The chronicler of Germany’s postwar years in popular fiction and film was Will Tremper, a film script writer who achieved fame with a movie on the postwar German youth phenomenon (Die Halbstarken, 1956). In the early 1970s, Tremper wanted to make a thinly disguised film about the Krupps—one of many fictional or semifictional versions that periodically passed across German cinema and television screens. But the television channel Westdeutscher Rundfunk was not very enthusiastic about the prospect, and the actor Carl Raddatz, whom Tremper thought would have been ideal for his central figure, was not available. So Tremper wrote a roman à clef instead, which was published in 1973 under the title Das Tall-Komplott.
The book is an attempt to unmask the sinister influence of banks in the German economy. It deals with the fall of a highly charismatic top manager, Benjamin Bach, known as “BB,” as a result of an intrigue carried out by bankers. In particular, a cynical and duplicitous old financier named Josef Maria Diergard swears to “destroy” Bach. Bach is the incarnation of the new and pushy dynamism of the Federal Republic, while Diergard is the representative of the corrupt practices of the old world that 1960s Germany was rapidly leaving behind. Bach thinks that he could make his own foreign policy and concludes a big deal to supply four complete steel works to China, but is unable to agree with the banks to finance the deal. In order to get the financing package, he is obliged to negotiate with a bank that he has not dealt with previously, and which is a rival of his own house bank, and that bank has Diergard as the chairman of its supervisory board. The main hinge of the novel is the demand of the banks for a complete financial statement on the affairs of the private company: or what Tremper regularly calls “letting down the trousers.”1
Figure 7.1 Berthold Beitz (left) and Alfried Krupp von Bohlen und Halbach (right), 1967. Courtesy of Historical Archives Krupp.
Josef Maria Diergard in fact bears a striking resemblance to Hermann Josef Abs, the chairman at the time of the Krupp crisis of 1967 of the Deutsche Bank supervisory board; while “BB” is unmistakably modeled after the Krupp manager Berthold Beitz, whom Tremper claimed to have met two dozen times, and who was best known to the public as the foremost exponent of an economic Ostpolitik.2 The book is a sensationalized reflection on the struggle for control in German business between ambitious company managers and the powerful universal banks that in the immediate postwar era were turning themselves into the core of an interconnected and interdependent economy of relationships that was often characterized as “Deutschland AG.”
Why were banks so uniquely powerful in the postwar German industrial recovery? And how was their influence eventually reduced? German business began the new era with very limited financial resources. Krupp was a particularly dramatic example. But the problems went well beyond the merely financial.
The Ruhr business elite was scandalized by the severity of the sentences the U.S. military tribunal imposed on Alfried Krupp and the Krupp directors in July 1948, and by the expropriation of Krupp. The decision had come just as Germany looked as if it was starting in a new and prosperous direction in the wake of the June 1948 currency reform. Some of Krupp’s friends and associates started a campaign against the verdict. In particular, Krupp’s lawyers Otto Kranzbühler and Klaus Hennig drew up a memorandum with the title “Drei Amerikaner richten Krupp” (Three Americans Condemn Krupp). Gustav Krupp von Bohlen und Halbach’s brother-in-law, Tilo von Wilmowsky, persuaded Kranzbühler to expand it into a book. At the suggestion of the publisher, the memorandum was rewritten by the prominent former National Socialist constitutional lawyer Ernst Rudolf Huber. The title was changed first to “Krupp, Victim of a Myth” and then to “Why Was Krupp Condemned?” and the result was published under Wilmowsky’s name. Wilmowsky, together with his wife, had been imprisoned by the Nazis after the July 1944 bomb plot against Hitler, and a work appearing under his name could not easily be accused of being National Socialist in sympathy. Indeed the book was, as intended, influential in Germany. Chancellor Konrad Adenauer, for instance, read it and came to the conclusion that Alfried Krupp had been wrongly convicted. Although it was never translated into English, it may have had some influence on Allied High Commissioner John McCloy.3
In January 1951 McCloy amnestied Alfried Krupp and the Krupp directors. Alfried Krupp, he explained, “was not the real Krupp . . . and exerted very little if any influence in the management of the company.”4 Also the confiscation of his property was revoked.
Figure 7.2 Release of Alfried Krupp von Bohlen und Halbach (center) from Landsberg prison, February 1951. Courtesy of Historical Archives Krupp.
Released from the Landsberg prison, Alfried Krupp returned to Essen and eventually in March 1953 returned to the company offices and the direction of the firm, though not to the Villa Hügel, which was transferred to the Krupp company in 1955. From a business perspective, he faced an almost insuperable challenge. Building the firm up again looked to be a question of taking the fish soup of individual businesses created by the Allies in the course of economic deconcentration (Entflechtung) and turning it back into a German aquarium: a fundamentally impossible task, in which no one could ever really succeed.
Above all, the reconstruction of Krupp was not simply or primarily a problem of finding the appropriate business strategy. It involved the whole question of the appropriate political order of Germany and of Europe. In negotiating about deconcentration with the Combined Steel Group in Düsseldorf, it was not enough for Krupp to rely on the leading Krupp managers, in particular Friedrich Janssen and Finance Director Johannes Schröder, or on his Nuremberg attorneys, the German Otto Kranzbühler and the Americans Earl J. Carroll and Joseph S. Robinson. Krupp, and the Ruhr industrial sector in general, needed high-level political support. Relations with the German government were as essential for the survival of the firm as they had been in the mid-nineteenth century or during the interwar years.
The question of the future shape of the German steel and coal industry was at the heart of political debate in Germany, but also in other countries, and especially, in France. The Ruhr Statute of December 1948 was designed to ensure that the natural resources of the Ruhr would not used for aggression but in the interests of a new and peaceful order. Law 27 of the Allied High Commission, titled “Reorganization of the German Coal and Iron and Steel Industries” (May 16, 1950), which provided for deconcentration, started with a declaration that the commission’s policy was to “decentralize the German economy for the purpose of eliminating excessive concentrations of economic power and preventing the development of a war potential.” But the preamble also stated that “the question of the eventual ownership of the coal and iron and steel industries should be left to the determination of a representative, freely elected German government.” France and its high commissioner, André François-Poncet, however, viewed Law 27 as a precondition of realizing the Schuman Plan, in which German and French heavy industry would be brought together. The French plans in turn led the SPD opposition in Germany to suggest that Adenauer and the German government were making too many concessions to the deconcentration proposals, and that their only aim was to weaken the German economy.5 On October 19, 1951, the Allies had agreed to the abolition of foreign controls on the steel industry but required Law 27 to remain in effect, and on May 25, 1952, provided contractual agreements in which Germany acceded to the deconcentration and decartelization programs and in which a dispute resolution mechanism was created.
Particular conditions were applied to the businesses that had once constituted the Krupp enterprise. At the beginning of 1952, the Allied authorities began to demand that as a precondition for the return of the Krupp finishing works, Alfried Krupp should issue a statement renouncing any participation in steel production. Krupp was prepared to agree only because he worried that in the absence of a “statement” the Krupp enterprise would be completely broken up. According to the head of the Krupp Law Department, Hermann Maschke, the French representative said that the statement had “practically no meaning and no legal effect, but it should be formulated in a way so that the political elements in France are satisfied.” The German government also formulated the view that such an agreement could not be legally binding.6 Partially secured in this way, Alfried Krupp on July 22, 1952, signed the statement, a promise that “He will not through the use of the proceeds of the aforementioned sale of securities, acquire securities of any enterprise engaged directly or indirectly in the steel or iron producing industries in Germany or in the coal mining industry in Germany or otherwise acquire a controlling interest in any such enterprise of attain a dominant position therein.” Was there a time limit to this commitment to sell the Krupp steel and coal holdings? And which authority would be in a position to enforce it? There inevitably followed a protracted struggle about the meaning of the “statement” and whether it might be modified.
This personal guarantee of Alfried Krupp’s was highly controversial in Germany. Friedrich Flick liked to boast of the fact that unlike Krupp he had not given any kind of assurance.7 The German government struggled desperately to avoid any commitment at all to guarantee the implementation of the program. Krupp secured a letter of Walter Hallstein, the influential state secretary in the Bonn Auswärtiges Amt, that the “binding limit of the statement ends with the end of Allied Law 27” on deconcentration. But when was that? There was repeated Allied discussion of the particulars of the Krupp case. On October 15, 1952, it formed the subject of a debate in the British parliament, and the leader of the British Liberal Party attacked the idea of compensation to “this family, whose activities were of such assistance to Hitler and all his evil associates.” In 1953 the fiery young Labour Party politician Barbara Castle asked the foreign secretary, “Is the right hon. Gentleman aware that a new attempt is being made to infiltrate, by Nazi influence, into the free democratic party in Germany and that the former Nazi officials who are trying to capture this party are backed by money from the Ruhr industries? In view of this great danger of a revival of Nazism in Germany, does the Foreign Secretary not agree that it is urgent to find a means of breaking down the concentration of economic power in the hands of former Ruhr industrialists?”8 In these impropitious external circumstances, German authorities started to defend Krupp, and Ludger Westrick, the state secretary in the Economics Ministry, negotiated skillfully on Krupp’s behalf. Westrick had been the head of Vereinigte Stahlwerke’s Balkan Division until 1933, and the French negotiators rightly regarded him as actively promoting the cause of the German steel industrialists.9 Westrick’s major effort initially involved attempting to set a term limit for the applicability of Law 27, for instance five years, but the Allies rejected that proposal. In fact the deconcentration plan for Krupp was only officially abandoned in 1968, after Alfried Krupp’s death. Even then, when the executor of Krupp’s will, Berthold Beitz, argued that with the death of Alfried Krupp the sales obligation was irrelevant, he faced an immediate protest from the British embassy in Bonn, which explained that the Allied deconcentration plan “was not dependent on the owner of Fried. Krupp.”10
The decisions on the Krupp case were of such far-ranging significance that Chancellor Adenauer was inevitably involved in the debate about Krupp’s statement. François-Poncet was concerned that the influence of heavy industry on Adenauer was “growing every day.”11 Adenauer personally was in fact quite irritated by pushiness on the side of Krupp—and especially from the Krupp manager Berthold Beitz, who in his first meeting with the veteran chancellor in late 1956 had rather directly asked whether the Krupps were “second-class citizens” who did not deserve the freedom to practice their chosen occupation that was guaranteed by the German Basic Law.12
In the end, the Allied High Commission sent an assurance that the duration of the law would not be extended by prohibitive measures included in any individual deconcentration plan. Alfried Krupp was then prepared to sign a new declaration on February 22, 1953.13 On March 4, 1953, he reached an agreement with Allied representatives (known as the Mehlem Agreement) on a deconcentration plan. At the same time, the property relations of the Krupp family were regulated by the transfer of cash or securities to his brothers Berthold and Harald and sisters Irmgard and Waldtraut, as well as to the son of Claus von Bohlen und Halbach (who had been killed in the war) and to his own son Arndt von Bohlen und Halbach.
