Commission chief with competitive edge heads for pastures (and challenges) new

Date: 01/08/02

After seven years leading the competition directorate-general, Alex Schaub is taking over as head of internal market. He talks exclusively to Peter Chapman about his tenure and future hopes.

IN THE European Commission they don't judge the importance of a man by traditional status symbols like the car he drives - or even the directives he writes. No. It's the size of the safe in his office that really matters.

That makes the head of the executive's competition directorate-general, Alex Schaub, a very important person indeed.

His would fit nicely in the basement of a Las Vegas casino. And with good reason - stuffed in there, along with petty cash, have sat some of Europe's most sensitive documents, from the intimate business secrets of chemical cartel ringleaders and car industry giants to the dossiers consigning US corporate legend Jack Welch's largest deal to the scrap heap.

After more than seven years in arguably the biggest job in the European Commission, the German career civil servant - seen by many as the EU executive's best manager - is trading places.

On 2 September he takes over as head of the internal market directorate from John Mogg, while Neil Kinnock's former chief of staff, Philip Lowe, moves into the competition hot-seat. The moves are part of the Commission's new system of 'rotating' its most senior managers to prevent them from going stale.

Schaub leaves at possibly the most intriguing period in the history of EU competition policy. Anti-trust rules are about to face the biggest shake-up for 30 years, merger rules face a similar overhaul, cartel fines are running at record levels, and efforts to boost global cooperation are gathering pace.

But a recent judgement by the European Court of First Instance (CFI) pulled no punches about his department's errors when it overruled the Commission's decision to block a bid by British tour operator Airtours to acquire rival First Choice.

The CFI's unprecedented decision came just months after a controversial ruling by Competition Commissioner Mario Monti to block GE's take-over of Honeywell, a move which infuriated the Bush administration. And in one of the Union's darkest hours, member states showed they are not averse to using voting power to block state aid decisions they don't like.

No regrets.

In a wide-ranging and exclusive interview, Schaub describes his time at 'DG Comp' as 'the most satisfying years' of his professional life and that he is leaving with 'no regrets'.

'One can see that the place has significantly changed and improved over the last seven or eight years and there is increasing recognition and acceptance of our work,' says the German official.

Looking back over his tenure as director-general since May 1995, Schaub says his favourite memories include the moment in 1997 when, for a few hours, the EU was locked in the trade equivalent of the Cuban Missile Crisis.

Schaub had just learned that executives from US aerospace giant Boeing were on their way back to Washington after rebuffing his terms for getting the go-ahead to buy rival McDonnell Douglas.

He immediately called his 'war cabinet' to ponder the enormity of blocking a deal, which had received strong public support from then US President Bill Clinton.

'We all had the feeling that, after all the highest level political interventions, we would be heading for a really dramatic confrontation between the EU and US. We were not in panic, but in serious and sober consideration over the next two hours.'

Then, the message came through that Boeing was accepting the terms after all.

'It was such a brutal and dramatic change of climate and emotions - and at the same time the ultimate confirmation that to resist extreme and never-seen-before political pressures was, after all, the safest way to proceed. I will never forget it.'

The other prized tale is of when Bernie Ecclestone phoned to say he wanted a meeting 'without the lawyers' to explain why the Commission shouldn't tamper with the workings of his Formula One motor racing empire.

The intimate details of this and future confessionals with Ecclestone must remain secret, insists Schaub.

But the story the diminutive Ecclestone told of this 'unique enterprise and its exotic characters was so fascinating', that the next day Schaub received 20 requests from officials begging to be let on to the case-handling team.

After Airtours, it's Carnival time.

As interview timing goes, this was impeccable. Just hours earlier, Mario Monti, Schaub's political master announced the Commission was unconditionally clearing the hostile take-over by Carnival of British cruise line P&O Princess Cruises.

Shortly after, Royal Caribbean, which also harboured hopes of buying the company, cried 'foul'.

Royal Caribbean was naturally perplexed at the way the Commission had changed its mind so abruptly after originally signalling in a 'statement of objections' that it wanted to block the deal or at the very least demand stinging concessions.

Highly respected competition partners at Brussels law firms saw the volte-face and also smelled a rat.

The insinuation was clear. The Commission is running scared.

The Airtours debacle - when the judge accused DG Comp of a 'manifest error' - has caused a crisis of confidence and a lack of willingness to take tough decisions, according to some lawyers.

The crisis is being compounded, they claim, by the mauling the Commission is taking in the current round of court hearings on the blocked Tetra Laval -Sidel and Schneider-Legrand mergers.

That's nonsense, says Schaub. Royal Caribbean's anger is merely the typical reaction of the losing side.

'I do not find their arguments convincing,' he says. 'As is normal, those who are happy are silent and those that are unhappy are investing a lot of effort in mobilising the media when they might have invested more effort in making their arguments more convincing.'

More broadly, he denies the bloody nose given to the Commission by the courts will make it more unwilling to block a controversial case.

