Autonomy and Control The Collapse of Royal Imtech

Autonomy and Control: The Collapse of Royal Imtech
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Author: Tao Yue, Melanie Beuken, Erik Roelofsen

Pub. Date: 2021
Product: Sage Business Cases
DOI: https://doi.org/10.4135/9781529761023
Disciplines: Business & Management, Accounting, Finance, Financial Reporting, Forensic Accounting,
Financial Investment/Analysis
Access Date: June 12, 2023
Publishing Company: Rotterdam School of Management, Erasmus University
City: London
Online ISBN: 9781529761023
© 2021 Rotterdam School of Management, Erasmus University All Rights Reserved.

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Abstract
In 2012, the Dutch construction company Royal Imtech was the stock markets’ darling. Its results were
rocksteady and the company recorded consistent growth, mainly through acquisitions. The CEO and
CFO formed a close duo that kept repeating their mantra: the secret to the success of Royal Imtech
was local entrepreneurship. However, underneath the bright surface was a company that was on the
edge of its collapse. The dogmatic approach to entrepreneurship and autonomy resulted in a leader-
ship team that was out of control. Local managers bamboozled leadership, making them believe in
fabricated profits. The German CEO engaged in collusion, outright fraud, and corruption in order to
maintain the success story. With projects that had become larger and larger, losses could no longer
be swept under the rug. When an analyst noticed that the numbers of Royal Imtech smelled fishy, he
ushered Royal Imtech into its eventual bankruptcy.
Case
René van der Bruggen, CEO of the Dutch technical services provider Royal Imtech, was on top of the world.
Imtech’s 2012 half-year revenue had increased by 14% from a year before, EBITA by 12%, and the order
book by 13%. 1 Despite difficult market conditions due to the economic crisis, Imtech was doing so well that
analysts unanimously recommended buying its stock.
Page 2 of 9
Van der Bruggen’s right hand and left hand – CFO Boudewijn Gerner – lauded the company for its ability to
adapt to changing markets. He said when receiving the Dutch 2011 CFO of the Year award that Imtech was
a strongly decentralized company with a lot of responsibilities lying with the country organizations, and at the
same time, it emphasized a strong central approach in reporting and accounting. This combination had made
Imtech successful.
Van der Bruggen and Gerner had been long-time friends and business partners. They were the famous duo
at Imtech, so close that no one in the company ever tried to play them against each other. The duo witnessed
the most glorious decade of Imtech’s history, which they helped create. From 2002 to 2012, Imtech expanded
from operating mainly in the Dutch market to becoming an international player. The duo, working with other
trustworthy friends, such as the CEO of Imtech’s star regional subsidiary Germany and Eastern Europe, was
making the future for this historic company.
Royal Imtech
Imtech’s roots went back to the 19th century industrial revolution. In 1860, Dutchman Jan Jacob van Ri-
etschoten set up a company to supply ships in the Rotterdam harbor with all technical necessities. He was
one of the first in the Netherlands to pursue steam-powered dock machinery. In 1872, he teamed up with the
young engineer Willem Houwens, and they set out to become an important mechanical engineering compa-
ny and pushed forward Dutch industrialization. They added electrical engineering to their repertoire in 1885
when Van Rietschoten’s son joined the team and built the first electrical train to operate in the Netherlands.
Van Rietschoten & Houwens along with Rudolf Otto Meyer survived the 1929 market crash and both world
wars. In 1960, the company merged with the conglomerate Internatio – once a trading company with the
Dutch colonial East Indies – but was nationalized soon after Indonesia declared independence. In 1990 In-
ternatio acquired the German climate control solutions provider Rudolf Otto Meyer (ROM) and became Inter-
natio-Müller. ROM provided the main impetus towards multidisciplinary technical services that later came to
characterize Imtech.
In 1993, the Internatio-Müller conglomerate decided to bring together its 35 technical companies to provide
more synergy for future projects – the new company was called Imtech. Van der Bruggen included ICT in
Imtech’s first strategic growth plan of 1995, and thus all three key elements of Imtech came together: electri-
cal solutions, ICT, and mechanical solutions.

