Manfred Gentz shifts Daimler's gears - CFO of Daimler-Benz AG

When Manfred Gentz was named CFO of Daimler-Benz in May 1995, after serving 25 years in the group's human-resources function, the joke doing the rounds in Germany's boardrooms was that he was the country's most expensive finance apprentice.

But Gentz's record over the past three years has wiped the smiles off his detractors' faces. During that time, Daimler's CFO has emerged as a key player in the effort to transform the DM124 billion ($70 billion) giant from a lumbering, loss-making conglomerate into a more focused, profitable business.

While CEO Juergen Schrempp is the dominant influence in Daimler's conversion to what it calls value-based management, the 56-year-old Gentz has given him the tools to engineer change - including a streamlined reporting system, a transparent set of accounts based on U.S. standards, and a new performance metric. His achievements have won plaudits from the international investment community. "Gentz has managed to push through a [TABULAR DATA OMITTED] level of transparency truly astonishing in German industry," says John Lawson, director of equity research at Salomon Smith Barney in London.

Now, however, Gentz faces perhaps his stiffest test. As CFO-designate of the new DaimlerChrysler, Gentz will play an important role in the world's biggest industrial merger, which is due to be approved by shareholders later this year. (Gentz declined to comment on the details of the deal for this article.)

The merger is effectively a takeover of Chrysler by Daimler. As a result of a $38 billion stock-swap, Daimler's shareholders will end up with 57 percent of the new firm. Daimler executives will also be in a majority on the company's managing board. But if the new firm is to prosper, executives from both companies will have to forge a brand-new corporate culture.

They will also have to deliver on their financial promises. Unveiling the deal in May, Daimler and Chrysler pledged that within five years, annual savings from joint purchasing, better distribution, and cost cutting would total $3 billion. However, some observers reckon that a figure of $5 billion is well within reach.

REVIVING DAIMLER

While Gentz won't be responsible for areas in which the biggest savings are expected, such as global purchasing, he is part of the seven-member "integration committee" that will oversee the merger. As well as working out how to fuse the two companies' finance functions, he will have to reconcile American and German notions of creating and measuring value.

If past performance is a guide, Gentz is up to the challenge. After joining Daimler in 1970, he moved up through the ranks of the firm's personnel function, becoming a full board member with responsibility for human resources in 1985. Around that time, under then-chairman Edzard Reuter, Daimler was diversifying into such areas as aerospace and software development - with ultimately disastrous consequences. Shortly before Daimler reported a breathtaking DM5.7 billion loss for 1995, the company's supervisory board ejected Reuter and named Schrempp, who was then head of the aerospace unit, as chief executive officer.

At the same time, Gentz, who had been running Daimler's financial and software [TABULAR DATA OMITTED] services business, was propelled into the CFO slot. He was under no illusions about the difficulty of the task ahead. "We [had] dropped into deep trouble," he recalls.

Nevertheless, Gentz says that many Daimler executives believed the poor results were just a hiccup. Part of the problem was a dual reporting system, which often made internal figures look better than those reported publicly. Also, an antiquated management information system made it hard for senior executives to grasp how individual units were performing. And there was no sophisticated benchmark for gauging financial performance.

Gentz's solution was called DB-FACTS (Daimler-Benz Financial Accounting and Controlling Transparency System). Costing DM30 million to develop, this system is based on three "pillars." One is generally accepted accounting principles: starting with its first-half 1996 financial statements, Daimler began producing its accounts primarily according to U.S. GAAP, which are more transparent than German standards.

Another pillar is a new management information system, which enables Daimler's 23 units to file monthly results on the first day of the following month and senior executives to read consolidated figures by the 10th.

The third pillar is return on capital employed (ROCE). All of Daimler's units were told to achieve a minimum ROCE of 12 percent by 1998. If competitors' ROCE was higher than this figure, Daimler's units had to match the best of them or present a credible plan to catch up fast.

Poor returns from some of its businesses explain why Daimler was still destroying DM2.5 billion of shareholder value in 1996 when judged according to economic value added (EVA), even though it reported a DM2.8 billion net profit that year. Last year, however, group profits rose to DM3.2 billion, and the EVA soared - coincidentally, also to DM3.2 billion.

But Daimler's value crusade has not stopped there. In April, the company announced it would return DM7.4 billion of retained earnings to shareholders - a move that cut Daimler's tax bill by DM2.9 billion.

THE SEARCH FOR SYNERGIES

At DaimlerChrysler, the emphasis will not be on handing cash back to shareholders, but on generating it from synergies. That's why much of the attention will initially be on Gary Valade, Chrysler's current CFO, who will become head of global purchasing. "Valade's job is the most important in the short term," confirms Klaus-Juergen Melzner, an analyst at Deutsche Morgan Grenfell in Frankfurt.

That's not to say Gentz won't have a big role to play. "Below top management, he's got the second-toughest job after Valade," says Salomon's Lawson. On his agenda are several pressing issues.

One is the kind of performance yardstick that DaimlerChrysler will use, Although using ROCE is bold by German standards, U.S. investors may consider it too easy for managers to manipulate. Another challenge will be to weld together the companies' finance operations - likely through the use of shared services centers, predicts Bob Leach, a partner at Coopers & Lybrand's financial management consultancy in London. As for management information, Leach says the companies will need to harmonize the timing of internal reporting and the kind of data that are reported.

But perhaps the biggest challenge facing Gentz is to help merge German and American notions of capitalism. That means reconciling American stock-option schemes with far less generous German incentives, persuading skeptical American executives that worker co-determination is a good thing, and explaining why boosting shareholder value should not be the principal goal of a company.

By engineering a new type of corporation that combines the best of the German and American models, Gentz can prove yet again that he's a financial wizard, not an apprentice.

Christopher Watts is staff writer at CFO Europe.

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