ABB Breakup Is Back on the Menu

(Bloomberg Opinion) -- When a chief executive departs abruptly, the share price often acts as a vote on their tenure. For Ulrich Spiesshofer, who left ABB Ltd. on Wednesday after more than five years in charge, the verdict wasn’t kind.

ABB stock jumped more than 5 percent on Wednesday after the Swiss engineering conglomerate announced a parting of ways. The company insists this was by mutual agreement, but the shareholders’ delight tells its own story.

In fairness, the manner and timing of the CEO’s exit was far from ideal. The company doesn’t have a replacement lined up, so chairman Peter Voser – a former boss of Royal Dutch Shell Plc – will run things until one is found. He knows ABB well, having served there as finance director between 2002 and 2004. Still, the business is in the middle of a sweeping organizational change, including the sale of its power grids business to Japan’s Hitachi Ltd. and a plan to devolve power from the bloated corporate headquarters to individual business units.

Yet Spiesshofer is no great loss. While the former management consultant talked a good game on the manufacturing trends of automation, digitalization and electrification, ABB’s share price went nowhere during his tenure. Organic sales growth was disappointing and margins were far from best in class. Investors such as the activist hedge fund Cevian Capital AB were right to be unhappy. 

Spiesshofer, who received 8.5 million Swiss Francs ($8.4 million) in compensation last year, should have done better. He lost credibility when he resisted Cevian’s call to spin off the power grids unit but then changed his mind, arguing that the delay had secured a better price. Even after ABB promised to return net proceeds of up to $7.8 billion from the sale to shareholders, the share price didn’t budge. No one would blame the board if it believed a new pair of hands was needed to make ABB more agile and profitable.

Voser conceded on Wednesday that the company needs to improve its performance, but he emphasized that the strategy won’t change. That remains to be seen; one would imagine a new CEO will have their own ideas. The share price jump probably reflects hope that this sprawling engineering group will be slimmed down further. Another activist fund, Artisan Partners, pushed for a deeper breakup only this week.

This is a a tough environment for capital goods companies, though. They’re being buffeted by slowing economic growth and structural factors, such as the technological upheaval in carmaking. Overhauling ABB to make it less bureaucratic is wise, but it will be a while before the benefits are seen. Bidding farewell to Spiesshofer may be the easy bit.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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