Page 3 of 9
Imtech expanded rapidly in the 2000’s through organic growth and acquisitions. In 2012, the company em-
ployed 29,000 people in 35 countries, including 500 subsidiaries in Europe and some 100 outside of Europe.
Its annual revenue had exceeded 5 billion euros. Because of its importance to the Dutch economy, Imtech
was designated the title Royal by the Queen of the Netherlands.
Royal Imtech wanted to provide its customers with one-stop technical solutions that made good business
sense and contributed to a sustainable and livable society. Greentech was high on Imtech’s agenda. Its
growth plan for 2015 aimed at further acquisitions and organic growth in the four markets it operated in –
buildings, industry, traffic, and marine – and increasing its revenue to 8 billion euros (see Appendix 1).
Decentralization
Traditionally, much of Imtech’s revenue came from small, recurring projects, which people at Imtech simply
referred to as “jobs.” Because these jobs relied on proven designs and technology, it was not cost-effective
to monitor them centrally, so they were left almost entirely to local executives whose remuneration was tied
to turnover and operating profit. Moreover, the projects required extensive coordination with other contractors
involved in the development of properties and with the customer. This required flexibility and entrepreneurship
that was simply impossible to achieve with central decision making.
Over the years, however, Imtech attracted larger and more complex projects. In order to meet its growth am-
bitions and respond to customer demand, Imtech took on more roles and responsibilities as expected from
its customers. Many contracts involved not only standard “jobs” but also designing and constructing. Local
executives were still in full charge of these larger and more complex projects.
Besides projects, the other main source of revenue growth was acquisitions. The large number of companies
Imtech had acquired were mostly small, private, and family-owned. The purchase price often consisted of a
base purchase price and an earn-out arrangement giving the seller the right to an additional purchase price
depending on the acquired business’ financial performance during an agreed period following completion of
the acquisition. In those cases, the former owners would customarily continue to hold senior management
positions in the acquired company for three years. Acquired businesses were mostly not required to comply
with central policies and procedures promptly following their acquisition to avoid discussions that the earn-out
was impacted by centrally imposed measures. They could also keep their IT systems for at least five years.

Page 4 of 9
Because of these arrangements, Imtech ended up comprised of many businesses that were largely indepen-
dent. The leadership, however, was not the least concerned. On the contrary, it believed that decentralization
would stimulate local entrepreneurship and result in an optimal relationship with customers and other stake-
holders. “Local for local” was the motto. This allowed country organizations to compete for projects in their
indigenous market that they already had deep knowledge about.
This decentralized approach worked well. Imtech’s Germany and Eastern Europe subsidiary, for example,
had double-digit growth in both revenue and income – all through organic growth. Van der Bruggen and Gern-
er set it as an example for other regional subsidiaries to emulate.
Management Duo
Imtech’s Board of Management consisted of the CEO and CFO. Their division of responsibilities was clear:
CEO Van der Bruggen was responsible for operations and CFO Gerner the rest. The CFO was also respon-
sible for mergers and acquisitions, which was a large responsibility since Imtech acquired between 10 and 15
companies every year. Their responsibilities sometimes overlapped but were not interchangeable. Both were
in contact with the audit committee concerning operational risk, management risk, internal control systems,
and project organization, but the responsibility for risk management stayed with Gerner.
Due to Imtech’s project-based nature, it was imperative that finance people understood how a project worked
and operational people understood the financial side of a project. Although a financial specialist, Gerner knew
a lot about operations. In fact, all financial people at Imtech were required to understand operations because
not all financial assessments could be made on paper. If a project manager announced a good profit on a pro-
ject only 60% finished, the controller had to go to the site and make his own assessment. On the other hand,
the operational staff needed to understand the financial aspects. The controller assessed project risks while
the operational staff assessed the quality of various offers involved. Local controllers and project managers –
same as local CFOs and CEOs – formed duos working closely together at all times, reflecting the group CEO
and CFO structure.
Gerner had direct command of local CFOs and controllers, as well as various subsidiary directors. He needed
to be good with people and not just with numbers. Staff had to feel secure enough to bring problems with their
projects to him. Projects could otherwise have kept running for long periods of time before anyone noticed

