Listen to the podcast:
The toughest leadership task for Dieter Zetsche, chairman of the board of management of Daimler AG and head of Mercedes-Benz Cars, was engineering last year’s breakup of Daimler and Chrysler.
Zetsche lived in Detroit for five years while trying to spearhead a turnaround at Chrysler — an effort that included appearances in Chrysler’s humorous “Ask Dr. Z” television commercials, where his signature walrus mustache made him a minor celebrity.
Then, in 2006, after he became CEO of the German parent company, he faced a new set of leadership responsibilities. “My five years as CEO of Chrysler were personally among the very best of my life, but I still had to put my feelings aside and view the situation objectively from a business perspective,” said Zetsche during a recent Wharton Leadership Lecture.
In 1998, Chrysler and Daimler announced they would join forces in a $37 billion stock swap, creating a new company that had 442,000 employees and a market capitalization of nearly $100 billion. While the deal was touted as a “merger of equals,” two years later Daimler installed a German management team. Within 12 months, the company’s market capitalization had sunk to $44 billion.
Zetsche said that while the companies had made strides with some new products, the market had changed for the worse in 2005 and 2006. “More had to be done — and quickly. There was also mutual recognition on both sides of the Atlantic that we had maximized the synergies of Chrysler and Daimler, given that the level of cooperation was less than we originally expected it would be.” In retrospect, the companies had overestimated the potential for passing leading-edge technology from Mercedes-Benz to Chrysler.
Meanwhile, Zetsche noted, Chrysler’s pension and health benefit obligations had soared to $50 billion and, he learned, could hit $100 billion in a worst-case scenario. The Chrysler benefits “posed a significant threat to the entire company.” Without Chrysler, Daimler would experience less volatility and could focus on the premium market it knew best.
During the height of the private equity boom last summer, he was able to sell 80% of Daimler AG’s equity in the U.S. automaker to Cerberus Capital Group. “Although it was a tremendously difficult decision to make, I’m confident we found the solution,” he said. In the fourth quarter of 2007, Daimler’s profit jumped to 1.7 billion euros from a net loss of 12 million euros in the same quarter a year earlier, before the breakup.
The Chrysler sale illustrates the importance of making opportune decisions, according to Zetsche. Indeed, when Cerberus had trouble selling $20 billion in debt to finance the deal, Wall Street recognized the beginning of the current credit crisis. “We have an obligation to make the right decision — not the convenient one or the one we would like to make. These decisions need to be made on the best possible information in a timely manner.”
Today’s wealth of analytical tools makes it easy to fall into a trap of endless meetings that he labeled “analysis paralysis.” Just as too little information can hurt you, “too much information can, too. There is such a thing as information overload. Keep in mind that no decision is also a decision. A delay may result in an undesirable decision.” Zetsche said the Chrysler divestment could not have been financed if it had occurred one or two weeks later. “I didn’t see the credit crisis, but once we made the decision, my gut told me we had to move forward with all deliberate speed.”
His most difficult period at Chrysler was spring 2003. He had arrived in Detroitin November 2000 and begun a major restructuring. The company was meeting milestones, but after the September 11, 2001, terrorist attacks in the United States, automakers initiated marketing incentives that drove down margins for the entire industry. “Things got really bad in the first quarter, and by the second quarter, we were going to show significant losses,” said Zetsche. Earlier in the restructuring, he could blame problems on prior management. This time, the losses were coming on his watch.
“That was not my plan and it was not what I was used to,” he continued. Zetsche had to step up and face Wall Street analysts. “I explained what happened and what we would do to recover. For a time, I lost credibility. But by just [being up front] and explaining how we would dig ourselves out, I think we recovered pretty fast…. I have to say that personally, in five years at Chrysler, this was my most important quarter. The toughest thing is to see your convictions fail. That’s when you really have to deal with your personality and grow as a person. Those are the cases that are more important than the successes you have.”
