As a result of the dynamic economic development within Germany as well as abroad, Siemens & Halske was faced with competition in the rapidly growing energy technology market, starting in the 1880s. The competitors demonstrated innovative market strategies, financed through the capital market. As a result, Siemens & Halske – which had a global workforce of 6,500 at the end of the 19th century and generated revenue of almost 20 million marks – faced increasing pressure. Company founder Werner von Siemens had held firmly to his guiding principles for his family-owned enterprise right up to the end of his life. In order to remain competitive, his successors converted the company to a stock corporation in 1897.
Different framework conditions – expansion of the electrical engineering industry
Enticed by the prospect of a booming electrical market, numerous electrical engineering companies were founded, and the business activities of existing companies were diversified toward the end of the 19th century. In the United States, the engineer George Westinghouse founded the Westinghouse Electric Company (WEC) in 1886. Six years later, Edison General Electric Company, which had been founded by Thomas Alva Edison in 1890, merged with the Thomson-Houston Company to form the General Electric Company (GE), which is one of Siemens’ principal competitors to this day. In the home market, the heretofore unchallenged market leadership position of Siemens & Halske was threatened primarily by the companies Elektrizitäts-Aktiengesellschaft vorm. Schuckert & Co. (EAG) and Allgemeine Elektricitäts-Gesellschaft (AEG, founded in 1883 as Deutsche Edison-Gesellschaft für angewandte Elektricität).
The rapid growth of these start-up companies was aided by the so-called venture business. This model was rooted in the conviction that many cities and towns were interested in the electrification of their infrastructure in general, but possessed neither the necessary expertise and suitable personnel nor the financial resources to manage such a project themselves. By offering to perform the project engineering, execution, and operation of these infrastructure projects at their own expense, the electrical engineering companies stimulated demand for their products.
A lot of money is necessary for business now […]. The good times when we were awash in state money are unfortunately over.Werner von Siemens to his brother Carl, May 1890
Siemens needs capital from shareholders
At the beginning of the 1890s at the latest, Siemens & Halske was also being forced to function as general contractor and invest large sums in the building and operating of electric railways, power plants, and lighting systems. In a letter to his brother Carl in May 1890, Werner von Siemens complained that, “A lot of money is necessary for business now […]. The good times when we were awash in state money are unfortunately over.” The need for considerable amounts of long-term capital conflicted not only with the security-oriented financial policy of the firm’s founder, with an emphasis on entrepreneurial independence, but also with the limited financial means of the owner family.
In order to expand the capital base, Carl von Siemens proposed turning Siemens & Halske into a stock corporation. The entrepreneur, who lived in Russia, was convinced that “a stock corporation […] would be much more powerful than a private business. This is because it would have numerous associés, who would all have a certain interest in protecting it and directing business to it. Without the help of its shareholders, the Allgemeine [the AEG] would have been unable to become so large and powerful in such a short time.” He repeatedly urged Werner von Siemens to think “the matter over seriously.” Without success. Right up until the end of his life, the firm’s founder resisted the idea of changing the legal form of the company. His fear that the family’s overriding influence could diminish with the transition from a general partnership to a stock corporation was simply too great.
Pressure from the competition and help from the banks – Siemens becomes an AG
In 1890, the 74-year-old pioneer of electricity officially withdrew from the company. When he handed the company over, it was changed into a limited commercial partnership. His brother Carl, along with Werner’s sons Arnold and Wilhelm von Siemens, became personally liable partners, in other words the proprietors of the business. The latter finally took the advice of his uncle and converted the company into a stock corporation.
The stimulus for this decision, however, came from Emil Rathenau’s plans to merge AEG and the “Union Elektricitäts-Gesellschaft,” founded in 1892, which would have led to Siemens & Halske losing the support of almost all the large Berlin banks. The Deutsche Bank was prepared to thwart the merger by refusing to cooperate, but only on condition that Siemens & Halske was converted into a stock corporation.
The formal founding of Siemens & Halske AG took place on July 3, 1897 with effect from August 1, 1896. The assets and liabilities of Siemens & Halske were converted into shares of the new stock corporation valued at 28 million marks. Further shares at a nominal value of seven million marks were taken over by individual members of the Siemens family, who thus held the entire share capital. The first meeting of the Supervisory Board took place on July 2, 1897 – “sole members: Uncle Carl, Arnold, [Carl’s son] Werner, me” as Wilhelm von Siemens noted in his diary. The “senior head” of the company, Carl von Siemens, was appointed Chairman of the Supervisory Board and was to remain in this position for seven years. In 1904 he withdrew from the company for health reasons.