6 in Germany Settle Landmark Case on Bonuses (NYTimes, 11/25/06)
November 25, 2006
6 in Germany Settle Landmark Case on Bonuses
By MARK LANDLER
FRANKFURT, Nov. 24 — Nearly seven years after he and other board members handed out thank-you checks for $73 million to the departing executives of an acquired German telecommunications company, Josef Ackermann has learned the high cost of his generosity.
Mr. Ackermann, the chief executive of Deutsche Bank, will pay 3.2 million euros ($4.2 million), as part of a settlement Friday with German prosecutors that will end a landmark criminal case. He and three other directors were accused of improperly enriching the managers of the telecommunications company, Mannesmann.
Klaus Esser, the company’s former chief executive, will pay 1.5 million euros. He received the bulk of the disputed bonuses after capitulating to a $183 billion takeover bid by Vodafone of Britain in early 2000.
In return for the payments, prosecutors will drop charges of criminal breach of trust that in the case of Mr. Ackermann could have cost him his job at Deutsche Bank, Germany’s flagship financial institution.
For the bank, the settlement lifts a legal cloud that had shadowed its otherwise prosperous performance in recent years under Mr. Ackermann’s aggressive foray into trading and investment banking.
A state court in Düsseldorf will review the settlement, and legal experts said that would probably happen on Wednesday.
Through six years of investigations, a trial, an acquittal and yet another trial, the Mannesmann case has come to symbolize the abiding resentment of many Germans for the sky-high executive compensation packages that are common in the United States, but still fairly unusual in Europe.
While this case is now almost certain to end without a conviction, legal experts said the size of the financial penalties would make board members at other German companies think twice before giving top executives anything beyond the euros stipulated in their contracts.
“This will sharpen the conscience of board members that they are not the owners of companies, but trustees for the owners,” said Theodor Baums, an expert in corporate governance at Goethe University in Frankfurt. “It takes away a certain discretion from the supervisory boards to reward people.”
Mr. Ackermann said he would pay the settlement out of his own pocket — a penalty that will sting, but only up to a point. During the trial, he testified that his annual income — including salary, bonuses and interest income on investments — was 15 million euros to 20 million euros.
The size of the payments was calculated based on the income of each defendant. Joachim Funk, the former chairman of Mannesmann’s supervisory board, will pay 1 million euros, while Klaus Zwickel, a retired labor leader and former board member, will pay only 60,000 euros.
Legal experts said a financial settlement had been likely ever since a federal court ruled last December that Mr. Ackermann and the other defendants must face a new trial. They had been acquitted of criminal charges in July 2004 after a lengthy trial by the Düsseldorf court.
The blunt and sweeping language used by the federal court in its ruling left little doubt that Mr. Ackermann and the other defendants would face a high hurdle in obtaining another acquittal.
Speaking of the money awarded to Mr. Esser and his colleagues, Klaus Tolksdorf, the court’s lead judge, said: “Such a bonus is nothing other than a waste of money, and that runs against their fiduciary duty. There was no incentive to management as a result of these payments.”
Testifying at their retrial, which began last month, Mr. Ackermann and Mr. Esser said the bonus payments were both a reward for raising the market value of Mannesmann and an incentive for Mr. Esser to see through the smooth integration of the company with Vodafone.
Given Mr. Esser’s fierce opposition to the takeover — which still ranks as the largest — it would have been hard, lawyers said, to argue that he could have played a meaningful role in the integration.
Nonetheless, legal experts said Mr. Esser initially resisted a settlement, since he said he was determined to prove his innocence. On Friday, he noted that the charges were now “off the table.”
Speaking in court on Friday, the prosecutor, Dirk Negenborn, said a settlement was preferable to another lengthy trial in which the penalties might not be any greater than the agreed payments. Six years of legal jeopardy had been a “considerable burden” for the defendants, he added.
Lawyers for Mr. Ackermann agreed, saying that the court would find “no certain answers in this unique case.”
For Mr. Ackermann, a 58-year-old Swiss-born investment banker, the case was a searing introduction to the German judicial system. During the first trial, he spent two days a week in court for six months. He did little for his image when he flashed a V-for-victory sign.
Still, Deutsche Bank steadfastly supported Mr. Ackermann, paying his legal bills and issuing statements on his behalf. But the retrial prompted new questions about whether his legal woes were becoming too big a distraction — not to mention a public relations fiasco.
Deutsche Bank did not issue a statement Friday, though an executive there said the news was greeted with relief.
“It’s a lot of money, but he’s free to carry on as chief executive, and he doesn’t have a criminal record,” said the executive, who spoke on condition of anonymity because of the pending court decision.
Analysts also welcomed the resolution of the case, which has always been viewed outside this country as something of a German curiosity. Mr. Ackermann, they said, could now return full time to the business of running Deutsche Bank.
Under his leadership, the bank has built a hugely lucrative bond-trading operation, based in London. More recently, it has raised its profile in its home market, buying two smaller German consumer banks.
“Ackermann has a good track record,” said Simon Adamson, a banking analyst with CreditSights, an independent research firm in London. “Most of the nervousness about this trial came from the fact that if had been forced to leave the bank, it could have set off a succession battle.”
