According to news reports, now former U.S. Mercedes-Benz CEO, Ernst Lieb, seems to have pulled the oldest tricks in the books: getting home repairs done at company expense and charging the company for personal travel. Why, the heads of carpentry shops and sales folks have been known to do the same. Somehow we expect something more creative from a CEO. Using the company’s shipping abilities to evade sales tax on art work. Financing your daughter’s Hollywood film career. Earning commissions from off-shore shell companies for selling the company assets. These are the stuff of CEO-level “iffy†expenses.
Creative though they may not have been, the alleged improper expenses felled Mr. Lieb. Daimler AG cut its successful CEO loose. These are tawdry allegations. Mercedes U.S. had purchased a New Jersey house for Mr. Lieb when he took over U.S. operations after a successful stint in Australia. The New Jersey home is the same one upon which Mr. Lieb allegedly had the work done at company expense. And it was a trip to Australia to visit relatives that was expensed to the company that also raised questions. Those who find themselves in the news for missteps never do make just one mistake. Once questions emerged about other expenditures, such as whether Mercedes should be paying Mr. Lieb’s golf fees and whether it was proper for Mr. Lieb to lease cars in exchange for flight upgrades.
The thing that has the Barometer wondering is not Daimler AG’s swift and certain action in the termination of Mr. Lieb. This kind of disregard for company rules does not leave a board with much wiggle room. It is the press coverage that troubles the Barometer. From a Wall Street Journal story (Vanessa Fuhrmans, “Mercedes-Benz Ousts U.S. Chief,†Wall Street Journal, October 19, 2011, p. B3) comes this head scratcher, “The sudden ouster of the 56-year-old German executive, a well-regarded executive among Mercedes dealers and within the industry came as a surprise given Mercedes’s gains in U.S. sales and market share during his tenure.†Now, is the general rule one that means performance trumps everything? Is the surprise because you cannot fire someone who is doing well? Is sales growth a form of immunity for CEOs? Several lines from another Journal story (Vanessa Fuhrmans, “Expenses Fell Mercedes Boss,†Wall Street Journal, October 20, 2011, p. B1) reflect some odd takes on this story, “Despite high regard for Mr. Lieb’s performance as a manager, the auto maker has become very focused in compliance issues.†Now, what does that mean? That compliance issues are not ordinarily important? Or does it mean that generally performance counts more than compliance?
Here’s yet another puzzler from the same story, “The result, say current and former company executives, is a much higher scrutiny of potential transgressions.†Does this mean that using company funds for personal expenses was not a problem until Daimler ran into difficulty last year with a Foreign Corrupt Practices Act settlement for a $185-million fine? How high was the scrutiny before? Truly, how much scrutiny does it take to find out where the CEO is spending money? A five-minute chat with an assistant and a quick look down the payment ledger ought to net a few clues. Aren’t these kinds of checks fairly routine when it comes to internal audit? And if they were not routine, why not? Or does it mean, focusing on the last part of the sentence, that these were once just “potential transgressions†to Mercedes U.S. and Daimler and not really transgressions? Or does it mean that transgressions are all in the eye of the beholder and the beholder’s perspective changes depending upon how close the pain from a fine for non-compliance is in memory and pocketbook?
Underlying all of the odd language in the media coverage and the shock at the termination of Mr. Lieb is this assumption: You don’t fire a good CEO just because he may have crossed a few ethical lines here and there. Maybe not, but that’s not the makings of a good compliance program. If the janitor used company supplies at his home, we’d fire the janitor. And if a secretary took a family trip at company expense, we’d fire the secretary. What Daimler AG was trying to do, with a great deal of push-back from the press, is correct its culture with a strong message that the rules matter, and that they matter for everyone. Enforcement is to a company what integrity is to individuals. Individuals hold fast to their ethical standards because of integrity. Companies, which consist of groups of individuals, hold fast to their rules and ethical standards when those within the companies know that enforcement is absolute, unequivocal, and egalitarian. Oh, how the Barometer would love to see the changes in expenses reports at Mercedes U.S. and Daimler AG over the next few months! The powerful message of termination rings loud and clear and lasts a good long time. Bet those expenses go down.
If the allegations are true, this is not the stuff of small potatoes. Regardless of amounts involved or gray area interpretations of business vs. personal, these are the kinds of issues that would represent a breach of trust placed in Mr. Lieb by a board that paid him well. Mr. Lieb could afford the trip, the golf fees, first-class upgrades, and the repairs on the New Jersey home. That he would risk harming the relationship with those who entrusted him with so much for such small amounts speaks volumes about his respect for the company, the board, its shareholders, and his character. If you won’t take a pencil, you won’t rob a bank. And if you won’t expense a personal trip to the company, you won’t mislead your board, your shareholders, or your employees. Trust starts and ends with the little tests. In fact, according to the reports, the board gave Mr. Lieb a second chance by asking him after it had found two instances of questionable expenses, to come forward with any others. He did not; the board found another; he is toast. Iffy character can’t lead a company back to compliance.
You can, for your reading pleasure, savor the story in German:
http://www.handelsblatt.com/unternehmen/management/koepfe/warum-der-us-chef-von-mercedes-gehen-musste/5264444.html.
