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Automatic braking

13 August 2020 By Ed Cropley

Does every company really need a chief executive? German brakes maker Knorr-Bremse is presenting a cogent case for leaving the corner office vacant after parting ways with its second leader in little more than a year. Majority shareholder Heinz Hermann Thiele’s shadow may loom uncomfortably large. But the 79-year-old knows the track well. That, coupled with Knorr-Bremse’s clear direction of travel and absence of close rivals, makes a main driver an optional extra.

Outgoing Chief Executive Bernd Eulitz, who has quit after just 10 months following clashes with supervisory board Chairman Klaus Mangold, can take scant consolation from the 3.5% decline in the 16 billion euro company’s share price on Thursday morning. At least investors didn’t greet his departure by pushing up the stock. But the market fallout hardly points to a shattering loss.

Eulitz probably deserves little of the credit for the 11% rise in Knorr-Bremse’s share price this year. With no prior experience in the company’s core competence of stopping trains and trucks quickly, the executive was sidelined by divisional heads, Manager Magazin reported in June. Working from home during Germany’s coronavirus lockdown, rather than making regular appearances at the office, as Thiele did, may have eroded his authority further.

The departure points to deeper issues at Knorr-Bremse: Eulitz’s predecessor also lasted less than a year. The company’s two distinct and independent divisions don’t necessarily need a top corporate leader as long as the wheels turn smoothly. Despite an expected 14% decline in sales this year, analysts expect the top line to grow at a double-digit rate next year and almost as much the year after, due mainly to the fast-growing market for rail-braking systems. Its expected 12% operating margin this year looks stellar compared to the 1% forecast for rival German industrial operator Duerr.

Prospective CEO candidates will have to consider such operational slickness, as well as the more obvious difficulties of working, literally, next door to Thiele. Though the billionaire is officially honorary chairman, he still owns roughly two-thirds of the company he first joined in 1969, and he joined the supervisory board in May. His continuing influence is hardly a model of good corporate governance. Yet as long as he remains willing and able to grab the wheel, there seems little point in rushing to recruit an associate.


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