6 in Germany Settle Landmark Case on Bonuses
By MARK LANDLER
FRANKFURT, Nov. 24 — Nearly seven years after he and other board members handed out thank-you checks for $73 million to the departing executives of an acquired German telecommunications company, Josef Ackermann has learned the high cost of his generosity.
Mr. Ackermann, the chief executive of Deutsche Bank, will pay 3.2 million euros ($4.2 million), as part of a settlement Friday with German prosecutors that will end a landmark criminal case. He and three other directors were accused of improperly enriching the managers of the telecommunications company, Mannesmann.
Klaus Esser, the company’s former chief executive, will pay 1.5 million euros. He received the bulk of the disputed bonuses after capitulating to a $183 billion takeover bid by Vodafone of Britain in early 2000.
In return for the payments, prosecutors will drop charges of criminal breach of trust that in the case of Mr. Ackermann could have cost him his job at Deutsche Bank, Germany’s flagship financial institution.
For the bank, the settlement lifts a legal cloud that had shadowed its otherwise prosperous performance in recent years under Mr. Ackermann’s aggressive foray into trading and investment banking.
A state court in Düsseldorf will review the settlement, and legal experts said that would probably happen on Wednesday.
Through six years of investigations, a trial, an acquittal and yet another trial, the Mannesmann case has come to symbolize the abiding resentment of many Germans for the sky-high executive compensation packages that are common in the United States, but still fairly unusual in Europe.
While this case is now almost certain to end without a conviction, legal experts said the size of the financial penalties would make board members at other German companies think twice before giving top executives anything beyond the euros stipulated in their contracts.
“This will sharpen the conscience of board members that they are not the owners of companies, but trustees for the owners,” said Theodor Baums, an expert in corporate governance at Goethe University in Frankfurt. “It takes away a certain discretion from the supervisory boards to reward people.”
Mr. Ackermann said he would pay the settlement out of his own pocket — a penalty that will sting, but only up to a point. During the trial, he testified that his annual income — including salary, bonuses and interest income on investments — was 15 million euros to 20 million euros.
The size of the payments was calculated based on the income of each defendant. Joachim Funk, the former chairman of Mannesmann’s supervisory board, will pay 1 million euros, while Klaus Zwickel, a retired labor leader and former board member, will pay only 60,000 euros.
Legal experts said a financial settlement had been likely ever since a federal court ruled last December that Mr. Ackermann and the other defendants must face a new trial. They had been acquitted of criminal charges in July 2004 after a lengthy trial by the Düsseldorf court.
The blunt and sweeping language used by the federal court in its ruling left little doubt that Mr. Ackermann and the other defendants would face a high hurdle in obtaining another acquittal.
Speaking of the money awarded to Mr. Esser and his colleagues, Klaus Tolksdorf, the court’s lead judge, said: “Such a bonus is nothing other than a waste of money, and that runs against their fiduciary duty. There was no incentive to management as a result of these payments.”
Testifying at their retrial, which began last month, Mr. Ackermann and Mr. Esser said the bonus payments were both a reward for raising the market value of Mannesmann and an incentive for Mr. Esser to see through the smooth integration of the company with Vodafone.
Given Mr. Esser’s fierce opposition to the takeover — which still ranks as the largest — it would have been hard, lawyers said, to argue that he could have played a meaningful role in the integration.
Nonetheless, legal experts said Mr. Esser initially resisted a settlement, since he said he was determined to prove his innocence. On Friday, he noted that the charges were now “off the table.”
Speaking in court on Friday, the prosecutor, Dirk Negenborn, said a settlement was preferable to another lengthy trial in which the penalties might not be any greater than the agreed payments. Six years of legal jeopardy had been a “considerable burden” for the defendants, he added.
Lawyers for Mr. Ackermann agreed, saying that the court would find “no certain answers in this unique case.”
For Mr. Ackermann, a 58-year-old Swiss-born investment banker, the case was a searing introduction to the German judicial system. During the first trial, he spent two days a week in court for six months. He did little for his image when he flashed a V-for-victory sign.
Still, Deutsche Bank steadfastly supported Mr. Ackermann, paying his legal bills and issuing statements on his behalf. But the retrial prompted new questions about whether his legal woes were becoming too big a distraction — not to mention a public relations fiasco.
Deutsche Bank did not issue a statement Friday, though an executive there said the news was greeted with relief.
“It’s a lot of money, but he’s free to carry on as chief executive, and he doesn’t have a criminal record,” said the executive, who spoke on condition of anonymity because of the pending court decision.
Analysts also welcomed the resolution of the case, which has always been viewed outside this country as something of a German curiosity. Mr. Ackermann, they said, could now return full time to the business of running Deutsche Bank.
Under his leadership, the bank has built a hugely lucrative bond-trading operation, based in London. More recently, it has raised its profile in its home market, buying two smaller German consumer banks.
“Ackermann has a good track record,” said Simon Adamson, a banking analyst with CreditSights, an independent research firm in London. “Most of the nervousness about this trial came from the fact that if had been forced to leave the bank, it could have set off a succession battle.”
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