THATCHER CONQUERS GERMANY
Rhineland capitalism is being ditched by businessmen in favour of the Anglo-Saxon model says Geoffrey Owen
THE Vodafone bid for Mannesmann, and the German reaction, have given the British Eurosceptic press a field day. Here is a hugely successful British company, symbol of Cool Britannia, pitting itself against a backward-looking German establishment. Look how German politicians and trades- union leaders are rushing to Mannesmann's defence; listen to them moan that Anglo- American hostile takeovers run counter to the principles on which Germany's social- market economy has been built. It's crude protectionism! cries the Sun: confirmation that the way the Germans run their econo- my is totally at odds with free-wheeling, free-market Britain.
This is all good fighting stuff, but has lit- tle bearing on what is actually happening in Germany. Some Eurosceptics seem not to have noticed it, but German industry is going through a remarkable process of Americanisation. It is not too much of an exaggeration to say that the Rhineland or 'stakeholder' version of capitalism, with its stress on consensus and social partnership, is giving way to something much closer to the Anglo-American model. Chancellor Schroeder may not like what is going on, but there is not much he can do to stop it.
A good example of the transformation, ironically enough, is Mannesmann itself. Like a growing number of German compa- nies, it has of late been behaving in a highly Anglo-American fashion. Once a manufac- turer of steel and steel tubes, it has plunged aggressively into telecommunications; its latest non-German acquisition (which may be unscrambled if the Vodafone bid suc- ceeds) was Orange, the third largest British mobile-phone operator. Klaus Esser, Man- nesmann's chief executive, has announced plans to hive off the company's steel and engineering interests so that all its energies can be devoted to telecommunications. Shorn of its links to low-growth industries, Mannesmann would be even more highly rated by the stock market, and better placed to make acquisitions — whether friendly or hostile.
This is the American way of doing busi- ness. Part of the reason for the strength of American firms in electronics and other 'high-tech' industries is their access to a large and sophisticated capital market, which facilitates the buying and selling of companies and the supply of finance for new entrants. To match this competition Germany will have to develop similar financing arrangements, and a good deal of progress has already been made; the Neuer Markt, a new stock market for start-up firms loosely modelled on Nasdaq in the US, has been a great success. At the same time the big, established companies are learning new tricks. Siemens, for example, recently decid- ed to 'de-merge' its semiconductor sub- sidiary and float it on the stock market. As an independent company rather than as part of a vast conglomerate, this business should have a better chance of keeping pace with its nimble rivals in Silicon Valley.
Another factor is the growing influence of Anglo-American financial institutions as shareholders in German companies. Ger- man managers cannot afford to ignore this constituency, especially if they want to raise capital in New York or London. Many of them are seeking advice from American investment banks such as Gold- man Sachs and Morgan Stanley, both of which have been at the heart of the recent restructuring.
The un-German words 'shareholder value' now figure prominently in chairmen's speeches, and this is not just a matter of rhetoric. Men such as Juergen Schrempp at Daimler-Benz, Ulrich Hartmann at Veba and Juergen Dormann at Hoechst have been doing things with their companies that would have been unthinkable a decade or so ago — selling off unwanted businesses, getting rid of unnecessary overheads, searching actively for acquisitions at home and abroad. Like many British executives they model themselves on Jack Welch of General Electric, America's most admired industrialist. One of Welch's guiding princi- ples is that every business in his empire must be number one or two in the world; any operation that does not meet this target must be fixed, sold or shut down. The new breed of German managers may not have completely embraced Jack Welch's philoso- phy, but they are not far off.
The one remaining taboo is the hostile takeover. German businessmen are not averse to making contested bids in other countries — Siemens, for example, teamed up with Lord Weinstock's GEC in a success- ful assault on Plessey, the British electronics company, in 1989 — but they are reluctant to treat their compatriots in the same way. One of the few who did so was Gerhard Cromme of Krupp. In 1991, impatient with the slow progress of rationalisation in the steel industry, he launched a bid for fellow steelmaker Hoesch and scored a famous vic- tory. But a few years later, when Cromme turned his guns on a much larger target. Thyssen, he ran into a wall of opposition. Although the two companies later agreed to a friendly merger, the failure of the bid seemed to confirm that 'Wild West tactics' would never be acceptable in Germany.
A more important obstacle is the presence in most German publicly-quoted companies (though not, as it happens, in Mannesmann) of a dominant shareholder — usually anoth- er industrial company or a family — which regards its investment as effectively perma- nent; the Quandt family's stake in BMW is a well-known example. Unlike British or American fund managers, these investors are not interested in making a quick profit by selling their shares to a takeover bidder. But long-termism has its limits. If BMW's future as an independent company began to look precarious, there would be nothing to stop the controlling family from selling out.
The interests of other shareholders, moreover, have to be given more weight than in the past. German as well as non- German investors have become much more vociferous when the companies in which they hold shares perform badly. They will want to be convinced that staying indepen- dent will deliver at least as much share- holder value as acceptance of a takeover offer, even if the management opposes it. These are the grounds on which the Man- nesmann directors are fighting the Voda- fone bid, and that is as it should be.
German politicians may play the nation- alist card in the hope of protecting Man- nesmann from the British invader, but businessmen are moving in a different direction. The issue for them is not whether the Rhineland model can be pre- served, but how quickly they can catch up with the USA. This may disappoint advo- cates of stakeholder capitalism, but Thatcherites should be delighted.
Geoffrey Owen's book, From Empire to Europe: The Decline and Revival of British Industry Since the Second World War, was published recently by HarperCollins.
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