A Break from the Past

There were plenty of candidates on the supervisory board's wish list to succeed Siemens chief executive Klaus Kleinfeld, who last month announced his decision not to prolong his contract, and will now step down on June 30.

Although Kleinfeld and his mentor, former chairman Heinrich von Pierer, were not implicated in a far-reaching corruption scandal that led to the arrest of several former top executives, their departure is a signal that the powers that be at the giant Munich-based engineering and electronics conglomerate wanted to make a complete break from the past.

Candidates for the top job had included the previous head of DaimlerChrysler's Mercedes division and the European head of General Motors, according to German newspaper reports.

But the candidate widely touted in the press for the top job, Wolfgang Reitzle, CEO of Linde AG and a former boss at BMW, announced last week that he would rather stay put than switch.

Pharma executive as head of Siemens conglomerate

Then on Sunday, the Siemens supervisory board under its new chairman Gerhard Cromme, made the surprise announcement that Kleinfeld's replacement will be Peter Löscher, 49. Löscher is currently president of the Global Human Health division at Merck Co., the New Jersey spin-off of the original German pharmaceutical, which ranks as the third largest drugmaker in the United States.

Löscher is a graduate of the Harvard Business School and has held numerous senior management positions in the healthcare field, including Germany's Hoechst which merged with French pharmaceutical Rhone-Poulenc to become Sanofi-Aventis and General Electric's Amersham in the UK, which competed against the medical devices unit at Siemens.

Although Siemens is Europe's largest producer of medical diagnostics and its health-care division accounts for about 12 percent of the company's total turnover, Löscher would be presiding over a giant conglomerate, which manufactures far more -- everything from household appliances to gas turbines and high-speed trains.

Siemens AG is the largest listed company on the DAX with a market capitalization of about 83 billion euros ($112 billion) and employs some 487,000 people worldwide. In comparison Löscher oversees 35,000 employees at Merck, and has never been a top executive of any company before.

Löscher not part of Germany Inc.'s old-boy network

However analysts say he has inspired investor confidence as an outsider, the first time ever that the head of Siemens is not an internal candidate who has risen up through the ranks.

"Löscher's appointment is certainly a cultural shock for Siemens, but a clean break was absolutely necessary," Jürgen Kurz, spokesman for the German shareholder's association (DSW) told DW-WORLD.DE. "Kleinfeld's replacement had to be an outsider, otherwise there's always the fear lurking in the background that some other corruption charge could rise to the surface."

Kurz added that pressure from the US Securities and Exchange Commission meant that Siemens, which has been listed on the NYSE since 2001, needed to emerge squeaky clean from bribery charges for overseas contracts in the order of 420 million euros.

As an Austrian, whose global career has meant postings in the US, Spain, the UK and Japan, Löscher has never assumed a leadership role in any German blue chip company, added Kurz.

"So he's not tainted by the old-boy network that is Germany, Inc.," he said.

Predecessors performed well, but were tainted by scandal

That Löscher will be assuming the top job on July 1, at a time of record profits, is an added advantage. The entire group's operating profits rose to nearly 2 billion euros for the first six months ending March 31, which is about 50 percent more than over the same period last year, according to Marc Langendorf, financial spokesman for Siemens AG.

Langendorf dismissed concerns that Löscher does not possess the breadth of experience in other industrial sectors.

"As the head of a conglomerate, he doesn't need specialized knowledge in all fields," said Langendorf. "His job as an experienced global manager is to steer the entire Siemens group. Look at Wolfgang Reitzle. He came from the auto industry and had no experience in the industrial gas sector when he joined Linde. But he's done a good job there."

Other analysts have said that Löscher has plenty of homework cut out for him.

"Siemens is a highly complex conglomerate. It would take a good six to 12 months to figure out what half the divisions do," said Ben Uglow, an analyst at Morgan Stanley in London.

The choice of Löscher as an "unimpeachable candidate," Uglow added, took precedence over the stellar performances of Kleinfeld and von Pierer, who -- guilty or not -- were tarnished by slush fund scandals that took place during their tenure.

Uglow conclude that the jury is still out on Löscher.

"At the end of the day, it boils down to the individual," he said. "I've seen low profile executives who deliver way beyond investor expectations, and well-known high fliers who don't."