Avoiding a Backlash
Zetsche identified three traits of leadership he feels are most important: competence, responsibility and authenticity. Referring to competence, he emphasized that “if your people sense you are not prepared or don’t have the right stuff to get the job done, you’re in trouble. Even if they don’t like your personality, they will respect your ability.”
Successful leaders must then build on competence to create a sense of common purpose. He described a three-year initiative at Mercedes-Benz to reduce costs and improve quality. A massive undertaking like that at any company is likely to trigger some backlash, Zetsche noted. Some employees may complain that the goals are sound but the approach is wrong. Others will grumble about added administrative reporting. Still others will dismiss the initiative as a problem they believe will go away if they ignore it long enough.
“As a leader, you have to be consistent in implementing the program and making very clear that sitting out is not an option,” said Zetsche. Good leaders make change and common goals part of the corporate culture. “The key for any leader is to make sure everyone on the team is on the same page and understands where he or she is going,” he said, although he acknowledged that “dealing with a highly diverse global organization is easier said than done.”
Zetsche also explored the level of responsibility leaders face. He said a sign reading, “The Buck Stops Here,” on President Harry Truman’s desk best illustrates his point. “That remains a simple and powerful statement about the responsibilities of leadership. As a leader, you simply can’t pass tough decisions up and down the line and neither can the people in the organization.” The Chrysler saga, he said, was driven by the responsibility he had to do what was best for the company.
One downside of technological advances that allow people to work 24 hours a day seven days a week is that it also tempts them to avoid making decisions. “What it boils down to,” he said, “is if you accept the position of leadership, you have to accept full responsibility. It’s not all fun and games.”
Effective leaders seek new opportunities as they climb the corporate ladder, Zetshe added. “Engineers shouldn’t shy away from business, but should develop other interests … and transferable skills that allow you to move cross functionally across an organization.”
Zetsche’s years working abroad in Brazil, Argentina and the United States were among his most memorable. Other Daimler employees who have worked in China will say it was their toughest assignment, but the most valuable. Attitude is important, he stressed. “If you make the numbers, but fail to live the company values, you probably won’t last long in any organization.”
Zetsche spelled out four corporate values that are at the heart of the company’s culture. The first is passion: If a Daimler employee is not excited about cars, he or she is in the wrong business. The second value is respect — for customers and shareholders — but also for colleagues and business partners. Third is integrity. Even when local practice is otherwise, he said, Daimler holds itself to the highest standards of ethical behavior. The fourth value is discipline. “Discipline might sound like Germans clicking their heels and saying ‘Yah Vol,’ but that is not what we have in mind. When we talk about discipline, what we mean is the ability to choose the truth over convenience.”
Not Everyone Can Be John Wayne
Zetsche then turned to the third critical trait of leadership. “Leaders have to be authentic,” he said. “You have to be the real deal.” Don’t pretend to be John Wayne if that description doesn’t fit you. “And if you are John Wayne, don’t pretend to be Woody Allen. If you try to be someone you are not, the analysts and the media will see right through it.”
Zetsche was asked about leading across cultures. Some stereotypes seem based in individual cultures, he noted, such as the notion that American businesses have a relaxed style and German managers hold long meetings. “At the end of the day, my experience is that those differences are minor. I’ve worked in a number of places, and for me, the same issues are important everywhere. People want to see that you mean what you say and want to believe in your word. If they feel you are not straightforward, you are lost. This is important whether you work in Asia or Africa or wherever.”
He was asked how leaders can measure their own success as they progress in their careers. “The more you climb up the ladder, the more people will tell you what a great guy you are,” Zetsche said. “The worst trap you can fall into is believing them. It’s important to encourage people to give you feedback and to disagree if they have a different opinion. It depends on your reaction. Otherwise you are totally alone. You will lose touch and ultimately make decisions which are really dumb.”
As for ethics, Zetsche said some leaders facing business problems might be tempted to try to cover up their difficulties for a quarter or two. “When you are in trouble, you might be able to hide for a short period of time. This is not unethical, but it is a thin layer. Anything beyond that won’t rescue your business. It will just put you in a worse position.”