High-flying German manager comes down to earth

German manager Thomas Middelhoff, a one-time corporate high-flyer, faces three years in prison for billing his ex-employer €800,000 for private helicopter flights he took to avoid traffic jams.

Mr Middelhoff was one of the sharp-suited, charismatic German managers that emerged in the late 1990s and attracted attention as chief executive of global media giant Bertelsmann and at Germany’s ailing retailer, Karstadt.

Yesterday a court in Essen convicted the 61 year-old of embezzlement on 27 counts for charging Arcandor, the insolvent former Karstadt parent company, €800,000 for helicopter and private jet flights unrelated to his role as chief executive.

The verdict, which Mr Middelhoff has vowed to appeal, marks a new low for a former Icarus of Germany’s business pages, whose long list of business failures hindered neither his rapid ascent nor dented his confidence – until now.

Mr Middelhoff first rose to prominence at Bertelsmann, owner of Penguin Random House, where he steered the group’s co-operation with US internet giant AOL.

But his four-year reign as Bertelsmann chief executive from 1998 was marked by high-profile disasters: a rival to Amazon failed along with a purchase of Napster for $85 million. The 2002 deal to legalise the music-sharing service ended when a US court ordered Napster to liquidate its assets.

Forced out of Bertelsmann by the controlling Mohn family, who viewed their CEO as a vain charlatan, Mr Middelhoff moved on to Karstadt. But his promises to revive the struggling department store chain, owner of Berlin’s KaDeWe retail temple, came to nothing.

Instead of a turnaround Mr Middelhoff drove the company into the ground. He broke up the group and sold off its valuable properties, then departed under a cloud just three months before it filed for bankruptcy in June 2009.

Though Arcandor filed losses of €746 million in 2008, Mr Middelhoff departed with his salary of €1.2 million and a €2.2 million bonus – later clawed back by insolvency administrators in court. Since 2009 German investigators have probed several of his business deals from his time at Arcandor, including his role in a company involved in the Karstadt property sale.

The Arcandor bankruptcy administrator continues to pursue Mr Middelhoff -- even into the Essen courtroom, where a bailiff reportedly confiscated a gold watch to repay creditors. To avoid a repeat performance, Mr Middelhoff slipped out of a later court appearance via the roof.

Yesterday’s verdict came after a six-month trial during which Mr Middelhoff he admitted using private jets 610 times during his time at Arcandor, paying for 201 himself and charging his employer for the rest – often at a cost of €90,000 each.

Finding him guilty on 27 counts of defrauding Arcandor, presiding judge Jörg Schmitt accused the manager of providing “hair-raising” explanations for his charter flights.

Mr Middelhoff justified the flights, saying he was permanently working and even interrupted family holidays to attend to company business.

Far from repentant yesterday, he visibly shocked as the court ordered him to begin his sentence immediately, citing a danger he would flee the country.

“I cannot accuse myself of any wrongdoing,” said Mr Middelhoff. “I feel that my dignity and honour have been violated.”

The disgraced manager insisted yesterday his priority at Arcandor, former owner of Thomas Cook, had been to save the Karstadt retailer and preserve jobs.

Five years and two owners after its 2009 bankruptcy, Germany’s largest department store chain is still struggling to find its way. The legacy of Mr Middelhoff’s reign weighs particularly heavy: his property sell-off reduced the retailer’s debt but has resulted in huge monthly rental payments.