Closing In on Deutsche Telekom's Beleaguered Boss

German Chancellor Gerhard Schröder and Deutsche Telekom CEO Ron Sommer used to be close, but all that has changed as a tough re-election vote nears and the price of Deutsche Telekom stock, owned by some three million Germans, continues to languish. The stock has plummeted nearly 90 percent in the last two years.

Ron Sommer has found himself deserted by his one-time friend, and has had to watch as Schröder’s Social Democratic government, which owns 43 percent of Telekom’s shares, began a behind-the-scenes search for someone to replace him. The Chancellor, as one party strategist put it, "is worried about how Telekom has ruined ordinary people’s money." In the party’s opinion, Sommer has become a liability that Schröder cannot afford.

But Schröder’s move to oust the 52-year-old Sommer, who has been at the Telekom helm since 1995 and presided over the company’s partial privatization in 1996, has met with vocal resistance from several sides.

Harmful Meddling

While government officials said a possible successor could be announced as early as Friday, executives at Telekom have thrown their substantial weight behind their boss. Several board members have said Sommer alone is not responsible for Telekom’s dwindling fortunes, "the entire management shares responsibility for the group’s strategy," board members Josef Brauner and Kai-Uwe Ricke told the Financial Times.

On Friday, the deputy head of the board, Rüdiger Schulze, added his voice to the chorus coming to Sommer’s defense. He said change at the top now could translate into lost jobs and stressed that any decisions about new leadership should be made by the Deutsche Telekom board in Bonn, not the government in Berlin.

"Telekom is a stock corporation now, no longer a federal authority," he said.

Critics are accusing the Chancellor’s of meddling in business affairs because of politics and of possibly harming the company’s standing. That sentiment was echoed in a letter, signed by more than 18,000 Telekom employees, which appeared in German newspapers on Friday.

"Deutsche Telekom has become a central issue of the election campaign and could suffer considerable damage as a result," it read, also warning that Germany’s business reputation is at stake.

It is also being reported that the company is planning a weekend advertising campaign that features high-profile business leaders warning about political interference in corporate affairs.

Dual Strategy

It is widely believed that Shröder’s office has initiated the efforts to find a replacement since it has felt pressure to do something to reverse Telekom’s stock plunge before elections on September 22nd.

This weekend, German media reported that at a Telekom board meeting, a replacement for Sommer had been found: Gerd Tenzer, at current in charge of Telekom's technical division.

The Chancellor insists that any decision regarding the chief executive lies with the supervisory board, which is gathering for a special meeting on Tuesday where Sommer’s fate will top the agenda.

His dual strategy that looks like it is backfiring.

Schröder denied critics‘ allegations on Friday, saying he would not play a role in the decisions affecting Sommer’s future at Telekom, insisiting that in the German system "only the supervisory board can make personnel decisions."

Sommer himself has been keeping a low profile. He did give an interview in the mass-circulation Bild newspaper on Thursday, in which he avoided directly answering a question about his future at Telekom, saying the important thing is the company, not the person at its head.

"My primary interest is that the company isn’t hurt," he said.

Rocky Tenure

Sommer took over the reigns of Telekom in 1995. His task was to turn the lumbering government ministry into a sleek, partly privatised high-tech powerhouse. But the road toward that goal turned out to be a bruising one.

Repeated attempts to expand abroad fell through, the most glaring example being the failed 1999 merger with Telecom Italia SpA. Last year, Sommer paid $38 billion to get a foothold in America when he bought the loss-making mobile phone provider VoiceStream Wireless.

These kinds of moves drove Telekom’s debts into the stratosphere. Now it stands at over 67 billion euro ($66.3 billion). The company has lost nearly 270 million euro ($267 million) in market value since March 2000.

Part of Sommer’s strategy to remake the company was its partial privatization in 1996, in which "T-shares" were sold. In some ways, the stock offering was more than just a privatization process, it was a way of coaxing risk-averse Germans into the stock market, preparing them for the overhaul to the German welfare state that is coming. Those new shareholders have been burned.

This month, Telekom stocks hit a record low of 8.19 euro ($8.14), well below the initial 14.32 euro ($14.17) price. And a full 90 percent below the stocks’ 105 euro high during the Internet boom two years ago.