On trial: Whither Germany? The trial of Deutsche Bank CEO Ackermann reflects a battle over whether German companies can become more global.

The timing couldn't have been worse: As Deutsche Bank CEO Joseph Ackermann reeled off bullish forecasts to a crowd of journalists this past February, an aide handed him a slip of paper. The brief note said he had been charged with breach of trust for his actions three years earlier as a non-executive director of Mannesmann--a criminal offense that could now land him up to 10 years in jail.

Welcome to Germany Inc., edition 2003. Europe's largest economy is about to be treated to a five-month celebrity trial that promises to keep talk shows abuzz and threatens to abruptly end at least one illustrious career. Because Deutsche Bank is Germany's largest bank, with extensive operations in the United States, the shock waves will reverberate across the Atlantic.

Billed as the biggest corporate criminal case in German history, this reality show will start Jan. 21 in a nondescript Dusseldorf courtroom. While it won't be aired on TV, the show's plot and cast have already hiked up the volume of a public debate that has split German society into two camps: executives and most politicians versus everybody else.

The trial in many ways is a test of how German-style capitalism will evolve. Ackermann is Swiss and the initial investigation into his actions focused on whether he improperly helped a British company buy control of a German asset. That couldn't be proven, but now he is accused of allowing Anglo-Saxon concepts of executive compensation to barge into the more egalitarian--some would say socialist--German system.

Ackermann's views are clear. After calmly reading the note about his impending prosecution to the stunned press, he complained that he'd been bounded by the German media for two years before being formally charged. "I've done nothing wrong," he said emphatically.

Many executives agree. "Very few Germans know or understand anything about business, profit and outsourcing, so ignorance goes hand in hand with rejection," says Jorg Menno Harms, CEO of Hewlett-Packard Germany. "There's a dramatic difference between what business needs and the public wants."

Others fear that a desire for confrontation may be catching. "This could now happen to any CEO here," confides the head of one major German bank.

That would be just fine, says Oskar Lafontaine, former chairman of the ruling Social Democratic Party and Chancellor Gerhard Schroder's main leftist foe. He considers top compensation packages to be nothing short of "organized crime." He says the government should allow companies to fire top managers on the spot if they are implicated in illegal machinations and to send them packing with no compensation.

Media divided

The media so far has straddled the fence. News outlets happily report both sides: statements by Ackermann's supporters about salary envy and damage to Germany's business reputation, and his opponents' sermons on corporate greed and abuse of the public trust.

Saner voices from both camps insist this event ought to stoke fire under Germany's simmering corporate governance efforts and refocus the public's mind on the fact that globalization of the German economy inevitably will bring about global levels of executive pay--and transparency. "If we want to be international, we have to play by international standards," says Alexander yon Preen, a partner at the big German headhunter Kienbaum Management Consultants.

The Ackermann affair started four years ago. British telecom giant Vodafone AirTouch, headed by Sir Chris Gent, made a bid for Mannesmann, a German steel and telecom group. For 11 weeks, Mannesmann CEO Klaus Esser fought what was then the largest hostile takeover battle in corporate history. Gent had to ratchet up the price several times, until on Feb. 2, 2000, he and Esser agreed on Vodafone's final bid for 49.5 percent of Mannesmann's shares. Its price of 180 billion euros was almost double the initial offer.

As Esser tells it, once Mannesmann's other key shareholder, Hutchison Whampoa, heard the agreement had been reached, the Hong Kong-based company offered to pay him about 15 million euros to reward his defense strategy, which had earned Hutchison a huge profit on its 10 percent stake. According to Hutchison CEO Canning Fok, this offer had been cleared with Vodafone. Esser asked that the payment be made by Mannesmann, which meant it had to be given the thumbs-up by the company's non-executive supervisory board.

Enter Ackermann. As a member of the board's compensation committee, he was among the first to approve the payout, arguing the amount was in line with international practice of rewarding CEOs for boosting their companies' market value. Indeed, during Esser's five-year tenure, the company's share price tripled.

Wrong, insist the prosecutors. There's no precedent for paying such large rewards to CEOs in Germany, they say. Besides, German corporate law does not state that remuneration can be linked to company share price. Ergo: Ackermann and his board colleagues broke the law and plundered Mannesmann's assets.

The prosecution has documented correspondence between board members during the somewhat chaotic situation in early 2000. The memos and minutes give the impression of a corporate structure that had a minimum of transparency. There was a total absence of communication between shareholders and directors on compensation. Costly decisions were made on the fly, then revoked and made again. Minutes were crossed out, scribbled on and cleaned up. All this convinced prosecutors that the directors and executives implicated along with Ackermann were hiding criminal actions.

The case has made quite obvious to the business community that Germany urgently needs a set of reliable benchmarks that would allow company directors to reach fast decisions and avoid the danger of being slapped with the infamous "breach of trust" charge.

The passage of the German Corporate Governance Code in 2002 was one effort to bring about greater clarity. But while clearly an improvement over the largely unregulated situation that Ackermann and his fellow Mannesmann directors faced, the code studiously avoids mentioning international compensation levels.

Perhaps for good reason: A recent study by Towers Perrin shows that German CEOs on average receive only 11 times more in total compensation than their average employees. In the U.S., this ratio is close to 180.

All of which explains why the trial is laden with such meaning. The ultimate question is whether Germany will allow its companies to establish themselves as international players--or compel them to operate within narrower German political and social norms.