Deutsche Bank’s CEO Josef Ackerman is Opposed to The Idea of The Non-German Speaking Anshu Jain becoming his Successor. Reason – he finds Jain Unsuitable and has his Own Choice for Crown Prince. For The $55 billion giant, This may Prove The First Step to Losing The Future.
Talk of track record. Run through the company’s latest annual report (FY2010), and you will understand why Jain is good at delivering birdies even off the golf course. The Corporate & Investment Banking (CIB) unit headquartered at London, which Jain heads, contributes to 72.3% of the group’s topline of $42.31 billion. Jain is known today as one of the key architects of DB’s investment banking unit. In 2001, judging his abilities, the-then CEO Rolf Breuer appointed him as the head of the-then rather small Global Markets sub-unit (dealing in debt sales & trading business). It was then just a $1.4 billion-a-year topline earner. Last year, that sub-unit alone made $18.8 billion. Since he came on board, Jain’s story-of-rise at DB has run parallel to the bank’s growth. In 2004, Ackerman himself made Jain the co-CEO of the CIB division, alongside Michael Cohrs (who retired in 2010). And since then, the contribution of this unit to group sales has risen from 15% to 72.3% (FY2010). The slowdown presented the heads of many investment banks an awkward stage to perform on. Jain has done exceptionally well so far. His previous employer Merrill Lynch was forced to its knees in the slowdown-marred 2008 & 2009 (most others of its clan had to endure the boiling pot too). On the contrary, under Jain, Deutsche’s CIB unit remained the mainstay for the group, contributing to 32.8% & 67.3% to its topline during FY2008 & 2009 respectively. While speaking to B&E about Jain’s (and DB’s) performance during the downturn, Paris-based Scott Bugie, Primary Credit Analyst at S&P, says, “Though the failure of Lehman Brothers & Bear Stearns, and the downsizing of other competitors such as Merrill Lynch, UBS, and Morgan Stanley due to the severe troubles of the wider investment banking industry in 2007-2009 provided Deutsche Bank and certain other peers with an opportunity to expand market share in some areas, such as prime brokerage, in our opinion, during the industry downturn and the recession, Deutsche Bank remained in the better performing half of the sector from 2007 to 2009.” Since 2004, except for 2008, his division has contributed between 60-80% to the company’s topline.
Under ordinary circumstances, the head of your largest and most profitable division (the CIB unit recorded pre-tax profits which was 150.9% more than that of the group for the past year, with a manpower count which is only 7.8% of the total), and one which delivers a ROE of 32%, as compared to the group’s 10%, is usually preferred as the most deserving for the CEO crown. Not in Jain’s case. Draw up a table of the five highest annual profits recorded by any division in the history of this 140 year-old company, and it all turns out to be those years since Jain took over as CIB’s head. Now, he is faced with a situation, where the Chairman of the Board of Directors of his “global” company is hell-bent on pitting him against a German, who is more of an academician, and has never worked in a capitalistic set-up before. Between 1982 & early 2002, Weber taught economic theories at the University of Bonn, the Goethe University, Frankfurt and the University of Cologne. And between March 2002 and April 2011, after serving on the advisory panel to the Deutsche Bundesbank, he finally retired as the President of the central bank. Here we ask: if Weber was to wear the CEO robe this day, would he be able to motivate 100,000 plus employees to achieve a 15% ROE target (for the group) that Ackerman so proudly announced for the ongoing financial year? Doubtful.
There is another side to the tale. What if Jain is not chosen? Chicago-based Dr. James Butler, MD of The Rigley Group (former Senior Credit Analyst at Merril Lynch), tells B&E, “The fear is that if an outsider is chosen, you will lose 3 to 4 heads of departments – namely Jain and probably even the Chief Risk Officer Baenziger. And this will turn out to be a huge loss for Deutsche Bank, perhaps unrepairable. If it is internal, you will still lose Jain if he is not chosen. That is like losing you best guide in the dark, dense Amazonian forests.”
The number of M&As and dealings in equity capital markets that Deutsche Bank has undertaken in the recent past and the many that it would be involved in going forward, also requires Jain to be on top. Being an investment banker involved in $42 billion worth of M&A deals & $79.8 billion in IPOs during FY2010 alone, means a direct impact of $7.2 billion to pre-tax profits for FY2011 from just the acquisitions for DB (estimates by DB officials). As London-based Equity Analyst at S&P Frank Baden tells B&E, “The risks attached to DB’s growth are due to the company’s need to remain competitive in the global securities business by diversifying, and with a greater focus on asset management. Also, there are large integration risks related to recent acquisitions.” Asset management, debt and securities business – this is Jain’s homeground, let him play skipper.
Even if we were to overlook performance and talk about the time spent in the company, learning culture, none of the other insider prospects have served so many years under DB’s roof to be as eligible as Jain. All others – Bänziger, Lamberti and Krause are younger at the company. And how about the fact that today, of the 30 most valuable-listed German companies, nine are led by non-Germans? We have an analogy here – American Bob Diamond, was made the CEO of one of Europe’s (and England’s) most treasured banking brands Barclays (in September 2010), based on his performance, despite having a Briton for predecessor (John Varley), and a weaker than usual political links.
