Four years ago, Metro Group CEO Dr Eckhard Cordes took the top job at the German retail giant in the wake of discord in the boardroom and uncertainty over the company’s future. He is set to leave the world’s fourth-largest retailer in much the same way.
Last Sunday (9 October), Dr Cordes issued a surprise personal statement to say he would not look to extend his current contract beyond next October, when it expires. The news followed weeks of rumours over the future of the 61-year-old, with suggestions he had lost the support of key shareholders. However, just three weeks ago, both of Metro‘s major investors, German industrial holding company Haniel and the Schmidt-Ruthenbeck family, had publicly given Dr Cordes their backing. The speculation had, it seemed, died down.
Not so. Last weekend, Dr Cordes announced his plan to leave Metro. He thanked Haniel and the Schmidt-Ruthenbeck family, who, he said, had told him they wanted him to stay on. Nevertheless, the Metro chief indicated there were tensions at the top of the retailer.
“Speculation regarding my contractual prolongation – pushed by whomever – were repeatedly made public, which threatened to harm the company, the principal shareholders and myself. However, a company requires a trustful co-operation and a unity of the highest degree between the management and supervisory board. Single party interests, including my own, must rank behind those of the company,” Dr Cordes said. “It would be fatal for the future of the company and its employees should the chosen successful restructuring process of Metro and the return to its profitable growth path be questioned by a no longer existent mutual trust.”
just-food understands that the supervisory board, which contains shareholder and employee representatives, met and voted on whether Dr Cordes should ask for a contract extension. A majority said no. When informed of the vote, Dr Cordes decided not to remain at Metro beyond next year.
In November 2007, Dr Cordes, then chairman and CEO of Haniel and chairman of Metro’s supervisory board, became the retailer’s chief executive. His appointment to the job was not without controversy. Former chairman and CEO Hans-Joachim Körber had decided to quit after, it was believed, disagreements with Dr Cordes over the future direction of Metro.
Dr Cordes took charge of a retailer with a number of problems. Hypermarket business Real was struggling and there was continued speculation over its Extra chain. Within months, Metro sold Extra to Rewe and, a year later, Dr Cordes looked to boost profits with a company-wide restructuring programme, Shape 2012. Profits fell in 2009 but Dr Cordes was confident that Metro’s earnings would improve over the medium term. This March, Metro reported “record” annual profits, with underlying EBIT climbing to EUR2.4bn.
“We have achieved record earnings during the greatest restructuring in the company’s history and at the end of a severe economic crisis. At the half-time of Shape 2012 we can already say that we are now stronger than before the crisis,” Dr Cordes said when the results were announced. However, despite its performance in 2010, some analysts were unimpressed with the forecasts Metro provided for sales and profits in 2011.
Fast-forward to last month and speculation emerged of shareholder discontent over Metro’s performance and Cordes’ inability to find a buyer for a still-sturggling Real (which saw sales fall in the first half of 2011 and posted an operating loss of EUR11m, although this did compare to a loss of EUR42m a year before) and department store chain Kaufhof.
Haniel was reported in Germany to be the discontented shareholder, which made first its subsequent public backing of Dr Cordes and then his announcement last weekend surprising. However, clearly, there was disapproval with Metro’s performance somewhere at the top of the company.
Commerzbank analyst Jürgen Elfers says the speculation meant it was difficult to ascertain why Dr Cordes faced opposition. He believes there could have been frustration with the way the Metro chief executive had communicated the retailer’s strategy. What’s more, while there were rumours that shareholders were unhappy that Real and Kaufhof remained with the business, Elfers argues the uncertainty around their future could also have affected staff. “One thing is certainly clear: if you keep on telling the market that you intend to dispose of Kaufhof and of Real, and you are not willing to strike a deal for the prices offered, at some stage it impairs the morale of employees,” he tells just-food.
In March, when Metro announced its results for 2010, Dr Cordes said the retailer’s Real stores in Germany were not a “definite candidate for disposal any longer” and said the company was looking at “many options” for the chain. He added that Metro was “not in a hurry” to sell Kaufhof. In hindsight, neither statement perhaps carried the certainty some within Metro could have wanted.
However, Elfers believes Dr Cordes has made improvements at Metro. “He turned Metro upside down. He has done a lot with Shape 2012. That was a significant achievement,” he insists.
And, elsewhere in the financial community, there was disappointment that Dr Cordes had decided to leave the business. “Dr Cordes, in our view, has been a successful CEO, most notably spearheading the Shape 2012 profit improvement programme, and his departure before the end of the programme poses some risk that Metro may not deliver the full benefits targeted,” says Sanford Bernstein analyst Christopher Hogbin.
Dr Cordes’ departure could also reflect wider problems at Metro, Hogbin adds. “The fact that internal divisions have led a respected CEO to stand down may simply reflect personality issues, but could also point to more fundamental divisions about Metro’s strategic direction and operations and/or more broadly about corporate governance.”
And some analysts believe there could be a debate over Metro’s future direction outside the business. J.P. Morgan Cazenove analyst Matthew Truman believes Dr Cordes’ planned departure will lead to renewed calls to break up the retailer. He points to disagreement between shareholders and management and the “ongoing rumblings” at the direction consumer electronics divisions Media Markt and Saturn should take. “With Shape 2012 effectively ensuring all companies now stand alone, the company may face a renewed call to break the company up and reap the undoubted value from the sum of its parts.”
As when Dr Cordes sat down at the Metro chief executive’s desk in 2007, his successor will have a lot on his plate.