A Letter from a CEO to his Investor… that Killed his Career

By | 24/04/2017

Klaus Kleinfeld, former CEO of German industry giant Siemens, resigned from his position as CEO of Arconic a specialty metals producer spun-off of aluminum producer Alcoa Inc. Kleinfeld resigned after a letter that he had written to Paul Singer, founder of $33 billion hedge fund Elliott Management. Elliott owns a 13 percent stake in Arconic and had launched a campaign to oust Kleinfeld suggesting that Arconic’s stock performance lagged industry peers. Over the past year, both sides have exchanged a range of public announcements refuting each other’s claims. According to the Business Insider, Elliott nominated five directors to the board in January and suggested Larry Lawson, former chief executive officer of aircraft parts supplier Spirit AeroSystems Holdings Inc, should run the company.

Kleinfeld sent his letter using his private letter head rather than a corporate letter to Paul Singer directly, but obviously using his Arconic office as the sender address and an Arconic messenger. In three quite ominous paragraphs, Kleinfeld suggests that he knows some embarrassing details of Paul Singer’s behavior during his visit to the 2006 World Cup in Germany, together with his family. It is indeed less a dull piece of business correspondence than a colorful short story with poetry-like elements that leaves the reader with an image of Singer performing “Singing in the Rain” in a fountain, wearing a feathered headdress. Not to forget that Kleinfeld also enclosed a soccer ball. (The full letter can be found here: April-11-letter-from-Klaus-Kleinfeld)

Elliott legal department sent the letter (and the ball) back to Arconic’s board with a reply on its own, which leaves no dounts that it wasn’t received very well: “While much of what it says doesn’t make sense, we do understand Dr. Kleinfeld to be making veiled suggestions that he might intimidate or extort Mr. Singer. This is highly inappropriate behavior by anyone and certainly by the CEO of a regulated, publicly traded company, in the midst of a proxy contest, and it raises a number of obvious issues.” (The full reaction letter can be found here: April-12-Zabel-Letter-to-Arconic-Board).

Arconic eventually announced last week that chief executive Klaus Kleinfeld resigned after it found he sent a letter in “poor judgment” and without consulting the board. But Arconic at the same time reconfirmed its overall strategy developed under Kleinfeld and stated that it would not give in to pressure from certain investors to refocus its strategy. Only three days later Kleinfeld also resigned from his position on the board of Morgan Stanley. In a – for now – final step, Elliott said that Arconic’s statement was to defend Kleinfeld and “should be enough to prove that Arconic’s Board simply lacks the judgment to steward Arconic.”

 

2 thoughts on “A Letter from a CEO to his Investor… that Killed his Career

  1. Natalia

    Good that you published this story…
    well, how many such “letters” have been sent and accepted well! Unfortunately.

    Reply
    1. Nils Koenig Post author

      Hi Natalia, so true! Such communication is – for a good reason – usually hidden for us outsiders. And so the more interesting to be able to observe the full exchange, be it via letters, press releases or meetings 🙂

      Reply

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