Opinion | ThyssenKrupp CEO's exit after the Tata Steel deal has lessons for corporate India

The logo of German steel-to-elevators group ThyssenKrupp AG is pictured during the company's annual news conference in Essen

Shishir Asthana

Moneycontrol Research

It looks like the Tata Steel deal was the proverbial last straw that broke the back of investors’ faith in German giant ThyssenKrupp’s CEO Heinrich Hiesinger. Even while Hiesinger was announcing the transaction with Tata Steel’s Chairman N Chandrasekaran at a press conference, the rumour mills were working overtime about his impending exit.

The deal took nearly two years to fructify;  the delay in its signing and the way it was structured were just two of the reasons for Hiesinger’s exit. In fact, it was slow progress on several fronts that seems to have cost the CEO his job.

The way that pressure was brought to bear on Hiesinger holds some lessons for Indian companies and their stakeholders. Cases of shareholder activism in India have been few and far between, and rarely successful. It may be worth looking more closely at the Thyssen case for inspiration.

Activist shareholders Swedish Fund Cevian Capital (18 percent holding in ThyssenKrupp) and Elliott Advisors (less than 3 percent holding) of the US both accused the German company of giving away assets too cheaply.

Elliott Advisors felt ThyssenKrupp’s share in the new company should be as high as 80 percent based on the higher profitability of its European steel operations. Elliott, looking at earnings over just the past 12 months, pegged the valuation of ThyssenKrupp’s steel business at 1.9 billion euro more than Tata’s.

Goldman Sachs said ThyssenKrupp's business was worth half a billion euros more than what was earlier agreed. Since the time the two groups started talking, Thyssen’s steel business did much better than that of Tata Steel, which seems to have caused differences in perceived value.

The activist shareholders were vocal about Hiesinger’s style of operations and the overall complex structure of ThyssenKrupp's companies. The steel-to-submarine major has a number of units, including the highly profitable elevators. Shareholders have been demanding that ThyssenKrupp is made a holding company and the divisions listed separately to unlock value.

The funds alleged since Hiesinger took over, Thyssen’s performance deteriorated compared to its peers. ThyssenKrupp's shares fell 28 percent since Hiesinger took office in January 2011.

On the face of it, there was support for Hiesinger, but it came from the head of the supervisory board, which under German corporate structure sits on top of the management board and often has a cozy relationship with CEOs. Ulrich Lehner, Chairman of the supervisory board, praised Hiesinger, saying that had freed ThyssenKrupp from an "existential crisis" and made the company ready for the future. Without Hiesinger there would be no ThyssenKrupp today, he said.

But in the ultimate analysis, there is an important lesson for Indian companies. A dose of shareholder activism could be good news.

In India, there have been cases of shareholder activism but in many cases, promoters have managed to get away with their actions thanks to their large stakeholding.

Shareholder activism in India can be traced to early 2010 when SEBI made it mandatory to disclose voting policies relating to domestic Mutual Funds. Akzo Nobel was one of the first cases -- shareholders raised their voices against the merger of three promoter-held unlisted entities with Akzo at high valuations. However, the merger went through as it received sufficient votes. Similarly, the Sesa Goa and Sterlite merger, despite being a blatantly skewed deal, went through despite many institutions voting against it.

Shareholder activism came to the fore again when an increase in remuneration of certain key executives of Tata Motors was rejected by its shareholders in July 2014. However, when put to vote for a second time in January 2015, shareholders approved the hike.

A recent success story is of Raymond where in June 2017 shareholders rejected the sale of JK House at below market price to its promoters.

But we have yet to see shareholders raising their voice against company performance or demanding a change in top management, the way we saw in ThyssenKrupp. Promoters are still able to vote out voices of dissent but change will eventually happen: Funds will ask for better performance from company managers.

A fund manager from Elliott has been quoted as saying, referring to Hiesinger: “If the German national (soccer) team hadn’t won a game for so long, would it still have the same coach?” If the same logic was applied to all corporate managers, we could have many CEOs looking for new jobs, and, eventually, better-performing companies.