul has faced criticism from unions and investors that he has sold off the soul of Europe’s industrial champion. At a press conference in May, his answer was as simple as it was dismissive:

“Those who’ve got a problem about these priorities, in the stock exchange, well, they are free to sell their Siemens shares,” he said. “It’s not a prison.”

To contact the reporter on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Benedikt Kammel, Tara Patel

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