Expenses Felled US Mercedes-Benz Boss – Sources

Wall Street Journal
Published: Oct. 19, 2011

Daimler AG (DAI.XE, DDAIY) dismissed the chief of its U.S. Mercedes-Benz operations earlier this week over the company’s allegations that he paid for personal expenditures with company money, according to people familiar with the matter.

The German luxury car maker this week unexpectedly removed Ernst Lieb–a well-regarded, 36-year company veteran who took over its U.S. operations in 2006– from his post, while providing no explanation. He remains at the company in an undisclosed role, Mercedes said Tuesday.

The action came after questions were raised about the 56-year-old German executive’s adherence to its expense and compliance policies, those people said.

Daimler last year settled a bribery investigation by the Securities and Exchange Commission. Since then, compliance matters have become a top priority at the auto maker, executives said Wednesday, and it has become more vigilant in responding to potential transgressions.

One alleged incident, people familiar with the matter said, involved work performed at Mr. Lieb’s home near Mercedes’s U.S. headquarters in Montvale, N.J., which records show Mercedes had bought for him to live in 2009. Another incident, according to one person familiar with the matter, was a personal flight he had taken to Australia, where Mr. Lieb had been stationed before his U.S. stint and is thought to have family. In both alleged instances, Mr. Lieb appears to have expensed the costs to the company, they said.

After Daimler became aware of such examples, the company warned Mr. Lieb to put any other possible transgressions on the table. When another alleged incident later came to light, the company removed him from his position, one person said.

Mercedes declined to make him available for comment; Mr. Lieb could not be reached independently.

The ouster of Mr. Lieb, a well-respected executive among Mercedes dealers and within the company, came as a surprise given Mercedes’s healthy gains in U.S. sales and market share during his tenure. Mr. Lieb had been credited with helping to bring new models to the U.S. and steering Mercedes to a leading position in U.S. luxury vehicle sales so far this year, outselling the longtime sales leader, Toyota Motor Corp.’s Lexus, and its German rival BMW AG.

Despite the high regard for Mr. Lieb’s performance as a manager, the auto maker has become very focused in compliance issues. That’s in part because of Daimler’s $185 million settlement last year of a long-running U.S. probe into allegations that it had paid tens of millions of dollars in bribes to secure business overseas.

As part of the settlement, in which Daimler’s German and Russian units plead guilty to violating antibribery provisions of the Foreign Corrupt Practices Act, Daimler entered a deferred prosecution agreement under which the Justice Department wouldn’t prosecute the auto maker if it continued to cooperate with regulators, adhere to internal controls and meet other terms.

Mr. Lieb has not been accused of any involvement with foreign corruption. Daimler has moved to boost its internal controls on legal and ethical compliance issues across the board. Its anticorruption compliance and monitoring programs touch a broad swath of areas, from expense reports to contract bidding and procurement procedures.

The agreement also called for an independent compliance monitor to oversee and evaluate the Daimler’s compliance and ethics programs for three years–a post filled by former Federal Bureau of Investigation Director Louis Freeh. Mr. Freeh and his team routinely traveled to Daimler’s headquarters in Stuttgart as part of his mandate, company officials say.

Daimler, which moved to boost its internal controls after its own probe of the bribery scandal in 2005, also has since appointed a top German judge, Christine Hohmann-Dennhardt, to a newly created management board position for integrity and legal affairs.

The result, former and present company executives say, is a much higher scrutiny of the kinds of transgressions that Mr. Lieb has been accused of. “This is a raging issue inside Daimler,” said one of the people familiar with the matter.

While the company has replaced Mr. Lieb in the interim with Herber Werner, Mercedes’s U.S. finance chief and another Daimler veteran, analysts say the German auto maker will be pressed to tap a permanent successor with as deep of an understanding of the U.S. market and Mercedes’s dealer network there as Mr. Lieb.