Deconcentration could be viewed in a number of ways. Some American lawyers viewed it as essentially the application of the competition policy that had been applied very successfully in the so-called second New Deal in the later 1930s: trusts and oligopolies should be dismantled in order to create greater competition. Applied to Germany, such a doctrine meant the end of a specifically German way of doing business, in which cartel arrangements had been common. But who would buy the split-up businesses, at a moment when their business prospects were very uncertain? There was a major problem in that the capital market in Germany in the early 1950s was not developed or dynamic enough to provide easy financing for such sales. A second option, which had major implications for European security, was that some of the strategic German companies could be sold to France. Such an approach would be much more in accordance with the European and transnational vision of the Schuman Plan. In 1947 and 1948, before the foundation of the Federal Republic, the banker Robert Pferdmenges, Adenauer’s friend and business adviser, had actively promoted the idea that Ruhr coal holdings could be sold to French steel interests. In that way, the seventy-five-year conflict over the control of Europe’s strategic coal and iron resources would come to an end, and this economic integration would bring political peace.
In the early 1950s, the balance between these contrasting views of deconcentration was changed by the introduction in 1951 of special codetermination rules for the coal and steel industry (Montanmitbestimmung). The solution offered by the 1951 law was intended to deal with another aspect of the historical problem of the power of the Ruhr barons: it was argued that if workers were represented on the supervisory boards to such an extent that they controlled half the seats, the political intrigues of the interwar years would be ruled out. But codetermination also influenced the course of the European-level negotiations.Tying workers’ representatives, and the powerful trade unions, into the coal and steel industry meant that these interests would be more likely to support a national solution to deconcentration, and would not be sympathetic to increased French engagement. Codetermination appeared to be an essential feature of what would become known as “Deutschland AG.” But in the light of the prevailing capital shortage, a sale to German interests really amounted to nothing more than a reshuffling of cards already in play in the German business deck. There were no German outsiders with the money to finance any expensive participation in heavy industry. A further argument put forward by the representatives of labor, and then taken up by the business negotiators, consisted in the way in which the German companies had heavy responsibilities to workers and former workers in the form of pension commitments; worker representatives worried about the threat to company pensions in the event of a sale of the business. Berthold von Bohlen und Halbach noted in 1951 that Krupp had a total workforce of 14,000, of which 2,200 were working in the administration of social programs, and 16,000 pensioners (by contrast, in January 1939, there had been 60,000 employees and 9,850 pensioners and widows).14 The pension incomes of a large number of elderly people thus depended on the continued existence of an enterprise that was heavily burdened by social commitments. In a curious way, in consequence, trade unions and the major opposition party in parliament, the SPD, thus were tied into supporting German business interests.
The parts of the Krupp enterprise not subject to deconcentration, including the plant making locomotives, the truck-making plant, and the AG Weser shipyard, were quite quickly freed from Allied control. The collieries that had been at the center of the iron and steel complex were spun off into five separate companies. The Friedrich-Alfred-Hütte was transferred to a company established in 1947, the Hüttenwerk Rheinhausen AG. The share capital of Rheinhausen (DM 65 million) was to be held by administrative trustees until the company was sold through a banking consortium.
Some of the separated enterprises were sold off, in accordance with the commitment Krupp had undertaken: the Emscher-Lippe Bergbau AG to the state-owned Hibernia, the Krupp share of Harz-Lahn-Erzbergbau AG to Klöckner, Mannesmann, and the Westfalenhütte; but there was no compulsion on Krupp to sell immediately at what would have been fire-sale prices. And some of the pieces were sold to other Krupp companies, so that for instance the coal mine Constantin der Grosse was sold via the Bochumer Verein to the Hütten-und Bergwerke Rheinhausen AG. The Constantin negotiations are a neat example of the Krupp negotiating strategy, and the anxieties it provoked in Germany’s neighbors. The French group SIDECHAR, which had been built around the historical Lorraine steel family de Wendel, started to negotiate for a controlling stake, which would have given the Lorraine steel industry access to one of the most productive Ruhr coal pits. But in May 1953, an Italian group appeared that outbid the French, and the negotiations with SIDECHAR collapsed, allowing Germans to step in and buy the mine.15
The saga of the Krupp sale of the Constantin mine indirectly to another Krupp company runs in an opposite direction to that of Friedrich Flick’s long negotiations in which he eventually sold a majority stake of the Harpener Bergbau to SIDECHAR. Transport Minister Hans-Christoph Seebohm was worried about the alienation of German mines, and contemplated a purchase by the state-owned railway system Deutsche Bundesbahn; and Adenauer also spoke in this case about national political interests. The chairman of the general German trade union association, Walter Freitag, called the sale of German mines to French companies “national treason.”16 The extent of the hostility of the official German response to the Flick transaction, and the considerable public sympathy that flowed in response to Krupp’s way of handling the business, indicate in a remarkable way the extent to which political sentiment had shifted in the direction of a national response rather than of the internationalized solution of the Ruhr problem.
Just after the Allied decartelization plan came into existence, on March 12, 1953, Alfried Krupp formally returned to the head of an enterprise that consisted of the machine-building workshops, the hard metal production of Widia, locomotive and truck plants, the “Konsuman stalt” as well as Stahlbau Rheinhausen, and a majority stake in the Schiffswerft AG Weser (the former Deschimag complex acquired in 1941). The company became a centrally directed enterprise with twenty-one main operations and ninety-five departments: but this was clearly a reduced and scaled-down version of the old firm.
How could an enterprise be rebuilt? Friedrich Janssen, one of the wartime Krupp directors who had been tried at Nuremberg, was appointed as a general plenipotentiary. But it is clear that Alfried Krupp did not entirely trust the existing Krupp directors, and wanted a fresh approach to management. The old traditions had reached a dead end. Houdremont was kept entirely out of the new business. Alfried Krupp decided on a relatively young man, a complete outsider to the Ruhr, whom he had met in the house of the sculptor Jean Sprenger: this was Berthold Beitz, the general director of the Iduna-Germania Insurance Company in Hamburg, who in November 1953 was appointed alongside Janssen as a further general plenipotentiary. Beitz had been born in 1913, in relatively humble circumstances in Pomerania, and had been through an apprenticeship at a bank. In the Second World War, he had a spectacular and genuinely heroic career.
As the young and enterprising commercial director of the Karpathen-Öl AG in Boryslaw, Beitz had saved substantial numbers of Jewish workers, as well as dependent women and children, from being deported to annihilation. His energy and organizational talent in managing the food supply of a large enterprise (which employed and fed some 80 percent of the population of Boryslaw) had meant a stable supply of petroleum for Germany; and with that, Beitz gained sufficient influence with the SS and the military to be able to protect his workforce for a substantial period of time, though many of the Boryslaw workers were eventually deported as the German armies retreated. The historians Thomas Sandkühler and Joachim Käpper calculate that Beitz saved several hundred Jews.17 After the war, Beitz moved to Hamburg and worked briefly in the supervision office for insurance in the British zone. From 1953, he dedicated his life to the Krupp business. And after Janssen’s death in 1956, he remained as the sole plenipotentiary.
Beitz later explained the nature of Alfried Krupp’s attraction: he “wanted to have a man who was not related and married into the Ruhr industry, but was one hundred percent his man.”18 Krupp was highly possessive and suspicious of Beitz’s relations with anyone else; he viewed in particular Beitz’s close personal friendship with the entrepreneur Max Grundig as a potential difficulty, although Grundig never took any interest in Krupp business. Beitz also seemed iconoclastic, and to be bringing a wave of fresh northern air to the stuffy Ruhr. He liked to say how before the war, in the old Ruhr, it would have been impossible for someone with his modest background to become the leading manager. People referred to him as “der Amerikaner,” and he in turn thought that the weight of tradition had been a “sleeping pill” for the company. What was needed was emancipation. Beitz later complained about Alfried’s pronounced proclivity to accept authority, and Golo Mann duly reproduced this view in his failed attempt at a biography. The journalist Rudolf Augstein, an acquaintance of Beitz’s from Hamburg times and a neighbor on the summer resort island of Sylt, later recalled that he had visited Alfried Krupp in Kampen on the island of Sylt and found him on a side street with a piece of paper in his hand. When asked what he was doing, Krupp replied that he was counting the different types of cars that passed. Augstein then asked whether he had time for such an activity, and Krupp replied: “I have the time, but that isn’t so important. What is important is that there is someone who sees that the really important things are done.”19
At the same time as Krupp and Beitz tried to break with tradition, they also set about reconstructing the old Krupp enterprise, justifying it by reference to the preservation of jobs as well as “the old Krupp tradition of technical and economic progress” that they hoped would come back “after the lifting of controls.”20 This view reflected the strong compact with labor in which the unions helped to fight off the threats of foreign control and foreign ownership. It rested on an image of a shared tradition that created common commitments and loyalties. Alfried Krupp apparently once told Beitz, when Beitz was suggesting stopping the building of locomotives: “My great grandfather built locomotive parts; we will continue to build locomotives. Profit is important, but one cannot separate it from other social obligations.” Beitz later commented that “Kruppianer could not simply be sold.”21 Old-style patriarchalism came back as a business strategy.
That was not enough. The firm reinvented itself as an image before it really became a firm again. The company needed public relations, and for that it turned to the director of the Krupp Widia plant. Carl Hundhausen had worked briefly for Krupp in the 1920s before going to the United States and writing about his experience of U.S. commercial culture (which in the Nazi period he had attacked using Nazi racial terminology). In the new postwar environment, he wrote an influential book that set out new strategies for postwar German business: Werben um öffentliches Vertrauen (Winning the Public Trust—the book was also issued in English). He was soon rehired by Krupp to produce a positive image. Hundhausen’s major argument was that German society had been atomized by modernity, and then by the shock of the Nazi dictatorship and the war. Corporations could offer a new pole of loyalty and focus. Hundhausen explained that the company had a “permanent life.” “Through the continual assumption of new forces, which are assimilated in the spirit of the enterprise, the company can acquire those powers, capabilities and talents that it needs to develop independently and productively in particular areas such as production, research, accounting, human resources, and the top leadership.” He liked to use a phrase of the U.S. philosopher of management Edward L. Bernays on the “engineering of consent.” The leadership of a firm would have to balance all the continual conflicts produced by individuals seeking power and seeking to subordinate others.22
More generally, a new image of business was required. Together with other Ruhr businesses, the Krupp management was very active in hiring a prominent American journalist, Louis Lochner from Associated Press, whose Berlin office he had headed in the 1930s. Lochner would write a book published in both the United States and Germany in 1954 as Tycoons and Tyrant: German Industry from Hitler to Adenauer. Hundhausen wrote to Beitz to explain that “there is no better advocate for Krupp than Lochner.”23
Krupp publicists also tried to recast the image of Krupp in a modern way. There were spectacular PR actions, such as the provision of a diving sphere for the charismatic marine explorer Auguste Piccard in 1960, which Beitz saw enthusiastically as “sensational, merciless salesmanship.”24 The Villa Hügel was opened up for exhibitions and concerts, as well as for formal and commemorative company events. There were 400,000 visitors to the first exhibition, on church art, in 1953. A fashion show of Christian Dior introduced a new concept of modernity and elegance in dress. An industrial film of 1961, Technik: Drei Studien in Jazz, used modern music to establish “a new relationship between images and music” in three movements taken from the story of steel production: casting, forging, and mechanics.25
A new image by itself would not accomplish the task of remaking the enterprise. The firm needed to be recast. Beitz in 1955 declared to the news magazine Der Spiegel: “If Alfried Krupp does not say it, because he has signed a document, I can according to my conscience say it: the obligation to sell has to go, because the Krupp enterprises belong together, just as on a farm there are good and bad fields.”26 It was a somewhat peculiar metaphor, which underlined the oddity of the Krupp association with a large variety of engineering products. Krupp directors were placed on the supervisory boards of the enterprises that were supposed to be sold, on the grounds, as a Federal Economics Ministry official put it in a letter to Beitz, that “it can only ease negotiations if the management of the companies that are to be sold are supervised by persons who have the confidence of the owner.”27 In 1957 the headquarters of the Rheinhausen steel company were moved to Essen.