'The worst thing to do after a decision like Airtours would be now to try and escape into a deliberate laxist policy.

'This would inevitably strengthen and rightfully harden the criticism and threaten our credibility.

'The appropriate answer, clearly, is to look at any individual case for the highest professional standards and the most convincing arguments and to treat critical voices not as a nuisance but as an incentive to become, and to remain, a centre of excellence.'

For hire: chief economist.

If striving for excellence - and not self-pity and retreat - is the key, how do you achieve that?

A priority, says Schaub, is to appoint a chief economist to inject more savvy into the way mergers and cartels are vetted, borrowing from best practice elsewhere in the world.

'It is an idea we have been discussing for a number of months already...and where time is ripe for conclusion,' he says, adding that the DG is also likely to step up the hunt for IT specialists to unlock business secrets buried in computer files.

'There is a widespread conviction today - and that is also a deep change - that enforcement of European competition rules cannot be a matter for lawyers only.'

Elite economists or IT experts do not come cheap - especially those working in the City of London or Frankfurt.

But if experience is anything to go by, luring first-class outside talent - and keeping it - is unlikely to be a problem.

'It is not a secret that a large number of our case handlers here have been, or are, permanently solicited to leave the Commission to take up important posts in large international law firms where they would earn several times the salary the Commission is offering,' Schaub points out.

He says he could name 25 young heads of units and case handlers 'who could leave the Commission today and be stars in their new firms'.

'But they are, nevertheless, staying and resisting the temptation because they find a high personal satisfaction in public office. They appreciate the independence of the institution in which they work and they are ready to accept in exchange a much lower - but still not bad - salary.'

Commission: one vote, one mess.

Despite the top-level recruitment drive - and the attractions of working in the Commission's equivalent of 'special forces' - the DG is desperately short of foot soldiers, warns Schaub.

He insists the quality of the work is on a higher plane than ever before, but he admits lack of staff means mistakes will inevitably also creep in.

'This is true despite very rare and exceptional accidents that will never be totally avoided...as long as we are still clearly understaffed in comparison with our most important international partners such as the US Department of Justice and Federal Trade Commission - or indeed the Canadian competition authority,' he says.

In most organisations staff would be redirected to areas of greatest need. But despite ever higher demands, drafting-in talented reinforcements from quieter parts of the Commission is virtually impossible, he concedes. It's a sensitive issue - and speaking out or criticising management elsewhere is not a career-enhancing step.

For Schaub, a key factor is the reluctance of Commissioners across the 20-strong college - which could grow to 25 or more after enlargement - to see any reduction in the status of their own fiefdoms.

'The real difficulty is not administrative. It is the Commission itself. In a college where everybody has one vote, you don't have a power pyramid established.'

Romano Prodi wants to set one up and, Schaub says, 'this is not such a stupid idea'.

Opponents are already reaching for the buckets of cold water.

Research Commissioner Philippe Busquin last week rejected a system of 'seven super-commissioners and 20 less super'.

But Busquin, an ex-Belgian minister, should know better after his time in government, says Schaub.

'There is not one serious government in the world where you don't have a certain internal structure. In France ministers of state are the highest level, in Britain you have cabinet ministers and then the junior ministers and parliamentary secretaries - a particularly sophisticated system.

'And medium term that is inevitable [for the Commission],' he predicts.

Tough manager.

Until reinforcements arrive, he says 'the only way to get things moving is to develop a visible policy of getting your own house in order and to use this argument of preliminary own efforts as the key justification for recognition from the political level in the Commission'.

His tactic at DG Competition was to constantly develop the quality and performance of his team, rather than merely demand more manpower.

That meant boosting training, internal mobility and ensuring only the highest quality staff worked in the DG.

His patient approach paid dividends in 2000 when the department was awarded 95 new staff in a peer review system of appraisal - still not enough, but worth the effort.

For those not up to the job, life is not easy under Schaub.

'Getting rid of weak people can be difficult, so you have to develop techniques so that these people go under their own initiative.

'They are not nasty techniques. Here many people went because they did not find it cosy enough.

'It is not a pleasant experience if you want to go slow and you are surrounded by young, enthusiastic, dynamic guys, who are all the time active, and staying late.

'After a time you find yourself isolated and superfluous and I think in some cases this was the reason for a move into

other areas.'

State aid? What crisis?

If Airtours and GE/Honeywell were wake-up calls for merger control, the alarm bells really started to ring when member states ganged-up to overturn an unpopular decision by Energy Commissioner Loyola de Palacio to outlaw subsidised fuel for truckers.

Aggrieved governments invoked a hitherto unheard of clause in the Union's treaty rule book that allows them to overturn key decisions if they can muster a unanimous vote. Gloom merchants suggested this might become a difficult habit to kick.

But Schaub says he is 'not at all worried'.

Some suggest De Palacio's department was to blame for virtually goading member states into the action. All he will say is that the specifics of the case were so unusual that they do not threaten the Commission's war on distorting state aid.