Why should Jain be chosen as the next CEO? Because he earns more than Ackerman? [For FY2010, Jain took home $16.7 million in compensation, as compared to Ackermann’s lower $8.99 million.] Actually, a financial firm which earns three-fourth of its revenues from investment banking and corporate banking should have an investment banker to lead it. Barclays (led by Diamond), JP Morgan (Dimon), Morgan Stanley (Gorman), BofA Merrill Lynch (Montag), UBS (Gruebel) – all these firms which earn most of their income through a channel similar to DB, have an investment banker on top. If Weber is politically well-connected, he can serve as the Chairman and keep himself busy with members of the German parliament. The perfect solution would be to create a management structure where there are two co-CEOs – Jain and Bänziger. While Jain will take the Investment Banking division to newer heights, Bänziger (the third-most likely candidate for CEO) can take care of the retail business to give adequate diversification and cushion against the risk of another meltdown soon. Weber as Chairman ensuring political outreach, Jain & Bänziger in place, and risk diversification taken care of, Ackerman should stop his search for an excuse under the garb of hypocrisy. Too slow a succession planning process can kill an organisation, no matter how big. And then, Ackerman can offer no excuse for his procrastination – not even a water-tight travel schedule.
Under ordinary circumstances, the head of your largest and most profitable division (the CIB unit recorded pre-tax profits which was 150.9% more than that of the group for the past year, with a manpower count which is only 7.8% of the total), and one which delivers a ROE of 32%, as compared to the group’s 10%, is usually preferred as the most deserving for the CEO crown. Not in Jain’s case. Draw up a table of the five highest annual profits recorded by any division in the history of this 140 year-old company, and it all turns out to be those years since Jain took over as CIB’s head. Now, he is faced with a situation, where the Chairman of the Board of Directors of his “global” company is hell-bent on pitting him against a German, who is more of an academician, and has never worked in a capitalistic set-up before. Between 1982 & early 2002, Weber taught economic theories at the University of Bonn, the Goethe University, Frankfurt and the University of Cologne. And between March 2002 and April 2011, after serving on the advisory panel to the Deutsche Bundesbank, he finally retired as the President of the central bank. Here we ask: if Weber was to wear the CEO robe this day, would he be able to motivate 100,000 plus employees to achieve a 15% ROE target (for the group) that Ackerman so proudly announced for the ongoing financial year? Doubtful.
There is another side to the tale. What if Jain is not chosen? Chicago-based Dr. James Butler, MD of The Rigley Group (former Senior Credit Analyst at Merril Lynch), tells B&E, “The fear is that if an outsider is chosen, you will lose 3 to 4 heads of departments – namely Jain and probably even the Chief Risk Officer Baenziger. And this will turn out to be a huge loss for Deutsche Bank, perhaps unrepairable. If it is internal, you will still lose Jain if he is not chosen. That is like losing you best guide in the dark, dense Amazonian forests.”
The number of M&As and dealings in equity capital markets that Deutsche Bank has undertaken in the recent past and the many that it would be involved in going forward, also requires Jain to be on top. Being an investment banker involved in $42 billion worth of M&A deals & $79.8 billion in IPOs during FY2010 alone, means a direct impact of $7.2 billion to pre-tax profits for FY2011 from just the acquisitions for DB (estimates by DB officials). As London-based Equity Analyst at S&P Frank Baden tells B&E, “The risks attached to DB’s growth are due to the company’s need to remain competitive in the global securities business by diversifying, and with a greater focus on asset management. Also, there are large integration risks related to recent acquisitions.” Asset management, debt and securities business – this is Jain’s homeground, let him play skipper.
Even if we were to overlook performance and talk about the time spent in the company, learning culture, none of the other insider prospects have served so many years under DB’s roof to be as eligible as Jain. All others – Bänziger, Lamberti and Krause are younger at the company. And how about the fact that today, of the 30 most valuable-listed German companies, nine are led by non-Germans? We have an analogy here – American Bob Diamond, was made the CEO of one of Europe’s (and England’s) most treasured banking brands Barclays (in September 2010), based on his performance, despite having a Briton for predecessor (John Varley), and a weaker than usual political links.
Why should Jain be chosen as the next CEO? Because he earns more than Ackerman? [For FY2010, Jain took home $16.7 million in compensation, as compared to Ackermann’s lower $8.99 million.] Actually, a financial firm which earns three-fourth of its revenues from investment banking and corporate banking should have an investment banker to lead it. Barclays (led by Diamond), JP Morgan (Dimon), Morgan Stanley (Gorman), BofA Merrill Lynch (Montag), UBS (Gruebel) – all these firms which earn most of their income through a channel similar to DB, have an investment banker on top. If Weber is politically well-connected, he can serve as the Chairman and keep himself busy with members of the German parliament. The perfect solution would be to create a management structure where there are two co-CEOs – Jain and Bänziger. While Jain will take the Investment Banking division to newer heights, Bänziger (the third-most likely candidate for CEO) can take care of the retail business to give adequate diversification and cushion against the risk of another meltdown soon. Weber as Chairman ensuring political outreach, Jain & Bänziger in place, and risk diversification taken care of, Ackerman should stop his search for an excuse under the garb of hypocrisy. Too slow a succession planning process can kill an organisation, no matter how big. And then, Ackerman can offer no excuse for his procrastination – not even a water-tight travel schedule.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
