2012 CFOs to Watch

Siemens CFO Joe Kaeser argues that multinationals must work to restore confidence in the economy.

Siemens says it’s “addressing the world’s toughest questions” in its corporate brochure, an assertion that is certainly borne out by the views of Joe Kaeser, its CFO since 2006, who joined the company in 1980. As finance chiefs focus on gauging the impact of the European debt crisis on their own businesses, Kaeser believes multinational corporations have an even more fundamental role to play in restoring confidence in the economy. “Our biggest task right now is that we go out to the public and our customer base and work with them on how we can help them finance their projects—and how we can help them to gather more confidence again to invest into the opportunities of the global market,” says Kaeser, who was previously chief strategy officer.

“It is important that all over the world CFOs, CEOs and other industrial leaders go out and provide encouragement to employees as well as to the global society. Politicians and many governments in Europe—and also, I believe, in the U.S.—are just not able to provide the confidence it takes that the economy will resume again and trust is being provided. We need to take on that leadership because we can make it happen.”

Siemens, which in 2010 reported revenues of almost 76 billion euros ($100.7 billion) and 405,000 employees, is well-positioned to take on such a role. Having overcome a major corruption scandal in 2006 that still lingers in U.S. courts, the electrical engineering giant is accustomed to facing problems head on. Siemens replaced its CEO in 2007 and the same year launched the Fit For 2010 program, which Kaeser says was effectively a change management program.

“The reason why the compliance crisis has been a blessing after all is that it was the catalyst for fundamental changes in how the company had been operating—cultural changes as well as significant changes to internal controls, the way in which we go to market and how we have been setting up our company,” he says.

Meanwhile, the company introduced a financial operating model called One Siemens that focuses on capital efficiency. “This replaces all the programs which the company has been doing over the last two decades with one operating model, which is designed on the basis of our performance against competitors,” says Kaeser. “It also provides capital structures for the company based on peak-to-trough profitability for each and every sector we are active in. Since fiscal 2011 we have managed the company in a very transparent way—all the stakeholders know what our model looks like, how we report and how we measure performance.”

Bolstered by these changes, Siemens was in a better position to weather future crises, and Kaeser says that the company was ahead of the curve in forecasting the issues caused by the European debt crisis. Among other things, the company reduced its capital spending and introduced more flexibility into its operating models, including how EBITDA target bands are set.

While Kaeser says CFOs have a part to play in restoring confidence in the global economy, he doesn’t think the role of finance chiefs is changing and becoming more strategic. First and foremost, he believes in getting the job done.

“CFOs are better off staying where they are,” he says. “If it comes to 100% financial integrity, they’d better be up to speed on risk management and they’d better know their numbers inside out and backwards. If they still have time after all of that, they can participate in the icing of the cake of entrepreneurial leadership, which is also to co-lead the company—but only in that order.”

Among Kaeser’s notable achievements was the establishment of Siemens Bank, part of the wider stable of Siemens Financial Services (SFS) companies. He applied for a banking license in 2009 and won approval from the German Financial Supervisory Authority in 2010. Located in Munich, Siemens Bank focuses on providing the company’s customers with loans for project and investment financing in Germany—although cross-border activities are planned in the future.

“Through Siemens Bank, we can help financing, and accelerate and act as a catalyst for big industrial projects,” Kaeser says. “We can do liquidity management with the European Central Bank and we can do repo management with the Deutsche Bundesbank. We are a fully fledged infrastructure financial institution which can help push and serve the needs of the business. These are massive and powerful tools that most of our competitors don’t have.”

A small number of companies have their own bank, but Siemens uses “that financial asset management professionally to first and foremost serve the industrial business, and not make it a purpose on its own,” Kaeser says. “That’s the interesting and important recipe—that you develop a powerful financial arm, but that arm doesn’t go out and take the risks that the banks and insurers have been taking. The key is to take all the tools you’ve got as a financial institution and apply those primarily to serving the industrial business.”

As for the obstacles currently looming, Kaeser says the negative effect the European debt crisis could have on the global economy has been heavily overstated. For global companies, he points out, geographical boundaries need not apply. “Greece will always be in Greece—they cannot move to Brazil, or to China or India,” he says. “But we as a global company at any given point in time can reallocate our resources elsewhere in the world. This is a very important differentiation for any global company with a decent footprint—that they can see and access the opportunities that the whole planet brings about.”

Those are certainly opportunities that Siemens will be looking to exploit in the coming year. Kaeser says the biggest growth potential is not to be found in the BRICs—Brazil, Russia, India and China—but in the second-tier emerging markets known as the CIVETS: Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa. In addition to putting local R&D resources in place, the company has introduced academies in some of those markets to train local college graduates in the science, technology, engineering and mathematics skills required for Siemens jobs.

Operating in emerging markets is not without its challenges, but as Kaeser points out, Siemens has long had a presence in many of these countries—for over 100 years in Egypt, Indonesia, Turkey and South Africa and over 50 years in Vietnam. “We have an established brand in those countries and people know that Siemens is a global company which has a lot of expertise in how to build out those systems.”

Meanwhile, the company launched a new infrastructure and cities division in October, another significant milestone. This business will focus not just on addressing the infrastructure needs of fast-growing urban environments but on helping cities in developed economies reduce their infrastructure costs while still providing better services. “No one in the world has that setup,” he says. “That’s what makes me very excited about it.”

This initiative could also mean a bigger role for Siemens Financial Services. “The [infrastructure and cities] sector aims to use SFS more actively going forward to facilitate business, for example by pre-financing energy savings from efficiency investments or advice and contribute to public-private joint infrastructure financing,” Andreas Willi, head of European capital goods equity research at J.P. Morgan, said in a research note. “To date, SFS was mainly used in Transport and [Siemens Building Technologies] but will now be expanded into other areas with asset growth expected to be higher than overall sales growth, increasing the share of SFS. We see this as a competitive advantage at a time of tight fiscal budgets and de-leveraging of banks and Siemens may gain share against competitors without in-house Financial Services.”

Despite his optimism about the economy, Kaeser sees difficulties ahead. “There is a lot of financial turmoil still coming. The banks certainly will have a challenge to get all those imposed equity percentages into their balance sheets,” he says. “And sooner or later, if this debt crisis and the governments push the banks to their limits, that will inevitably result in a fundamental credit crunch and a significant challenge for refinancing companies which do not have access to the global bond markets.”

Asked about his plans for the coming year, Kaeser is circumspect: “Whatever you do strategically, it’s better to do it first and then talk about it later than the other way round.”

Nevertheless, he is focused on the role Siemens has to play in navigating the crisis: “Our compliance crisis was not so much about the money which we needed to pay but about keeping our license to do business. In order to get that right, you have to get the best people you can potentially have and then get them motivated.

“This is now what we need to do with the European debt crisis: Show the way, and then people will listen and participate and we will start the global wheel spinning again,” Kaeser says. “We’ve been here for 165 years, we’ve mastered all sorts of crises—and we will also be mastering the next one.”

 

 

Read about EADS CFO Hans Peter Ring here and Live Nation CFO Kathy Willard here.

 

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