Shadows of the past could tarnish the optimistic new vision of the corporation. In the Wollheim settlement of 1957, IG Farben paid DM 30 million as compensation for forced labor, and the German industrial federation BDI started a general discussion of the corporate responsibility of companies to the victims of National Socialism. Krupp was opposed to such an initiative, but needed to respond to a letter of June 1958 in which the former high commissioner John McCloy asked Krupp to consider compensation out of a “concern to help Germany and to ensure that German industry could keep its good name in the world.” McCloy asked whether the Krupp company might act in order to what was “right and just in making good the depredations of the Nazi regime.”28 In response the Krupp Legal Department started to work on a plan, and in 1959, after negotiations with Nahum Goldman and Jacob Blaustein of the Jewish Claims conference, Berthold Beitz reached an agreement to pay DM 10 million, or DM 5,000 for each worker. The 1959 agreement, which was the first such agreement by a German industrial company, was specifically oriented to Jewish slave labor. It was only after the end of communism in the early 1990s that the question of compensation for other slave and forced laborers, the group described by Stuart Eizenstat as the “double victims” of Nazism and communism, was raised. In 1998/99 the Fried. Krupp AG Hoesch-Krupp was one of twelve founding firms that established a Foundation Initiative of German Business (Stiftungsinitiative der deutschen Wirtschaft) to provide a total of DM 10,000 million for the compensation of slave and forced workers.
In January 1958, Krupp submitted an application to the Economics Ministry asking for an extension of the sale requirement, and in April the German government submitted the request to the Allies. That request was dealt with according to the mechanism established under Article 5 of the Convention of May 25, 1952. In October 1959 a Mixed Committee under the chairmanship of a Swiss banker and with three German and three Allied members granted that permission; the committee then proceeded to grant annual renewals in a rather automatic way every year. The last such renewal was granted in July 1967, shortly before the death of Alfried Krupp. In the meantime, Krupp had become a very large company again: in 1958, it was indeed briefly the largest German firm as measured by turnover. Such a development raised anxieties in other European countries. Especially in Britain, in consequence, the extensions of the sale requirement were hugely controversial. The Labour Party politician Denis Healey asked in 1960 about the “extraordinary and unconscionable delay” in selling off the steel and coal holdings of Krupp. Only in 1968, following the transformation of ownership after the death of Alfried Krupp and an economic crisis that made Krupp seem much less of a threat, was the Labour foreign secretary Michael Stewart prepared to say: “I think that this is the right and proper outcome.”29
From the point of view of the company’s self-image as a business that still had steelmaking at its core, it was crucial to expand steel production again. Beitz liked to put the point rather crudely, saying that a company without a steel basis was like a woman without the lower part of her body. In 1959 the Hütten- und Bergwerke Rheinhausen AG secured permission from the European Coal and Steel Community to buy Krupp’s old competitor from the nineteenth century, the Bochumer Verein.30 In 1964 Rheinhausen bought a 50 percent stake in the Westfälische Drahtindustrie, and in 1965 Rheinhausen took back the historic name when it was renamed the Fried. Krupp Hüttenwerke AG. Krupp had reverted to tradition.
The problem was that steelmaking technology was changing very rapidly in the 1950s and 1960s, with the first major technological shifts since the mid-nineteenth-century innovations of the Bessemer, Siemens-Martin, and Gilchrist-Thomas processes. Oxygen steelmaking was developed in Austria, then taken up on a big scale in the United States and elsewhere. By 1971, only 7 percent of German steel was produced by the Thomas process and 21 percent by Siemens-Martin; all the rest, 72 percent, was oxygen steel. Much more capital was required for this process than could easily be raised by a family firm. The German company that reacted most effectively to the challenges of the new environment was Thyssen, under the dynamic leadership of Hans-Günther Sohl. Sohl proposed European mergers, arguing for instance that a combination of Thyssen and the French group de Wendel would be able to compete effectively with the American giant U.S. Steel. In Germany, Sohl also openly discussed the idea of a merger between Thyssen and Krupp. But Krupp and Thyssen had quite different emphases, which corresponded to their moments of birth: Krupp remained true to the philosophy of a craft producer of the early nineteenth century, making a wide range of products, though on an ever larger scale; Thyssen had developed at the end of the nineteenth century and surged as a mass-producer of steel goods. In the 1960s, the vision of a business focused on flat-rolled steel production, conducted on a European scale, was the driving one for Thyssen.
Krupp had never simply been a mass-production steelmaker but had specialized in particular uses of steel. In line with the back-to-tradition philosophy, the Krupp company also looked for substitutes for the businesses that had been stripped away. If a satisfactory aquarium could not be made by putting all the old fish back together again, it would simply be necessary to buy some new fish. The Maschinenbau Kiel (MaK) company in Kiel made ship engines, just as the Germaniawerft had done, as well as other transportation equipment; and Ardelt in Wilhelmshaven was bought as a substitute for the crane manufacturing plant in the Magdeburg Gruson Werk.31
The Krupp company was, in short, consistently held together by an idea of what it had been in the past. Berthold Beitz, at the celebrations in 1961 of the 150th anniversary of the founding, stated: “The performance of yesterday has its place in history. The performance of yesterday is also the basis for the performance of tomorrow. If we achieve it collectively, then we will best keep the tradition of the Firma Krupp.”32
The historian Lothar Gall describes the remnants of the Gussstahlfabrik as an “odds-and-ends store with centrifugal tendencies.”33 It was more of a conglomerate than a Konzern, but it remained centrally organized and controlled: in this respect too it represented a major contrast with Thyssen, which kept the commitment already developed before the First World War to a multidivision structure. In this way, different and conflicting corporate cultures in Germany’s major steel companies survived the political and economic turmoils of wars, revolutions, dictatorships, inflations, and depressions.
The Krupp tradition of looking to export markets was equally durable. Krupp saw at an early stage that a German engineering firm could be a powerful supplier to countries embarking on their own industrialization. In March 1952, the French high commissioner André François-Poncet complained that the Krupp company was planning in the long term to conquer the Latin American market.34 In 1954 Alfried Krupp announced: “We must export, in order to create employment at our plants, in order to be able to import raw materials and foodstuffs.”35 In 1961 Beitz stated that “the whole globe is the market of tomorrow.”36
When Krupp participated for the first time in a trade fair after the Second World War, in 1954, it was in Mexico. Emperor Haile Selassie of Ethiopia visited Essen in 1954. Alfried Krupp undertook an exceptionally energetic travel program; so too did Berthold Beitz. Krupp’s travels as well as his hospitality at the Villa Hügel looked like an iron devotion to duty, and a return to his great-grandfather’s tradition of cultivating foreign clients. For Beitz, there always seemed to be a political element in the search for new business areas. Long before the chief economist of Goldman Sachs, Jim O’Neill, invented the sobriquet BRICs in 2002 to describe large and dynamic emerging-market economies (Brazil, Russia, India, China), Beitz had decided to concentrate on the very large countries that were underdeveloped and had markets that were difficult to sell in as a consequence of the tariffs and import regime that followed from the adoption of a strategy of industrialization through import substitution. In part, the powerful impetus to build plants in what were then called underdeveloped countries lay in the policies of trade protection.
The first Latin American country to adopt such an explicit import-substitution strategy had been Brazil in the 1930s, under the leadership of President Getulio Vargas. Along with the Soviet industrialization of the same era, Brazil provided a powerful inspiration to many developing countries. The Krupp Grusonwerk in 1938 had supplied a complete oil factory. In 1952, as a demonstration of what it could do, Krupp sent a large locomotive to Brazil, the largest built in postwar Germany, and then set about building up a Brazilian producer. In 1954 Krupp founded the Industria Nacional de Locomotivas (or JNL) Ltd. After disputes about locomotive and truck production, it shifted its emphasis to the provision of automobile parts from a new factory built on the site of a former coffee warehouse in Campo Limpo. The drop-forge plant Krupp Metalúrgica Campo Limpo S.A. started production in 1961 and established itself as one of Krupp’s most successful international ventures. Krupp also sent other products required for industrialization to Brazil: docking equipment, a cement factory, a paper and cellulose factory.
India’s industrialization strategy under Prime Minister Nehru in the 1950s was more firmly oriented toward the Soviet model: India embarked on a series of Seven Year Plans. As in the Soviet experience, steel was at the center, and India became something of a Cold War test case with rival teams of Soviet and Western experts engaged in building up their type of steel plant. Already in 1953 India concluded an agreement with Krupp and the Duisburg firm DEMAG to advise the Hindustan Steel Limited company in building a mixed steelworks, and in 1955 the German companies won a contract to build a vast modern steelworks that used the advanced oxygen-steel process in Rourkela. The new steel works began production in 1959 but suffered from multiple problems. In 1961, it was only producing at less than one-third of capacity. By the middle 1960s its performance was being judged more positively.
Figure 7.3 Inauguration of the Rourkela steelworks, India, January 1960. Courtesy of Historical Archives Krupp.
In 1954 the Krupp directorate discussed the possibility of building up industrial relations with Eastern Europe and the Soviet Union, and sent a small delegation to visit Moscow, Minsk, and Riga. Initially the German government was skeptical, and Adenauer worried that Moscow would use commercial interests to undermine his anticommunist Cold War policy. In 1957 Beitz agreed to a contract for the construction of a synthetic fibers plant in the Soviet Union.
Beitz took up the Krupp tradition of diplomacy and Ostpolitik that had already been practiced in the Weimar Republic by Otto Wiedfeldt. He had a special advantage in dealing with Poland because of his heroic wartime record, and when he visited Warsaw in 1958, he was received with great enthusiasm. Prime Minister Józef Cyrankiewicz explained that Beitz was “an excellent ambassador of Germany, a friend of Poland who has proved himself for twenty years.”37 For some Germans, however, his enthusiastic welcome in the Eastern bloc raised suspicions. Immediately after Beitz came back from Warsaw and Moscow, Chancellor Adenauer went so far as to say that “one may doubt the national reliability of Herr Beitz.”38 But within two years, Adenauer was prepared to use Beitz as an informal contact with Warsaw, and in January 1961 he asked Beitz to make soundings about whether Poland might resume diplomatic relations with the Federal Republic.39 It was not just a question of dealing with Poland and the Soviet Union. Beitz undertook commercial and political visits that were disguised as hunting trips with Hungary’s Janos Kádár; he also started to take up contacts with Yugoslavia. But Krupp’s relationship with the German government was never free of strains as a result of Beitz appearing to be a parallel ambassador carrying out a rather different type of foreign policy than officially articulated in Bonn. Adenauer in particular was greatly irritated when the Krupp consultant and former director Carl Hundhausen met the East German party boss Walter Ulbricht at the Leipzig spring trade fair in 1960.
