New Broom at Siemens

By Bill Saporito

Brought in after a bribery scandal to present a fresh face of reform to German engineering firm Siemens, former Merck executive Peter Loescher has ratcheted up accountability and cut down on management committees. He talked with TIME's Bill Saporito about the challenge of change.

Siemens has just delivered a nasty surprise to investors, forecasting a $1 billion earnings shortfall. What happened?

Last quarter I said that we're doing a thorough assessment of projects across our company. This is completely in line with the principles of openness, transparency and accountability that are at the heart of how we're re-energizing our organization. We expect charges of 900 million euros [$1.4 billion] in our second quarter, based on the results of a thorough review and audit of turnkey and other similar projects. This is a painful but necessary step toward getting our businesses moving forward faster. It's also a step that will bring about a "no surprises, no excuses" Siemens culture going forward.

Your predecessor introduced a strategy around three segments--health, power and transportation--tied to the growth of megacities like Beijing. Are you changing it?

The good thing is that we have absolutely the right strategy. It was developed under the leadership of Klaus Kleinfeld and his team. So I didn't have to change strategy at all. There's a strategic program called "Fit for 2010," which Klaus announced three or four weeks before he left. It's quite unusual that the outgoing CEO is announcing a program for the incoming one, but it's absolutely the right thing to do for the company.

Is part of that strategy moving manufacturing to lower-cost countries to boost profits?

We have obviously high-end global products. But to be successful in emerging markets, you have to think about what are [called] value products, which are then basically designed in China, engineered in China, manufactured in China and for the world.

One of Siemens' issues in the scandal was management accountability. How are you reforming the system?

We introduced the CEO principle. So we now have single, individual business leaders running and being responsible for global businesses. Siemens was fundamentally organized around committees, and now you have single accountability. You have clear alignment of responsibility and accountability. That's the key cultural change.

So what was the problem within the culture?

Where we failed was leadership culture, not company culture. This is a key difference, because as a company culture, we never stood for this. But from a leadership-culture perspective, the leadership culture has clearly failed because there were instances--and more than one instance over a period of time--in which these things happened.

Has the scandal made it difficult to get business in some countries?

We have enough business opportunities in which we can drive profitable growth. And a good indication of this is what we currently have in our order books. So it's less a question of countries; it's more a question of potential. You know, there are certain customers I don't want to deal with, or there are certain projects I have no interest in.

What will be among your next priorities?

Diversity. As a global company, we have to represent the diversity of our customer base. You know, we should have the best Chinese leader leading [Siemens] China with the best Chinese team. We should have the best Indian leader running [Siemens] India with the best Indian team. We are very fortunate because we did a fantastic job in the U.S. In the U.S., we have the breadth and depth and connectivity that we need to have to really be an American company.

You've put your money where your mouth is and bought stock in Siemens.

I paid out of my own pocket 4 million euros [$6.3 million], and then the next day, my whole leadership team followed, and they bought out of their own pocket. We have to really demonstrate to the organization the confidence that we have in the future of the company. In the U.S., it is nothing [special]. For a Germany-based, European-based company, it was quite unusual.