In The Dock

In early September, Josef Ackermann delivered a triumphant message to an audience of investors and financial analysts in London: his aggressive plan to reshape Deutsche Bank was working. In chart after chart, he showed how in the 16 months since he'd taken over the €23 billion bank he had begun to dump unprofitable businesses and slash costs. His last slide was the usual boiler-plate disclaimer that said the presentation "involves inherent risks and uncertainties." It didn't mention the biggest risk of all: that Ackermann himself soon would end up in court, charged with a serious breach of German company law that could put him in jail for up to five years.

That corporate nightmare became a reality on Sept. 19 when a German regional court in Düsseldorf confirmed that Ackermann, 55, would stand trial along with five other German executives in a case tied to the €180 billion takeover of Germany's Mannesmann by the British mobile-phone company Vodafone in 2000, the largest corporate merger in European history. Ackermann and three of the others, including the former national labor leader Klaus Zwickel, were members of Mannesmann's supervisory board at the time and are charged with "breach of trust," a violation of fiduciary duty.

The case has stunned the German business and political worlds and sparked intense speculation about hidden motives. Some see it as an attack on Germany as a place to do business. Others wonder whether it may be the payback for allowing a big German company to be bought by a non-German competitor. And when the Financial Times splashed on its front page Deutsche Bank's threat to move its headquarters to London — a report from which it later retreated — bankers in Frankfurt openly wondered whether it wasn't all "a London conspiracy," as one put it.

What did Ackermann and cohorts do that was so wrong? As part of the takeover, the Mannesmann board approved about €60 million in bonuses and severance payments for Mannesmann officials, including a €15 million "appreciation award" for chief executive Klaus Esser. German corporate law allows such payouts only if the amounts are "appropriate" — without giving a precise definition of what that means. State prosecutors allege that these payments were far larger than legally warranted, and that Ackermann and other defendants may have given the board erroneous or incomplete information. Esser and another former Mannesmann official, Dietmar Droste, will also go on trial for abetting the alleged breach of trust.

Boards will think more carefully before allowing their CEO to sit on another board — MARCO BECHT, European Corporate Governance Institute

Ackermann and his codefendants vehemently deny the charges, saying that Esser and the others deserved the payouts because they had presided over a huge increase in Mannesmann's market value. "An exceptional performance was being honored," Ackermann told Manager Magazin in June. "Such things are quite natural in other countries, but in Germany you are persecuted by public prosecutors and pre-judged by some of the media."

Ackermann says he isn't stepping down even temporarily from

Ackermann is under fire for his role at Mannesmann, but he’s won praise for his running of Deutsche Bank pro • Took a hatchet to bloated costs • Revamped board structure • Dumped stake in dozens of firms con • Clashed with German tradition • Not as profitable as key rivals • Faces possible five-year prison term if convicted

Deutsche Bank. That's unusual in Germany, where executives often stay in office if they are under judicial investigation, but excuse themselves if the case goes to court. So far, Deutsche Bank is supporting Ackermann's stance, and others have defended him — including Germany's Finance Minister, Hans Eichel. "Herr Ackermann has our full confidence," Eichel told reporters.

Although not directly connected to his bank job, the Mannesmann case typifies the head-on collision between Ackermann's brash style of management and the bank's more cautious German approach. Ackermann, who is Swiss, is the first non-German to head the bank in its 133-year history. He has aimed to make it function more like an American or British financial institution, moving away from Germany's traditional reliance on consensus. The bank has switched, for example, to American accounting rules, but Ackermann's biggest cultural change was revamping the board structure. Deutsche Bank's management board traditionally viewed itself as a college of equals. Ackermann has emasculated that system by creating a "group executive committee" and a new four-man "board of managing directors" that can act without the rest of the directors, enabling him to function more like an American CEO. Thanks to the change, "we can take strategic decisions faster and with better preparation," he told shareholders in June. Unintentionally, the change also makes him harder to remove. "Deutsche Bank's particular dilemma is that the CEO stands alone," says Ulrich Hocker of the German Shareholder Protection Association, which advocates tougher corporate governance.

Whatever the outcome, the case is a blow to Ackermann and can only make his plan for change harder to implement. A sympathetic Frankfurt banker said: "Imagine how distracting it must be to try to talk about serious things like new capital requirements when you know that everyone listening is just wondering whether you're going to resign." Deutsche Bank must also convince investors that it can function effectively and implement the next phase of Ackermann's reforms, even though their chief architect will be out of action for days at a time. The trial is expected to start early next year and will likely go on for months.

And as Ackermann made clear in his London presentation on Sept. 4, he still has unfinished business. Since taking over, he has cut Deutsche Bank's operating costs by more than €5 billion, or about 25%, in part by eliminating about 15,000 jobs. He has also sharply curtailed corporate lending and sold a cluster of businesses, including much of the bank's insurance operations. But the bank is still far from Ackermann's goal of a 25% return on equity, and more tightening is expected, including the sale of its 11.8% stake in automaker DaimlerChrysler. The question now is whether the trial, regardless of outcome, will slow the pace of change. Marco Becht, executive director of the European Corporate Governance Institute in Brussels, predicts the trial will have a chilling effect around Europe. "Boards will think more carefully before allowing their CEO to sit on another board," he says. For Ackermann, the big question now is not whether he'll join new boards but whether he'll be able to keep serving on his own.