When Beitz visited the Soviet Union again in May 1963 and was received by Khrushchev, he spoke explicitly of how more members of the German government were in favor of increased commercial contacts with Eastern European countries. Khrushchev expressed an interest in improved relations, and suggested specifically an ending of the German embargo on pipeline components. Der Spiegel started its report with a Lenin quote: “The steppe must become a bread factory and Krupp must help us.”40 Khrushchev saw the Krupp initiative as the beginning of a long-term new orientation of Soviet development strategy, in which the Soviet Union would leverage its raw materials in order to obtain access to high technology. But he was also extraordinarily explicit about his vision of a long-term future based on German-Soviet collaboration, which he presented as a continuation of the strategy of the Rapallo meeting of 1920, when it looked as if Germany and the Soviet Union were forming an economic alliance against the Western powers. The Rapallo Treaty, Khrushchev explained, had been made on “the basis of the strong economic interests of the two countries, and it was a full success.” Even more extraordinarily, he said that he would like to see the dissolution of both the NATO alliance and the Warsaw Pact.41 Such an ambitious program seemed beyond the bounds of the politically possible, and Beitz was hesitant in his responses. But the strategy of using business contacts to build a new politics was at the core of the subsequent decades of German foreign policy. At a political level, this trade opening provided a substantial underpinning to the Ostpolitik pursued by Willy Brandt after 1966.
There was a brief but short-lived increase in Krupp exports to China in 1961; the rapid opening up of the Chinese market only occurred later. Beitz headed a delegation of German economic experts, which included Alfred Herrhausen of Deutsche Bank, sent to China in 1973, and met Chou En Lai. As in the case of Russia, there is little doubt that the resonance of the Krupp name was an attraction, and the Chinese asked whether it was still possible to buy the famous nineteenth-century 8.8 cm Krupp cannon. Beitz came back promising a new era in economic relations with China, and explained: “The Chinese expect good technology, prompt deliveries and also support in technical-economic cooperation. We hope for good business from the Chinese. That’s what we live from.” He also said that he was impressed by the “relaxed attitude, the peace and the security with which the Chinese consider their problems.”42 In 1976 the company secured an order to supply a chemical plant in Tientsin, which was complete in 1981. The immediate aftermath of the 1973 trip produced little, but it placed Krupp in an advantageous position when the reform process of the Chinese economy began under Deng Xiaoping after 1979. In 1984 Krupp agreed to a contract to build a rolling mill for copper wire; in 1985 there was a contract to build a magnesite sintering plant; in 1987 a plant for specialty steels was ordered. In 1988 Widia constructed a hard metal plant for the Tianjin Carbide Tool Company; and there was a joint-venture agreement between Krupp Koppers (Koppers was a major producer of cookery equipment that had been established in 1901 and taken over by Krupp in 1974) and the China Anshan Coking and Refractory Engineering Consulting Corporation to build a plant for producing coking coal.
Figure 7.4 Berthold Beitz meets Prime Minister Chou En Lai in Beijing, May 1973 (Sven Simon photo). Courtesy of Historical Archives Krupp.
Such foreign engagements could not have occurred without a substantial relationship with German politics and policy making, and Beitz sought contacts with both of the major political parties: with Willy Brandt and Johannes Rau in the SPD, but also with the new generation of Christian Democrat politicians. In 1965 a new political leverage arose when Beitz appointed a promising and dynamic thirty-six-year old CDU Bundestag deputy, Gerhard Stoltenberg, as director, even though Stoltenberg had not studied law or economics but rather history and philosophy. But Stoltenberg soon went back to politics as minister-president of Schleswig-Holstein.
Beitz’s energetic foreign diplomacy and the search for foreign markets were reflected in the character of the company’s financing in the 1960s. The capital basis on which the postwar recovery was built was very thin. Krupp depended for a great part of its activities on financing from the Ausfuhr-Kredit-Gesellschaft mbH (AKA), a Frankfurt firm that was owned by German banks in order to provide trade credit.
Internally, Krupp finance director Johannes Schröder had warned with increasing insistence about the dangers of the company’s high level of debt, although there were conflicts about other issues: Schröder had worried after the construction of the Berlin Wall in August 1961 about the vulnerability of the Federal Republic, and at his own initiative and without consulting Beitz or Alfried Krupp had placed substantial sums of Krupp money as an emergency reserve in Switzerland. Beitz was quick to suspect personal corruption, the more so as Schröder demanded that special payments be made to his secretary. Such conflicts eventually led to Schröder’s dismissal, and he seemed to be taking his revenge when he published an explosive article in the business newspaper Handelsblatt on July 27/28, 1962. The title was “The Financial Heart Attack,” and the message was very explicit: “The danger of such a heart attack is particularly evident in companies that do not publish their accounts. They are not controlled by a doctor (in this case by the public). Thus they cannot be warned in time.” At the end of the article, he concluded that “since the economic development of Germany had already passed its high point, many firms will surely have to ask whether they are living within their financial means or whether they also run the danger of a financial heart attack.”43
In 1963 Beitz asked his auditors for the first time to prepare a consolidated balance sheet of the whole Konzern. But in November 1963 British newspapers sparked a new round of jitters about Krupp’s financial status when they reported on the company’s liquidity problems. The Krupp managers immediately suspected that the old hostility to the name of Krupp and its connotations of arms and aggression was flaring up again. But the financial nervousness was by no means confined to Krupp: many of the best-known names in German industry were vulnerable. The family business model that had been at the heart of much of German postwar reconstruction was at risk because it was undercapitalized. Stinnes declared near bankruptcy in 1963. Alfred Haniel wrote to the board of the Franz Haniel holding company to say that “these events are just a further link in a long chain of failures of precisely such first-class and well-known firms which bear the label of family firm. Some examples are Borsig, Henschel, Heyl von Herrnsheim, Maffei, Borgward, Schlieker. . . . It is certain only that economic downturns will do great damage, now as earlier.”44 After 1965 Krupp was hit by Germany’s real postwar recession. In 1966 Alfried Krupp began to speak of the necessity of “a new style of business planning.”45 In particular, the coal mine holdings were rationalized, and Krupp’s coal output fell by 40 percent from 1964 to 1966.
Some 270 creditor banks were increasingly worried about the position of Krupp. In December 1966, the AKA refused a Krupp demand for new credit for a contract to supply Poland, since Krupp already had DM 360 million in credit and did not have a 30 percent collateral in capital assets to cover its debt.
Beitz then embarked on frantic negotiations with the new federal economics minister of the Great Coalition government, Karl Schiller, and the bankers, in particular the commanding figure of Hermann Josef Abs of Deutsche Bank, with whom Beitz had what he would later describe as a love-hate relationship. Beitz liked to repeat the warnings about the pernicious and antientrepreneurial bank influence that had been a traditional part of the business culture of the Ruhr. On March 7, 1967, a rescue package was announced, with a federal government guarantee of DM 300 million and an additional DM 150 million guarantee from the state of Nordrhein-Westfalen. The federal and state governments’ financial backstop allowed the banks to provide a new export credit of DM 100 million, and to promise to maintain their existing credit lines until the end of 1968. But the outcome initially looked like a defeat for Beitz’s philosophy. He felt acutely humiliated by the way in which the package was announced by Abs, Economics Minister Schiller, and Finance Minister Franz Josef Strauss while he had to stand off to one side.46
But was it a real crisis? The state guarantees were never used. Hermann Josef Abs later suggested that the problems lay with the nervousness of the banks, which “had lost control of the situation,” and that in reality “there was no Krupp crisis.”47 Beitz always reminded critics that the East European business ventures had been profitable and that the credit of East European governments was impeccable: communist countries became the world’s most reliable debtors (until they were hit by the massive debt crisis of the early 1980s). But in a letter to Beitz in 1968, Abs referred much more to problems that were specific to Krupp: “The particular structure of a single firm [Krupp], which you have represented for so long, also carried the disadvantage of the management’s limited responsibility. In the difficult years that lie behind us, that surely did not lead to the recruiting into top positions of the strongest personalities, who would have been needed in tackling the problems. That resulted in the owner, who did not participate in the daily management of the company, bearing responsibilities that he really could not carry.”48
Figure 7.5 Berthold Beitz (farthest right) versus the banker and the politicians (left to right): Hermann Josef Abs, Karl Schiller, and Franz Josef Strauss, 1967. Courtesy of Historical Archives Krupp.
The government and bank assistance came at a price: Krupp needed to have the more effective corporate governance that would follow from the institution of a proper board of directors (Verwaltungsrat) and the transformation into a more regular form of German company, either a joint-stock company (Aktiengesellschaft) or a limited liability company (GmbH). The influence of the owners would be reduced. Beitz feared that the bankers would take control and turn Krupp into simply a run-of-the-mill joint-stock corporation. The American newsmagazine Time commented that the bankers “in effect ordained the end of the house of Krupp.”49 A new chief executive, Günter Vogelsang, was appointed, and a new era of managerial capitalism began. Some assets were sold off: the Munich graphite works Kropfmühl (Graphitwerk Kropfmühl AG) as well as a hotel and a department store; and in January 1968 Vogelsang stopped the loss-making production of trucks and sold the distribution network to Daimler-Benz. The company became a limited liability company, GmbH, instead of a private company.
Vogelsang was a veteran of Krupp, who had worked as the head of the Audit and Organization Department (1954–58) and then as a member of the executive board of the Bochumer Verein für Gussstahlfabrikation from 1958 to 1960 before going as finance director to Mannesmann. His second stay in Krupp did not last very long. There were conflicts over whether to build a high-temperature thorium reactor for a nuclear power plant (Vogelsang was skeptical); over Beitz’s demands for an increased payout to the new Alfried Krupp von Bohlen und Halbach Foundation; and in general over the degree to which the management could take decisions autonomously of the owners. In 1972 Vogelsang declined a renewal of his contract. Beitz initially tried to engage the charismatic young star of the Deutsche Bank Alfred Herrhausen, who had grown up in Essen and felt powerfully attracted to the Krupp tradition; but Deutsche Bank refused to let him go. Instead an “internal” candidate, Jürgen Krackow, who came from the AG Weser, was appointed, but only lasted six weeks; and his successor, Ernst Wolf Mommsen, was only an interim solution because of his age (sixty-two).
The traditions of Krupp were coming to an end. In 1974 the Konsumanstalt, which had been one of the pioneering monuments of nineteenth-century corporate paternalism, was sold to the supermarket chain Coop. With that move, there was no longer a company shop. In 1976 the rather gloomy headquarters erected in 1911 on the Altendorferstrasse in Essen were demolished.
