Arconic begins search for new CEO after Kleinfeld’s sudden departure

Friday 28th April 2017 | 0 Comments

 
Klaus Kleinfeld
Photo: Arconic Inc
Klaus Kleinfeld Photo: Arconic Inc

Let sleeping dogs lie, don’t poke the bear, and never, ever antagonise your company’s billionaire major shareholder – especially if he’s already voiced a desire to replace you. Klaus Kleinfeld should have borne this final point in mind when he penned a letter to Paul Singer earlier this month. The correspondence gave Singer, the man behind hedge fund Elliott Management, the ammunition needed to blast Kleinfeld out of Arconic Inc, parent company of Alcoa Wheels.

Singer had sought to remove Klaus Kleinfeld from his position as chief executive officer of Arconic for some time before Kleinfeld, with the mutual agreement of the Arconic Board of Directors, stepped down as chair and CEO in mid-April, and also relinquished his Board membership. Elliot Management, Arconic’s largest shareholder, considered him the wrong choice to deliver shareholders the performance it sought. In contrast, the Arconic Board stood behind Kleinfeld, crediting him with leading Alcoa Inc.’s turnaround through the economic recession and collapse of the aluminium market, and for “executing a successful transformation to launch Arconic and Alcoa Corporation.”

Despite its support for Kleinfeld, the Board at Arconic decided his departure was the right decision after being made aware of a letter he sent Singer without the Board’s authorisation or prior consultation. The letter, the Board opines, “showed poor judgment.” It has since been made public, and the jubilant World Cup celebrations in Berlin that Kleinfeld alludes to in it make for interesting reading.

Seeing beyond the tale of football hijinks, Singer instructed his corporate counsel, Richard B. Zabel, to send Arconic a letter of his own. Zabel wrote that Kleinfeld appeared to make “veiled suggestions that he might intimidate or extort Mr Singer based on Mr Singer’s family trip to Germany in 2006 when he attended the World Cup.” This he described as “highly inappropriate behaviour.”

The Board responded accordingly. Kleinfeld is gone and Singer presumably pleased to have finally achieved this goal, yet the Arconic Board still spoke highly of Klaus Kleinfeld following his departure.

“The Board continues to believe that under Mr Kleinfeld’s leadership, the company successfully executed a transformative vision and improved business performance amid a complex market environment, and the Board reaffirms the strategy developed under Mr Kleinfeld’s leadership and shared with our investors, customers and employees,” it wrote in a statement published 17 April. The Board stressed that its decision regarding Kleinfeld “was not made in response to the proxy fight or Elliott Management’s criticisms of the company’s strategy, leadership or performance, and is not in any way related to the financials or records of the company.”

“The Board is deeply grateful to Klaus Kleinfeld for his dedication and service as chair and CEO of Arconic, and previously of Alcoa Inc., and appreciates his assistance with this transition,” said Patricia F. Russo, lead director on the Arconic Board. “Klaus led a complex and highly successful transformation of Alcoa Inc. that culminated in the launch of two strong, standalone companies – Alcoa Corporation and Arconic. Today, Arconic is a leading advanced manufacturer of highly engineered products with strong market positions.”

“I have had the honour and the privilege of working with so many talented and dedicated colleagues at Alcoa Inc. and now at Arconic,” stated Kleinfeld. “Together we have accomplished a lot. Today, Arconic is well positioned for the next phase. I am committed to supporting David and the Board through this transition phase.”

David P. Hess steps into the breach

Russo also stated that the Board “is focused on hiring a world-class CEO to lead Arconic into its next chapter” and “focused on ensuring a smooth leadership transition for our customers, employees and many stakeholders.” David P. Hess, a current Board member, has been appointed interim chief executive officer of Arconic.

David Hess joined the Arconic Board in March 2017. He previously served in numerous leadership roles over his 38-year career at United Technologies Corporation (UTC), including his most recent position as UTC executive vice-president and chief customer officer for Aerospace, a role he held from January 2015 through January 2017.

“We are fortunate to have a proven leader of David Hess’ calibre to step into the CEO role on an interim basis while the Board conducts its search process for a permanent CEO,” Russo commented. “We are confident that David’s abilities and experience will ensure a smooth transition for the benefit of all of our stakeholders.”

“I look forward to working closely with the Board, senior leadership team and our dedicated and hard-working employees,” added Hess. “Klaus and the Arconic team have built a great company and over the coming months my focus will be on continuing to serve our customers seamlessly, and deliver for our shareholders.”

Elliott Management’s battle to gain control of the Arconic Board continues. On Tuesday, a day after Arconic declared itself willing to accept two of Elliott’s director nominees to its board, the hedge fund sent Arconic a letter urging it to elect all of its four shareholder nominees to the Board. Arconic announced on Monday that its annual meeting, scheduled for 16 May, had been postponed until the end of the month. Elliott’s ambitions for Arconic, as well as comments on the company’s management, are set out in a presentation that was published yesterday.

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