'I'm pretty convinced that this will remain the very rare exception...Member states know only too well that destroying a European discipline for state aids would be clearly against their own general interests.

'It is also clear that if such overruling of state aid decisions in line with the treaty became a more regular phenomenon it would be the end for any credible state aid control at Community level.'

Nevertheless, he has some harsh criticisms for EU governments, most of which only agreed to support the veto in return for a 'whole list of dubious demands'.

'I do not think this is particularly brilliant behaviour on the side of the member states concerned,' he says, adding that it was 'particularly surprising' after the 'repeated instructions of European Councils that state aid expenditure should be significantly reduced'.

Trust in anti-trust.

The news on massive reforms of the Union's anti-trust rule book is better still. Breaking into a smile, Schaub, says EU industry ministers will definitely sign off on the biggest overhaul of anti-trust rules for 30 years at their November meeting.

'This is a breathtaking development,' he declares.

'I remember the early days of internal debate about the reform which was extremely controversial up to a point where one could sometimes doubt whether we would be able to agree among ourselves on a bold new approach.'

Under the new system, the Commission will hand over huge swathes of the day-to-day running of anti-trust regulation to member states - working together in a new network of national competition authorities.

A key part of the reform is the end of the so-called 'notification system' where companies could ask Brussels to turn a blind eye to small agreements with rival firms, provided competition would not be unduly harmed.

Stopping the endless requests will free up over-burdened staff - allowing them to concentrate on hard-core cartels that cause the most damage to fair competition and consumers.But until recently, a deal looked far from possible.

Progress in the Council of Ministers appeared glacial, and industry grumbled about the decentralisation of power from the one-stop-shop in Brussels that they like.

Meanwhile, national regulators - such as Schaub's friend Ulf Böge, from Germany's Bundeskartellamt - complained about the way EU law would in future squeeze out national rules in many cases.

But Schaub claimed such criticisms were 'totally blown-up' by the German press - and hid broad agreement on the aims of the reforms.

Once they are approved in November, the details will be fleshed out during 2003 in time for the system to be up and running on 1 January 2004.

'We will set up the technical basis for the functioning of the future network from the level of directors general down to the day-to-day exchange between case handlers in the Commission and member states,' he says.

International cooperation.

The GE/Honeywell case pressed Schaub and co. into efforts to boost international cooperation on competition affairs - not just on mergers, but across the board.

After last year's Doha ministerial, competition is now firmly on the World Trade Organisation's agenda. An International Competition Network of regulators has also been set up.

These are already boosting cooperation on competition issues - and also spurring efforts to spread basic competition laws worldwide.

What can we realistically expect to emerge from these efforts?

Surprisingly, Schaub sees little prospect of a mooted world cartel office in Geneva.

'More realistic', he says, is the likelihood of half a dozen regional anti-trust authorities to vet big deals and cartels that are being examined by growing ranks of national watchdogs across the world.

'It seems to me evident that there will be a Latin American regional authority, for example, not to deal with all cases but to be involved in a limited number that have a continent-wide impact.'

Further down the line, he predicts more readiness for work sharing between different jurisdictions.

One day that could mean a foreign authority would accept the results of a Commission investigation - or vice versa. 'But that is only possible if there is a high degree of mutual trust,' he says.

Internal Market - different job, same job.

Schaub probably won't need quite so big a safe when he starts his new job at DG Internal Market next month, even if there may be one or two sensitive files that he will want to stash away.

However, his biggest headache could be another familiar scenario - chronic under-staffing - with just the slightest hint of unrest among his new troops.

It's not a mutiny, but disenchanted voices in the department grumble that it is focusing too much on financial services and too little in other key areas from patents to copyright. And even the 'priority' financial services area is stretched to breaking point.

Schaub admits there are problems to address - though he insists they are not the fault of his predecessor John Mogg - an old friend and respected colleague from the former industrial policy department, DG III, where both were deputy directors-general.

'My first perception talking to people within DG Markt, and also to professional people outside, seems to be that more rapid progress is made difficult by serious under-staffing.

'What I can say is perhaps I will have to look into this problem and see what I can do about it.'

In practice, that means Schaub is likely to initiate the same tactics he employed over at DG Comp.

Fortunately, DG Internal Market staffers need not be quaking in their boots. He expects to find few 'weak people' in another of the Commission's elite corps.

As a footnote, Schaub is keen to set the record straight on the issue of his nationality.

After years of German rule at DG Comp, a German head for DG Markt was a good consolation prize for Berlin - one of the key opponents of the politically charged new take-over law currently being re-written by his new department.

But, says Schaub, the EU's biggest member state 'cannot seriously expect any favours'. The secret of success, he claims will be to listen to the arguments of all member states - big, small or German - and to take the flak for unpopular, but correct, decisions.

'You can't possibly be everybody's darling in this place - and the earlier you understand that, the more you will be respected.'

Major interview with Alex Schaub, who is taking over as head of DG Internal Market after seven years leading the competition directorate-general.