Beitz, who had looked so marginalized in the bank crisis of 1967, came back into the business—via the Alfried Krupp von Bohlen und Halbach Foundation. The financial crunch came at the same time as plans matured to transform the family firm, subject to the vagaries of human mortality and the chance of succession, into a foundation. As far back as 1952, Tilo von Wilmowsky had proposed a family foundation as a way of managing the industrial holding. The plan of transforming the company into a foundation had already been actively discussed in the early 1960s. Meanwhile, Alfried Krupp became an increasingly isolated and remote figure in his new house not far from the Hügel, in the Berenberger Mark. His two marriages had ended in failure and loneliness. The first, in 1937, to the divorced Annelise Bahr, had been bitterly opposed by his parents Gustav and Bertha Krupp von Bohlen und Halbach, and collapsed in 1941, three years after the birth of Arndt, and the mother was left to bring up the child in unpropitious circumstances. The second marriage, in 1952, to thrice-divorced Vera Hossenfeldt, also ended after five years. To his brothers and sisters and their children, he exuded glaciality. Diana Maria Friz, the granddaughter of Gustav and Bertha Krupp and the daughter of Waldtraut von Bohlen und Halbach, complained of “a lack of heartiness, of attention or of interest,” while she thought that the house emanated “a feeling of coldness, distance and rebuffal.”50
Krupp had also been distant from his only son, Arndt, who had been largely brought up by his mother and in boarding schools in Bavaria and Switzerland. Like Alfred Krupp in the nineteenth century, Alfried Krupp had doubts about the capacity of his son as the future heir of the company. Arndt at first seemed shy and remote. But then he began to cultivate an ostentatious and hedonistic life as a homosexual playboy, and made it clear that he did not like or want the restraints imposed by the Krupp tradition. He explained: “I am not a man like my father, who sacrifices his whole life for something, not knowing whether it is really worth it in our time.” Krupp traditions, he said, had “brought my forebears a lot of unhappiness.”51 Alternative solutions such as transferring the company to one of Alfried’s brothers would have raised tax problems in that legacies between brothers were treated very differently in Germany than legacies to children. Such reflections had indeed even begun during the war, when Gustav Krupp had written to Hans Lammers, the head of Hitler’s Reich Chancellery, to ask permission to establish a mechanism under which a single inheritor of the company could be designated in the eventuality of Alfried’s premature death. Arndt at this time was six years old, but the family was already looking for a means to avoid any strict interpretation of primogeniture.52
Only in the 1960s was the issue resolved. Alfried Krupp was determined to convert the company into a public company controlled through a foundation. In the course of an emotional evening of September 16/17, 1966, Beitz negotiated an agreement by which Arndt would receive an annual income of DM 2 million, with some participation also in revenues flowing from Krupp coal mines, in return for the renunciation of his inheritance. He could devote himself to leisure in Marrakech and in the estate that he had bought with his mother in Brazil at Campina do Monte Alegre.53 Later Arndt regarded his renunciation of the inheritance as an act whereby he paid off his debts to Germany and the family past.54 He seemed to have broken with every Krupp tradition. He died in 1986, a convert to Roman Catholicism who had been received into the church by the Cardinal Archbishop of Manila.
The renunciation by Arndt von Bohlen und Halbach made possible a corporate transformation. Alfried Krupp then drew up a will in which he left his property to a foundation, the Alfried Krupp von Bohlen und Halbach-Stiftung. The foundation was intended to secure the “unity” of the company: in accordance with the principles that had prevailed ever since the 1840s, it should not be broken up to meet the possible financial requirements of family members. It would devote its income to the general good, in the form of charitable support. With its funds it supports projects in Germany but also internationally in five areas: science in research and teaching; education and training; health services; sports and literature; music and art.
Figure 7.6 Arndt von Bohlen und Halbach, pen in hand, and Berthold Beitz at the signing for the transformation of the firm, December 31, 1967. Courtesy of Historical Archives Krupp.
The Stiftung continued such traditional Krupp social engagements as the provision of a state-of-the-art hospital for the city of Essen (Alfried Krupp Krankenhaus) but also worked in education, giving prizes for talented university teachers and endowing professorships in a wide range of subjects. The first was a chair for European Studies at Harvard, whose incumbents have included the distinguished historian Charles Maier. But the main emphasis was in the revival and renewal of the local region, as Essen and the Ruhr suffered from the changes in Germany’s industrial structure. In particular, the foundation saw cultural life as a way of combating urban decline. In 2009/10 the Folkwang Museum in Essen was expensively remodeled and enlarged. That vision was also applied to the problematic legacy of East Germany. The foundation played a special role in developing educational institutions in former East Germany, including the launching of an Institute of Advanced Studies (Alfried Krupp Kolleg) in Greifswald, which began activities in 2002. The engagement in East German education had even predated 1989: Beitz had been given an honorary doctorate at the University of Greifswald as an acknowledgment of his involvement in restoration projects in Greifswald and Stralsund. The Stiftung also provided substantial resources for the reconstruction of cultural monuments in eastern Germany, including the Dresden Opera House (Semperoper), which had been badly damaged in flooding in 2002. Around 15 percent of the Stiftung’s funding went outside Germany. In general, its work reflects the belief that what might be termed “public-interest capitalism” can help in the revival of particular communities.
Foundations are an essential part of the postwar Americanization of German business culture. Some major U.S. foundations had a very prominent role in rebuilding politics and culture in Germany in the wake of the collapse of the Nazi dictatorship, and it is not surprising that many large German firms saw a new potential for corporate existence by means of a foundation. Models for German business emulation were provided by the Carnegie Endowment and the Ford Foundation. Andrew Carnegie, the American equivalent of Krupp and the builder of the major corporations that eventually went into U.S. Steel, created the endowment on his seventy-fifth birthday in 1910 as a demonstration of his horror of war, and with the explicit goal “to hasten the abolition of international war, the foulest blot upon our civilization.” The Ford Foundation was probably the best-known American foundation in Europe, created in 1936 and focused on “scientific, educational and charitable purposes, all for the public welfare.” By the 1950s, it was playing a major role in higher education and the arts, as well as in economic development and environmental protection. The Rockefeller Foundation had played a key role in helping European intellectuals in exile from fascism and National Socialism. German business figures had already established some charitable institutions, notably hospitals, but the 1950s brought some direct imitations of the U.S. model. In 1958 the Carl Friedrich von Siemens Stiftung and in 1959 the Fritz Thyssen Stiftung were established, both with fundamentally scientific and academic visions. In 1964 the Bosch family transferred its shares to the Vermögensverwaltung Bosch GmbH, which in 1969 changed its name to the Robert Bosch Stiftung GmbH. Alfried Krupp and his advisers also looked at the U.S. models, and their German imitations, as a specific way of furthering a clearly defined public good, rather than as a tax-sheltered way of planning family wealth, which was how most German family firms treated the legal provisions for establishing a Stiftung. It was in fact John McCloy, the chairman of the Ford Foundation and former American high commissioner in Germany, who not only intervened in the dispute over the compensation of wartime forced workers but also recommended to Krupp and Beitz the Ford Foundation as a model for Krupp corporate governance. In particular, McCloy recommended that it would be helpful “if the Krupp foundation gave money to Harvard, Oxford, Delhi etc. and other non-German institutions.” At a lunch meeting with McCloy on February 19, 1962, Beitz mentioned that there was a plan to establish a Krupp foundation.55
The American patterns differed considerably from their German emulators, however, in that the foundations soon developed an independence from the originating company. Between 1955 and 1974, for instance, the large Ford Foundation divested itself completely of its holdings of nonvoting stock in the Ford Motor Company, on the grounds that the move would optimize and smooth investment returns but also that it would demonstrate the foundation’s independence from the corporation. The German model by contrast included two potentially diverging goals: the foundation would act as a charitable institution, but it would also control the corporation. As a result, the stakeholders of the corporation were protected by a secure ownership structure: unlike a joint-stock company, but even unlike a company held by a multiplicity of family members who might be tempted to sell their investments at some moment as a result of unfavorable business developments or simply because of a split in the family, it was impossible for the corporation to be sold or taken over. The Frankfurter Allgemeine Zeitung commented in 1967 that “the existence of the [Krupp] Foundation will take this great industrial wealth for all time and irrevocably away from any personal interest and claim and thus ensure that it is held together.”56 But it also helped later to consolidate a defense of the company against corporate raiders. The foundation became a classic case of what corporate analysts call a “poison pill” defense. A highly innovative company such as Bosch, which functioned primarily as a supplier of automobile components, would in the United States have undoubtedly been taken over by a big automobile producer; but in Germany, Daimler was unable to swallow Bosch because of the protection offered by ownership through a foundation. The intention of both Alfried Krupp and Berthold Beitz was to protect Krupp in the same way. In that sense the Stiftung represented a provision not just for the general good but also for the specific good of the Krupp employees.
Alfried Krupp died on July 30, 1967, less than a year after the arrangements were in place, and only three months after the plans had been publicly announced. On November 29, 1967, the foundation received its authorization from the state of Nordrhein-Westfalen, and the corporate restructuring could begin. The enterprises of Fried. Krupp were now transferred to the Fried. Krupp GmbH, which was completely owned by the foundation.
The surviving members of the Krupp family felt excluded from the foundation. Beitz had initially been rather coldly treated by the family, with the exception of Alfried’s mother Bertha and her sister Barbara von Wilmowsky and her husband Tilo von Wilmowsky. After the death of Alfried, the situation became more and more conflictual.
In part this was a consequence of Kaiser Wilhelm II’s patent of 1906, which restricted the use of the name Krupp to Gustav von Bohlen and Halbach and the heir to the firm, in the event his eldest son. Beitz could consequently announce that “there is no Krupp family anymore,” and “I am the last person to hold up the name of Krupp.”57 What remained of the family unsurprisingly found this stance provocative. But Beitz constantly referred to Alfried Krupp’s last will excluding family members from the foundation.
Beitz was equally resolute in warding off the challenge of the bankers. Initially, the new Krupp holding company had a supervisory board chaired by Hermann Josef Abs. Beitz joined the supervisory board in 1968 as first deputy chairman; at the beginning of 1970, he asked Abs to arrive earlier for a routine board meeting in Essen, and then confronted him with Otto Brenner, the head of the metalworkers’ trade union IG Metall and the second deputy chairman of the board, a man who was on excellent terms with Beitz. Brenner announced that the workers’ representatives were going to vote Abs off the chairmanship. Abs responded that the agenda did not include such a discussion, but at the next meeting in June 1970 he resigned and was replaced by Beitz. In this way, by an act of managerial liberation, both family and bank interests were removed from the strategical operation of the corporation.
From the 1970s, the words “steel” and “crisis” regularly appeared together. There were severe setbacks to the German steel industry as a whole in 1975, in 1981, in 1992/23, and in 2008/9, as well as a milder version in 1971. On each occasion, analyses emphasized the same multiple reasons: a decline in the need for “old” industrial production as opposed to newer sectors of the economy, a shifting geography of economic development toward developing or emerging markets, labor rigidities, too much dispersion of business among too many firms well below their optimal size, and companies with excessive debt levels, outdated equipment, antiquated management structures, and high energy costs.58 It seemed as if crisis had become a perpetual state of the norm for the industry.
Beitz’s most important long-term strategical move in the 1970s was to secure an adequate capital basis for the Krupp enterprise. In July 1974, Iran took a 25.04 percent stake in the Fried. Krupp Hüttenwerke AG via the National Iranian Steel Industries Co., and from 1976 to 1978 also in the Fried. Krupp GmbH. The new owners brought a total injection of some DM 1,400 million, and secured representation on the supervisory board. The Iranian state and Krupp also set up a joint company based in Zurich. The Iranian holding followed intense and personal negotiations between Beitz and Shah Reza Pahlavi. In particular Beitz did not inform the banks about his diplomacy, which was intended to free the company from financial tutelage. He was especially delighted that he succeeded in obtaining a price that was more than double the figure suggested by the banks as the value of a stake in Krupp. Beitz explained that the engagement represented a long-term commitment of the German company not only to the economic and technical development of Iran but also to projects in other rapidly developing countries. The chair of Krupp’s board of management, Ernst Wolf Mommsen, argued that this was a much more stable mechanism for recycling petrodollars than short-term deposits in Western banks.59
The Iranian participation became a source of great concern in Germany, but also in other industrial countries, after the Iranian Revolution and the overthrow of the shah, who had negotiated the Iranian stake. The Islamic government nominated new figures to represent Iran on the Krupp board, and there was considerable uncertainty about how the new owners would see their role—followed by great relief when the Iranian representatives actually appeared at their first supervisory board meeting in September 1979. The new arrivals were technically well-prepared men and not fanatical ideologues: Mahmoud Ahmadzadeh-Hervari, the new Mining and Industry minister, had been a professor at the Technical University of Teheran and had studied for four years at the German mining academy of Clausthal. Krupp’s financial director, Alfred Lukac, reported that he and the new state secretary Reza Salimi were “more pleasant than all the Harvard people” who had been sent by the shah.60 From 1991, as a consequence of mergers, the Iranian holding in the company shrank, and after 2003 it fell below 5 percent.
