Werner Baumann: Bayer boss takes an expensive step on road to redemption

Just over a year ago, Werner Baumann’s decades-long career at German pharmaceuticals and chemicals giant Bayer looked like it could come to a sorry end.

The chief executive, born a mere 50km from the company’s Leverkusen headquarters, had become the first blue chip boss in the country’s modern history to lose a confidence vote at an annual meeting, after masterminding the ill-fated $63bn takeover of American agrochemical group Monsanto in 2018.

The catalyst for the extraordinary rebuke by shareholders was an avalanche of legal cases in the US in which Monsanto’s key product, the glyphosate-based herbicide Roundup, was alleged to be carcinogenic.

The projected costs of the litigation led to tens of billions of euros being wiped off what was once Germany’s most valuable public company, doing huge damage to the 156-year-old brand along the way.

This Wednesday, Mr Baumann took an expensive step towards redemption.

The group, he announced, would spend up to $10.9bn to settle 125,000 outstanding lawsuits in the US, despite fiercely denying any wrongdoing.

Mr Baumann would only admit to “a general feeling of relief”, but conceded that the hard work of rebuilding Bayer’s reputation lay ahead of him.

“We have certainly been experiencing what it means if a company is not trusted,” he told the Financial Times.

While those who know him well say he has never expressed regret over the Monsanto deal, Mr Baumann was “disappointed” by the 2019 vote, and dismayed by the public backlash against Bayer, particularly in Germany, which looks set to ban glyphosate-based products.

“He changed course after the AGM in 2019; he was more open for dialogue, very receptive,” said Janne Werning, head of environmental, social and corporate governance stewardship at Union, one of Bayer’s 20 largest investors.

Mr Baumann, and Bayer’s management, sought to placate shareholders, meeting with several large funds, announcing an audit of its due diligence processes, and ploughing on with the integration of Monsanto.

In a signal of intent, he took on the role of sustainability chief himself, even suggesting that governmental CO2 reduction targets were not ambitious enough.

The change in approach appears to have paid off.

At Bayer’s virtual annual meeting in April, more than 92 per cent of investors attending backed Mr Baumann and his board, despite a growing number of Roundup claims, driven in part by recruitment campaigns by US legal firms.

Shareholders, however, have not absolved him of blame.

Known for his rational and sober management style, Mr Baumann, a trained economist, is a “numbers guy”, who failed to appreciate the depth of feeling about Monsanto’s controversial products, or anticipate the ensuing crackdown on glyphosate by governments across the world, according to some shareholders.

“He miscalculated the reputational risk of the takeover, and the legacy issues will stick with the company for years to come,” said Mr Werning.

A person close to the company’s leadership defended Mr Baumann’s team, arguing that the Monsanto deal was made at the very start of the Trump era, and that “everyone needs to concede that regulatory and political decisions have since become more emotional”.

However Ingo Speich, a portfolio manager at Deka, a top 15 investor, said “nobody else wanted to touch Monsanto”, adding that Bayer lacked international experience on its management board, even though North America is its single biggest market.

Nonetheless, Mr Speich sees no reason Mr Baumann should go — at least not yet — arguing that he embodies the strategy that has made Bayer resilient enough to survive.

The son of a baker who was prevented from following in his father’s footsteps by a flour allergy, Mr Baumann joined Bayer’s accountancy department as a graduate, and was soon sent to Spain, where he became a protégé of the company’s boss in the country, Werner Wenning.

It was from Mr Wenning, who in 2002 was appointed Bayer chief executive, that Mr Baumann learnt “how portfolio management is done”. said Mr Speich.

“The reason Bayer has been so strong in the past is that it has spun off businesses and acquired them,” he added. “It is not only a pharma company, it is an active portfolio manager as well.”

Left with no funds spare for any further acquisitions, Mr Baumann, whose term is set to expire next year, will now be judged on how he integrates Monsanto.

But unlike in 2019, when he had support from Mr Wenning as then head of the company’s supervisory board in the face of shareholder wrath, he “has no one who is protecting him”, said people who follow the group closely.

People with knowledge of upper management play down the importance of the connection between the “two Werners”, emphasising that Mr Baumann still addresses his former boss with the formal “Sie”, and that there was always a “kind of a distance” between them.

Yet Mr Wenning’s replacement, outsider Norbert Winkeljohann, has no particular loyalty to Mr Baumann, said people knowledge of the company.

For his part, Mr Baumann remains a true believer in the merits of the Monsanto deal.

“In a few decades, there’s going to be 10 billion people that have to be fed,” he told the FT, “and what we need for that is fundamental and substantial innovation where farmers can do more with less.”

“He is fighting for his legacy,” said Mr Werning of Union, “and it remains to be seen if he gets the chance to correct the company’s course.”