The Iranian participation drew attention to the increasing importance of developing countries, as well as the OPEC countries, for Krupp exports. In the 1970s, export growth seemed to shift away from the traditional industrial countries. The Polysius Division specialized in the supply of cement-making equipment: it had been founded in 1870 by Gottfried Polysius and bought by Krupp in 1971. In 1974 Krupp fulfilled the biggest-ever contract in its history so far, a DM 200 million cement plant in Saudi Arabia. There was also a large increase in the demand for the specialized desalinization equipment that Krupp built, which mostly was sold in Gulf countries. Krupp developed a steelmaking process based on the sponge-iron process for countries that lacked cokable coal. South Africa was one of the first major customers. In 1975, while steel and metallurgy sales fell off quite severely, by 15 percent, there was a 40 percent increase in sales of complete factories. As the industrial world was hit by stagflation, 43 percent of foreign sales went to developing countries, and 11 percent to OPEC. The diversification even included a modest return to armaments production, which had been a taboo in the 1950s and 1960s. From 1977 MaK, the vehicle products division, was involved in the construction of the Leopard 2 tank, produced mostly for the German army and for NATO partners; and Krupp-Atlas Elektronik developed its range and targeting system in the early 1980s.
Iran brought a considerable injection of cash, but there was no strategic reorientation of the company: in that sense, a powerful opportunity to remake Krupp was squandered. There was a general steel crisis in Europe, with too many producers, dominated by powerful managers trying to preserve their independence. In Germany, the major steel companies initially responded to the crisis by attempting to rationalize. Between 1974 and 1980, the major Ruhr firms reduced their workforces: Hoesch by 20 percent, Thyssen by 14.5 percent, and Krupp by only 6.6 percent.61 The historical pattern of the 1870s was replicated, when Krupp had also been the steelmaker that succeeded in keeping more of its workforce than its competitors. But the experience led to major losses in 1975 (DM 61 million) and 1978 (DM 19 million).62 The same crisis-adjustment mechanism was evident in the early 1980s, when the combination of a second oil price shock and a new monetary policy in the United States produced a new, major worldwide recession (which affected above all the industrial countries). In Europe, Krupp and other large steel manufacturers also suffered from the competition of the cheaper Italian minimills. A logical response was to move more into steelmaking equipment rather than steel. In 1981 there was a surge in the number of contracts for complete factories (an increase of around 120 percent), which were sold mostly to developing countries, while basic steel production fell in response to a fall of demand in the industrialized world. A heating plant was built for the GDR, a steelworks for Libya.
A better response to the crisis might have been a more general industrial rationalization and a reconfiguring of the steel industry. In 1979 Economics Minister Otto Graf Lambsdorff had agreed to a French proposal that the provisions of the European Coal and Steel Community that limited state subsidies should be suspended in the face of the new crisis, and that the German government should now use the leverage of government subsidies to push for steel rationalization. Greater industrial concentration looked like an obvious answer to the difficulties of overcapacity. But there were many difficulties in the way, and the 1980s became the decade of failed mergers. The problems of that decade were treated as specific to the steel industry; by contrast, in the 1990s, mergers were more easy to push through because the whole social model of the Federal Republic had come under enormous pressure. In the early 1980s, on the other hand, the push to rationalize seemed to be coming primarily from the outside, and from the government. The state was, however, relatively ineffective in dealing with the powerfully entrenched managers of the steel business.
Hoesch had already merged in 1972 with the Dutch company Hoogovens to form Estel, and needed to be removed before it could again be merged into a larger Ruhr company. The German government proposed a rationalization program that would be backed by public investment and guarantees, as well as help in dealing with the unemployment that might result from rationalization. In February 1982, the supervisory boards of Krupp and Hoesch drew up a plan to form a new Ruhrstahl AG, which might provide a framework for lowering overall capacity (from a total capacity in 1979 of 15.5 million tons of crude steel to 11 million tons by 1987), as well as for new investment for a new oxygen-steel plant on the Westfalen-Hütte site in Dortmund. But the negotiations were undermined by later discussions in 1982 on cooperation between Krupp and Thyssen on specialty steels, and the rationalization plan collapsed. The head of Thyssen, Dieter Spethmann, bitterly criticized the subvention policy of the European Community as a revival of eighteenth-century-style interventionism as practiced by Emperor Joseph II.63
The government then gave three “steel moderators” (Moderatoren), outsiders who had a substantial connection with the steel business, the task of producing a plan for rescuing the industry as a whole. With an election looming, Chancellor Helmut Kohl impressed on the moderators the urgency of a steel solution.64 One of the “moderators,” Günter Vogelsang, had been a former chief executive of Krupp but was then on the supervisory boards of Veba, Deutsche Bank, and Daimler-Benz as well as Thyssen; the banker Alfred Herrhausen of Deutsche Bank was on the supervisory board of what was by far the weakest German steel company, Klöckner; and Marcus Bierich of the Allianz insurance company had been the financial director of Mannesmann. The suggestion of these business experts to reorganize German steel in a “Ruhr group” of Hoesch, Klöckner, and Salzgitter and a “Rhine” group of Thyssen and Krupp also came to nothing.65 The “moderators” were a powerful exemplification of the notion of a “Deutschland AG” controlled by banks and insurance companies:66 financial institutions drove many mergers, though on some spectacular occasions, as in the case of a proposed Daimler merger with BMW in the late 1920s and then again in the late 1950s, they also failed. The steel initiative of the early 1980s belongs to the failures, not the successes of “Deutschland AG.”
Some other mergers in the sprawling Krupp empire also failed. The story of the AG Weser seemed to repeat the rather dismal loss-making story of the Germaniawerft. A proposal to merge the AG Weser with the Hapag Lloyd Werft GmbH and the Bremer Vulkanwerft AG collapsed in 1983. In 1984 the Bremen shipyard AG Weser was closed, two thousand workers were laid off, and the AG Weser’s production moved to Bremerhaven.
Steel production in Germany only began to recover in the mid-1980s, starting in 1984. By the mid-1980s, the largest developing countries were hit by the aftermath of the international debt crisis that broke out in Latin America in 1982; the most dynamic Eastern bloc economies, Poland and Hungary, had run into a similar kind of debt crisis and also into a broader political crisis. These problems made the Krupp business model seem vulnerable. In 1985, 22 percent of Krupp’s exports went to developing countries, 20 percent to OPEC producers, and 8 percent to communist countries. There was clearly a need to refocus again on products for advanced countries, and Krupp indeed sold very successfully a new process (PRENFLO or Pressurized Entrained Flow) for the gasification of coal for power generation. In 1986 Polysius also supplied the most advanced European cement plant for Ketton in England.
The turning point in the modernization of Krupp came as a consequence of increasing tension between Beitz and the chief executive, Wilhelm Scheider, in the late 1980s. The losses of the company increased, amounting to DM 202 million in 1988 and DM 452 million in 1989. Losses were especially heavy in the division that produced industrial equipment. Beitz lost confidence in Scheider’s ability to find an appropriate strategy to return the company to profitability. He promptly persuaded Scheider to leave Krupp before his contract expired. But there was also increasing criticism of Beitz, and one member of the supervisory board, Rudolf von Bennigsen-Foerder, resigned. Beitz now trawled widely among the heads of big German companies to find not one but two senior managers, one to be chief executive and the other to chair the supervisory board. The head of Hoesch, Detlev Rohwedder, declined an offer to become chief executive. As mentioned earlier, Beitz even tried to persuade the highly charismatic head of Deutsche Bank, Alfred Herrhausen, to move to Essen in order to save Krupp as chair of the supervisory board. Herrhausen was inclined to accept but was dissuaded in a three-hour-long meeting of Deutsche Bank’s executive board.67 In the end Manfred Lennings, a former head of the steel and engineering concern GHH (the old Krupp rival, the Gutehoffnungshütte) who had been forced out and had then run the industrial holdings of the Westdeutsche Landesbank, became chair of the supervisory board; and Gerhard Cromme, who had had a stellar career in the French company Saint-Gobain before joining Krupp as the head of Krupp Stahl, in 1989 succeeded Scheider as chief executive.
An often-remarked feature of the German-style capitalism of the “Deutschland AG” is that it is better at the pursuit of incremental change than at fundamental technological shifts and structural breaks in production.68 Like Japanese business, with which there are strong parallels, it is essentially about the management of perfection through an emphasis on continuity. But the problems of the steel business in Germany were now so severe that they demanded a radical break with the past. Cromme had a very clear modernization strategy involving diversification and also the shifting of production sites, and he dressed the new course with a quite radical rhetoric. He sometimes complained that Krupp was selling “products of the second industrial revolution.”69 He was also very clearly aware of the dangers of failure: “If we do not want to go under, we have to strive for a European dimension.”70
The most dramatic sign that the era had changed was that the Rheinhausen steelworks, the venerable Friedrich-Alfred-Hütte, was finally closed in 1993. Rheinhausen had been since the end of the nineteenth century one of the most striking symbols of Krupp tradition. The closure thus took on a symbolic role in remaking a business culture, analogous to Ronald Reagan’s dismissal of striking air-traffic controllers or Margaret Thatcher’s struggle with British coal miners. The closure had initially been announced by Krupp Stahl AG more than ten years earlier, in December 1982. A new announcement was made in 1987, and it provoked bitter protests. Krupp workers from Rheinhausen demonstrated in the Villa Hügel, interrupted a supervisory board meeting, ate the canapés, and smoked the cigars; they also occupied the bridge across the Rhine between Rheinhausen and Duisburg. They complained that they could not find anyone in the Krupp corporation to speak with.71 Cromme made it clear that he was determined to succeed where his predecessors had failed, but he also convinced the labor representatives that the move was a necessary part of an adjustment strategy. In the end, and after a considerable personal engagement of Beitz on the side of Cromme, all the worker representatives on the Krupp supervisory board voted for Cromme’s appointment as chief executive with the exception of the Rheinhausen representative, who abstained. The Rheinhausen works were closed without dismissals, and employees were offered jobs in other factories, including the Krupp-Mannesmann works in Duisburg-Huckingen. Cromme turned himself into a virtuoso of the peculiar system of German labor relations, with one British observer remarking that he played on Mitbestimmung (workers’ participation in management) as on a Stradivarius.
The most obvious way forward was to consolidate the steel industry in Germany. The big names in German steel, accustomed to see each other as competitors or rivals, started to engage in some forms of cooperation. In 1990 the Hüttenwerke Krupp-Mannesmann AG was established to create semifinished steel products.
In 1991 Krupp secretly bought up just under a quarter of the shares of Hoesch and then launched a hostile takeover, one of the very first in Germany. Takeovers had previously been thought of as a peculiarity of a radically aggressive form of Anglo-Saxon capitalism, not as an appropriate method for restructuring German industry to meet global challenges. In preparation for the takeover, Krupp transformed itself from a limited liability company (GmbH) into a joint-stock company (Aktiengesellschaft) in March 1992. In December 1992 the two enterprises merged as the Fried. Krupp AG Hoesch-Krupp, which was 51.61 percent owned by the Alfried Krupp von Bohlen und Halbach-Stiftung and 23.55 percent by the Islamic Republic of Iran. The Stiftung was thus still the holder of the majority of the stock. It was still a steel-based company, though the steel share of its business gradually fell. Steel accounted for about 35 percent of external sales in 1993. The takeover occurred at the moment of a severe recession, and the new enterprise incurred high losses in 1992 (DM 250 million) and 1993 (DM 589 million). The number of workers was reduced by sixteen thousand in the course of two years. But the stock market was enthusiastic about the new company. Its shares, which were traded from January 1993, for some time outperformed the German market. In 1996 the company established a Department for Investor Relations. By 1995 there was a return to profitability, although there was a pronounced difference in culture between the two companies and managers continued to refer to themselves as “Kruppianer” or “Hoeschianer.” Cromme attempted to bridge the divide with a program for “reengineering” the company emphasizing four “Ks” (Cs in English): Customers, Costs, Creativity, Communication.
Between 1992 and 1998, Cromme reduced the number of companies in the group from 160 to 75, and production abroad increased from 10 percent to 40 percent.72 The vehicle products division (MaK) had been spun off as a separate entity in 1992, and in 1996 was sold to the U.S. company Caterpillar; the traffic engineering sector was sold to Siemens. Krupp took over Acciai Speciali Terni in the course of the breaking up and privatization of the Italian state-owned steel company ILVA between 1994 and 1998. Terni was a steelworks established in 1884 that was in many ways the historical Italian equivalent of Krupp, which it had used as a model for its own development. It had been created in an old ironworking town; in the 1880s it started to work with a giant 108-ton hammer, and to specialize in military equipment. It hit a series of crises in the interwar period, but unlike Krupp, it was taken over by the government. At the same time, in 1997 Krupp acquired the only substantial Mexican producer of flat steel products, Mexinox S.A. de C. V. Krupp was moving out of steel mass production and into the manufacture of specialty steels.
One sign of the new ethos of globalization was that in 1994 separate companies were created for steel flat products, special heavy items, and long products, in part because the new specialized companies would no longer be subject to the workers’ representation provisions of the Montanmitbestimmung laws. In the mid-1970s, when Beitz was selling a share of Krupp to Iran, he had explained that he had no objection to Montanmitbestimmung. Consensual labor relations were for a long time a crucial element in the German way of doing business. Twenty years later, the business climate had changed, and the postwar German tradition looked like an obstacle to the modernization of business strategies.
After absorbing Hoesch, Krupp turned to a bigger company. Thyssen had been even more badly hit by the collapse of the early 1990s than Krupp. Much more of a mass producer, it did not even consider buying into the decrepit East German steel industry but instead bought about twenty-seven smaller enterprises in engineering and services. The head of Thyssen, Heinz Kriwet, at this time even contemplated a complete exit from steel. Back in 1987, Thyssen had tried to buy out Krupp but had been turned down by Beitz, who referred to the will of Alfried Krupp. In 1995 there was a limited form of cooperation in that Krupp and Thyssen merged their stainless steel operations in a venture that was 60 percent owned by Krupp: Krupp-Thyssen Nirosta.
In September 1995, the heirs of the Thyssen family sold their stakes, so that that enterprise too was no longer a family firm. Only a very small stake was held by the Fritz Thyssen Foundation. The company was hit by scandal in 1996 when the chief executive, together with nine other senior managers, was charged with fraud in a case that involved an investigation of government funds used for the privatization of an East German metal-trading company. In 1996 Thyssen tried but failed to establish a collaboration on telecommunications with Deutsche Bahn. In 1997 it sold its stake in a cellular phone company. At the same time, it moved to further internationalization, by buying the largest U.S. machine toolmaker, Giddings & Lewis Inc., as well as the North American elevator operations of the Dover Corporation. Despite its problems, Thyssen was substantially bigger and also more profitable than Krupp.
In March 1997, Krupp launched a hostile takeover bid for Thyssen, backed by Deutsche Morgan Grenfell and Goldman Sachs, who offered Krupp an apparently immense credit line (an estimated DM 18 billion, or three times the capitalization of Krupp). As in the 1980s, the idea of rationalization in the steel industry was again backed by the government, though on this occasion more on the Land level, where the prime minister of Nordrhein-Westfalen, Johannes Rau, was a firm advocate of rationalization, although he was opposed to the idea of a hostile takeover. The Krupp bid attracted widespread opprobrium. It seemed to many Germans to be the introduction of “Anglo-Saxon capitalism” or the beginning of a “Wild West.” Many commentators stressed the oddity of Krupp being the smaller and less profitable company of the two (DM 28 billion sales in 1996 with a market capitalization of DM 5.9 billion, while Thyssen had DM 38.7 billion in sales and a market capitalization of DM 10.8billion). There was an additional peculiarity in that the Deutsche Bank was advising Krupp on the deal but was also represented on the board of Thyssen. The Financial Times quoted one of the bankers involved to the effect that “this move is being made in accordance with the rules of the capital market rather than in the old clubby way such deals have often taken place in Germany.”73 But initially the parent banks, Deutsche and Dresdner, hesitated in the face of public criticism, and the deal collapsed.74 There was for the moment only a more modest cooperation agreement.
The merger talks resumed in a more cooperative spirit. In late 1997 Krupp and Thyssen agreed on a cooperation in Thyssen Krupp Stahl to manufacture flat products; and there followed an agreement on a complete merger, on the basis of a valuation of two thirds (Thyssen) to one third (Krupp). Five main product areas would constitute the new company: steel, automotive, industrial, engineering, materials and services. There would be “no losers” in the merger, and Gerhard Cromme from Krupp and Ekkehard Schulz from Thyssen would be joint chief executives. But the facts that Krupp would have four seats on the nine-man executive board (Vorstand) and that Dieter Vogel, the chair of Thyssen, had been sidelined were widely interpreted as a success for Krupp. The merger was approved by an extraordinary shareholders’ meeting of Krupp on November 30, 1998, and by Thyssen on December 4. The cost-saving synergies were estimated at DM 66 million for 1998/99 and would rise to DM 440 million in 2000/2001.75 In March 1999 the new company announced that it aimed to reduce employment in steel from 22,600 to 19,300 by 2001.
The merger mania of German industry continued. Germans spoke of “fusionitis” and of “the endgame of the giants.” Soon there were rumors that Mannesmann too would be sucked into the merger.76 But unlike what had happened in the chemical industry, where Hoechst and Rhône-Poulenc merged into Aventis, or in automobiles, where the unwieldy German-American giant Daimler-Chrysler was the outcome of “fusionitis,” German steel remained mostly German. By the 2000s, “avoiding Mittal” (the family firm, of Indian origin, that was acquiring a dominant position in the European steel business) was indeed often given as a rationale of the ownership structure anchored around the foundation when this position was criticized by other ThyssenKrupp shareholders.
International pressures also changed the structure of the ownership. After the terrorist attacks of September 11, 2001, the United States pressed ThyssenKrupp to reduce the holding by the Iranian state to under 5 percent and to exclude Iranians from the supervisory board. The operation of buying out Iran was an expensive one, as Thyssen-Krupp in 2003 paid €406 million or €24 a share, three times the current market value.77
The management of ThyssenKrupp suggested the sale of the Hamburg shipyard Blohm & Voss and the Nordseewerke Emden, on the grounds that they were “no longer core businesses.”78 In December 2006, the supply of tank parts was sold to Krauss Maffei Wegmann. In May 2004, the shipyards were merged with Howaldtswerke-Deutsche Werft, with the hope that this might form the basis for a European-level cooperation with the French shipbuilder and defense contractor Thales. There were also plans to let the steel branch go public, but these were not realized because of the unfavorable economic environment. The new core was that export business which Krupp had for a long time identified as central to its business model: exports of systems to emerging markets. In particular, the deal that seemed to establish the reputation of the new company was the creation of a high-speed rail system, the Transrapid, for China. Thyssen Krupp Stahl, the original core business, was to be floated separately in an IPO, but the outbreak of the world financial crisis frustrated this operation.
The company looked to external sources of renewal. In 1999 all nine members of the executive board of the new company came from either Krupp or Thyssen; ten years later only two, Ekkehard Schulz and Ulrich Middelmann, were veterans of the original board, and the other four board members came with an outside background. In 2010 a new chief executive of ThyssenKrupp was appointed from outside the company: Heinrich Hiesinger from Siemens.
A move that reasserted some of the Krupp tradition provoked controversy. In January 2007, the Alfried Krupp von Bohlen und Halbach-Stiftung, whose postmerger share of the capital of ThyssenKrupp had originally been a mere 17.36 percent and was gradually increased to 25.33 percent, was given the permanent right to nominate three members of the supervisory board. This looked like exactly the kind of “poison pill” used for instance by Arcelor to prevent ThyssenKrupp taking over the Canadian steelmaker Dofasco. The German fund manager Christian Strenger was quoted as saying that the move “stunts the rightful influence of other shareholders.”79 Another reassertion of tradition came with the decision to move the headquarters of ThyssenKrupp away from the architecturally ambitious, modernistic Düsseldorf “Dreischeibenhaus” (Three Wedges) house built in the late 1950s to a dramatic postmodern cubic building (by Chaix & Morel and JSWD Architekten) as part of a company campus situated on the Altendorfer Strasse on the outskirts of Essen, right next to a reconstructed version of the original Krupp Stammhaus. In this way, the company returned as it were to the womb, to the site where everything had started some two hundred years before.
Figure 7.7 A reconstructed version of the Krupp Stammhaus and the new ThyssenKrupp central office, Essen, 2010 (Peter Wieler photo). Courtesy of Historical Archives Krupp.
In the economic and financial crisis after 2007, sales fell off very sharply: for the fiscal year 2008/9 sales of €40.6 billion were three-quarters of the level in the year before. There was a renewed threat of labor unrest, with announcements of protest meetings and a demonstration outside the Villa Hügel, but union representatives and management agreed in June 2009 on the “Essen Declaration,” which resumed a Krupp tradition in promising a restructuring without dismissals and protection of the principle of codetermination (Mitbestimmung). German workers had been worried in particular about the company’s strategy of international diversification, with big steel-plant investments in Brazil and the United States, which also continued in spite of the economic and financial crisis. The $5 billion steel mill constructed in Calvert, Alabama, is the largest single German plant investment ever made in the United States. The new Brazilian works was inaugurated in June 2010, at a moment when Brazil’s economy was widely seen as the most successful and crisis-resistant of the big emerging markets.
For much of the twentieth century, large enterprises seemed to be very stable and enduring institutions. Japan’s lifelong employment traditions were only an extreme variant of a worldwide theme that was also very well developed in Germany. In particular in Krupp, third-generation workers were not uncommon, and the enterprise apparently offered a cradle-to-grave enclave of social protection. But in the last decades of the century a dramatic change occurred, and corporate existence across the world became much more unstable and uncertain. This has certainly been evident among the great nineteenth-century steelmaking rivals of Krupp. Among those in other European countries, Vickers was bought in 1999 by Rolls-Royce after substantial financial difficulties; Skoda was sold to a Dutch-registered holding company, Appian Group, in 2003, with a substantial lack of clarity about the ultimate ownership; and only the French firm Schneider remains as an independent company, but now it is specializing mainly in electrical products and retains little connection to the old enterprise. The giant French steel company Wendel became a financial holding company. Of the great old German steel and engineering groups, the rump of the Gutehoffnungshütte merged in 2008 with the French company Valdunes, which had emerged out of the Belgian Cockerill works; and Mannesmann has completely transformed itself from a tube company to mobile telephone enterprise after a controversial hostile takeover by Vodaphone in 2000. Hoesch and Thyssen had merged with Krupp.
The German business model changed with the global transformation of corporate cultures, as many critics complained about slow growth and rigidity in Germany. Some people presented this globalization as an Americanization, forgetting that there had been previous eras in which the transformation of German enterprise was also described as Americanization: in the early twentieth century, when the process was also called fordism or taylorism; and in the immediate postwar period, when figures such as Hundhausen had held out American methods as the key to successful German reconstruction. In reality, at the beginning of the twenty-first century, as in earlier epochs, the supposed influence of foreign models or best practice is part of a continuing process of corporate reinvention, rebuilding, and rebranding. After 2007, the global financial crisis produced a return to rather upbeat assessments of German prospects in manufacturing and especially in engineering (though not in the undercapitalized and underperforming banking sector). Germany, until 2010 the world’s largest exporter, benefited greatly from its traditions of workmanship, reliability, and technical innovation, and from the demand for engineering products and machine tools in the rapidly growing emerging markets. The foundations of this business model were old and traditional: the values of craftsmanship, devotion to technical innovation, and suspicion of financial capitalism all go back to the world of the nineteenth century and to the visions of Alfred Krupp. It was an old German model that began to shine again, though the jewels in the crown were brand new.
Why has Krupp survived in the turbulent corporate environment of a globalizing German economy? The name has a powerful brand recognition, but especially in the early postwar period the connotations in most foreign countries (communist China was an exception) were highly negative, associated with war, not peace. The company was put together again very effectively in the 1950s by Berthold Beitz; and the transformation of ownership to the foundation in 1967/68 provided a new and more stable ownership structure that preserved the positive elements of being a family firm without the drawbacks. But by themselves, even these measures would not have been enough; and a process of transformation was required in the 1990s and 2000s to create a coherent company vision for what had now become an integrated technology group rather than a rather diverse conglomerate that was a chance outcome of badly needed mergers between small enterprises that had lost their globally competitive edge. How did that new vision and new focus emerge?
The 1990s were the decade in which globalization began to erode the complex institutions that had come to be known as “Deutschland AG,” in which banks held controlling stakes in some major companies while other large corporations were controlled by family holdings. Instead, institutional shareholders and private-equity firms became more important, and shareholding became more diversified. The transition to a new corporate governance was furthered by legislative and tax measures. Laws of 1998 and 2002 abolished multiple voting shares and increased the controlling functions of supervisory boards. In addition, the socialist-environmentalist coalition government of Gerhard Schröder overhauled benefits in order to make for greater labor flexibility. Some family groups emerged strengthened from this era of corporate upheaval and tried themselves to play the private-equity game, using capital markets and bond issues to create high degrees of leverage. Such a strategy also involved playing according to the rules of a global game, which had changed in the direction of greater openness and transparency. Some of Germany’s best-known public companies—Volkswagen and Siemens—became enmeshed in corruption and bribery scandals. And some large family enterprises miscalculated badly and overstretched themselves: Schaeffler Group, for example, which launched an ill-considered bid for the much larger Continental; and the complex business empires of Adolf Merckle centered on generic pharmaceuticals. These developments of the turn of the millennium posed a challenge to traditional German notions of how business should be conducted. What was the response of corporate Germany?
1. Ownership became more important, and market pressure on stock markets meant that managers had to become sensitive to share valuations. This doctrine, popularly termed “shareholder value,” was highly controversial because it looked as if the new focus in its current was transferring wealth from stakeholders (such as the workforce, or the local community generally) to shareholders. In consequence, it was inevitable that Germans began to ask about the identity of the owners of large companies, and worried about the exclusion of a wider group of stakeholders.
2. Profitability mattered much more. In the past, owners had had a vision that focused on technology rather than an orientation to cash flow. In addition, managerial incentives were not closely aligned with profitability. The nineteenth-century Krupps had frequently been dismissive of the significance of profits, as had Alfried Krupp von Bohlen und Halbach in the years of the postwar boom. Late-twentieth-century managers in many large German companies had largely ignored owners and their interests. Cromme reemphasized profitability and the interests of owners, and justified his course by arguing that cost saving was the only way that Germany could remain internationally competitive. The “Modell Deutschland” as it had developed in the years of the postwar “economic miracle,” when profitability mattered less than the maintenance of social cohesion and a gamble on growth, required significant modification.
3. International competition became a major criterion for judging a company’s stature—as in the days of the early nineteenth century, when Alfred Krupp was worried above all about his firm’s ability to compete with English products. There was a return to the globalized vision that had already characterized the company in its early history, before the first half of the twentieth century brought a reorientation in national terms.
4. Patriarchal philosophies appeared obsolete. Already before the First World War, paternalism had been under fire, and Friedrich Alfred Krupp had tried to reduce the rigidities of his father’s model of labor relations; and a more inclusive management philosophy began to emerge. In the immediate postwar era, there had been a strategic bargain in which industry had worked closely with labor in order to fight off the threat of foreign ownership. By the new millennium, that very simple bargain appeared to be obsolete. There was a new premium on labor flexibility that was actively promoted by governments and which seemed to mark a new type of social compact.
5. Company inheritances became problematic as the corporate landscape began to change rapidly. The megamergers of the past two decades have thrown together some unlikely bedfellows. In every case, there was an inevitable shock to well-established corporate cultures, symbols, and routines. Some mergers, especially those crossing national boundaries, were spectacularly conflictual and eventually unsuccessful (the Daimler-Chrysler fusion, and BMW’s takeover of Rover, were the most conspicuous failures). The German steel industry was historically built on different cultures, associated with specific and rather unique urban settings: Hoesch in Dortmund, Thyssen in Duisburg, and Krupp in Essen. The whole concept of “Kruppianer” involved a particular Essen patriotism, in which other Ruhr cities were thought of as less sophisticated. Though the Ruhr cities are quite close, no further apart than the constituents of the Los Angeles conurbation, and are often indeed considered by geographers to be simply part of a Ruhr megalopolis, they had unique profiles, which could be fused and synthesized only with great difficulty. But remaking the company after the merger involved reinvigorating the whole region, and thinking about the connections of local and regional identities in a globally integrated economy.
6. The central role of banks in the German economy eroded, as bank lending was replaced by the capital market. In the postwar years, when companies had found it hard to raise capital for new investments, banks had played a major part in reconstruction; and in the last decades of the twentieth century, large mergers and acquisitions needed to be financed. But such financing could be handled more cheaply and effectively through the capital market. The new banks that mattered were investment banks, often American banks such as Goldman Sachs, as well as the German banks, such as Deutsche Bank, that had turned into Anglo-Saxon-style investment banks. The new relationships were quite different from the traditional German concept of a business run in a very close relationship with a particular “house” bank (a concept that Krupp had always been uneasy about). A sign of the new liberation from banks was their decreased importance on supervisory boards. In January 2010 the last banker, Martin Kohlhaussen of Commerzbank, departed from the board of ThyssenKrupp.
7. There was no complete retreat of the state from involvement in business. Large industrial undertakings still obviously have a major impact on the development of whole societies, and in that sense they are inevitably political. Indeed it is striking that the last banker on the supervisory board of ThyssenKrupp was replaced by a very recent German finance minister who was as well a former minister-president of Nordrhein-Westfalen, Peer Steinbrück.80 The question of who occupies such a position in a major industry is still—as it was in the 1950s—a matter of politics.
ThyssenKrupp is an incarnation of this transition of corporate culture. The two component companies had been central to Germany’s steel and engineering traditions and had evolved deeply different and contrasting managerial philosophies, with Krupp widely seen as highly centralized and Thyssen celebrated as a pioneer of the multidivision form. But both looked as if they had reached the end of a particular track, and had been severely hit by crisis in the 1990s. They then remade themselves in the new style. At the same time the characteristically German form of the foundation as a holder of property rights created an institutional peculiarity, looking back to an age in which there was an affectio societatis, or a company held together by an idea and a vision. It was a way of preserving the virtues—or the familiarity—of family capitalism, without the well-known drawbacks of fratricidal struggles and destructive succession disputes that so often tear a well-established business unit apart.
Modern management theory, especially as preached in U.S. business schools and practiced by their graduates, treats managers in particular, but also company employees in general, as individuals driven by isolated gain-maximizing strategies. It is diametrically opposed to the traditional German and perhaps European vision of a company as an embodiment of some overarching value system, in which a corporation is a microcosm of a general social equilibrium. In that European tradition, profitability is not everything, but rather flows from the success of the business venture and the business philosophy. Without the sense of community, a search for profitability would subvert itself, in that it encourages individual managers and employees to internalize the goals of profit maximization and turn them against the firm as a broader unit. Over much of the past two centuries, companies were often believed to be alternatives to other, more conflictual models of society: a society based on intense antagonism of classes, a century ago; and in recent years the radical individualism and market fundamentalism that seemed to German observers to emanate from the Anglo-Saxon world. There were of course class conflicts and tensions in the factory, just as there were problematic managers (as had become especially apparent in the general dissolution of values in the Nazi period, when managers started denouncing each other). But the community of the factory nevertheless could serve as a sort of ideal or dream that might inspire a better (and ultimately also more profitable) corporate life.
The answers to economic challenges of the last twenty years have taken up some of the themes that had emerged in Germany’s striking postwar recovery. As German society and politics disintegrated in the mid-twentieth century in the wake of dictatorship and war, corporate existence and loyalty, in which a company represented “permanent life,” looked like a way of rebuilding society around an idea of community. Over sixty years later, there is still a debate about how business can be appropriately anchored in a broader framework of obligations and responsibilities. But now it involves much more reflection on how local communities can survive in a global economy. A foundation that guides a corporation is an institutional way of realizing a vision of a society not just held together by the clashes and competitions of individual agents, but bound by cooperation for a higher purpose or general good. That vision might be termed “public interest capitalism.” Its realization or implementation makes quite obsolete the kind of fierce dispute between bankers and business leaders that characterized the 1960s and 1970s and that even recalled Alfred Krupp’s struggle against finance in the 1870s. A Stiftung or foundation preserves the virtues of a family business structure—which the bankers had fought against—and offers a way of emphasizing the long-term vision rather than a short-term speculative position. That was exactly the philosophy that Alfred Krupp had evolved, of a company that was—whether large or small—a microcosm of the general society in which it existed, and a source of dynamism and development. In that sense, the modern reinvention of the company goes back to the roots of German industrial culture.