Page 5 of 9
there was a problem.
The emphasis on cooperation extended to budgeting. If a project ran into trouble, it was possible to move
budget from other projects to help out as long as the situation was not chronic. This game of give-and-take
gave the many duos at Imtech more flexible control over the business.
Staying in Control
Despite the decentralized approach at Imtech, finance was centrally organized. This was because Imtech was
a publically listed company and was required to frequently update the capital market with financial reports. All
subsidiary companies were obliged to present regular and accurate reports to the head office. Newly acquired
companies had to adapt fast and were given only two months to report in the required format.
When Imtech was at its peak of acquisitions around 2011, there was anxiety that the central management
might lose sight of what was going on locally. To calm the anxiety, the duo decided to implement a new gov-
ernance model while retaining the decentralized approach. This new governance model included a central
Executive Council, its supporting Functional Councils, and a Risk Management Council.
The Executive Council was comprised of the CEO and CFO, the managers of Imtech’s eight divisions
(Benelux, Germany & Eastern Europe, UK & Ireland, Spain & Turkey, Nordic, ICT, Traffic and Marine), and
certain key staff members. Here budgets, prognoses, and all relevant strategic issues were discussed. But
the final say remained with the CEO and CFO. This division of power was meant to enhance the ability of
different divisions to work together in the same market in a multidisciplinary way. It was also meant to create
more clarity about acquisitions. A small board could make strategic decisions about acquisitions in diverse
markets without being hindered by the interests of individual companies or divisions.
Functional Councils were set up to support the Executive Council in developing functional strategies for Hu-
man Resources, Health, Safety and Environment, Control, Information Management, Information Technology,
Corporate Social Responsibility (CSR), Risk & Insurance, and Procurement.
The Risk Management Council set project risk management policies and monitored compliance. Local com-
panies still made their own risk assessments; the head office would intervene only in very large projects. To
support project risk management, the Risk Management Council introduced an in-house software tool called

Page 6 of 9
Riskmaster to assess the overall risk profile of a project during the bid phase. The duo also considered setting
up an internal audit function, but the Supervisory Board considered it unnecessary because internal control
combined with external auditing was already adequate.
The duo decided to implement this new governance model gradually rather than through “disruptive changes.”
A year after its implementation, the Risk Management Council ran a survey to assess progress: not all pro-
jects had their risk profile registered in Riskmaster. Many respondents said the IT system had deficiencies
that some data were either not documented or communicated to the top management. The survey also re-
vealed a box-ticking attitude toward risk management.
The Executive Council advised an exchange of best practices between divisions and gradually introduced a
pilot of a cross-divisional project auditing IT system. In the meantime, each division would formulate its own
risk appetite as a guideline for project bidding.
Something Rotten
Imtech seemed to be running out of time with respect to improving risk management. The stellar performance
of its largest division, Germany, in particular, smelled fishy. The division had a reported revenue increase of
8% compared to Imtech’s overall revenue increase of 4 to 6%. The “solid” numbers on paper, however, failed
to dazzle one person – a young analyst named Teun Teeuwisse from the Dutch bank ABN AMRO.
The report “Do Not Underestimate the Power of the Growth Stock” Teeuwisse wrote in February 2012 in-
cluded a cautionary note: Imtech’s working capital needed improvement and its account receivables were too
large. But the caution was ignored by most other analysts, who continued recommending Imtech as a share
to buy.
In July 2012, Teeuwisse attended Imtech’s half-year analyst meeting (see Appendix 2). When he asked the
Board of Management – CEO and CFO – to clarify the movements in working capital and raw materials, they
became visibly uncomfortable. Van der Bruggen referred to them as “difficult questions,” which he passed on
to Gerner. While Gerner attempted to answer the questions, Van der Bruggen nervously fidgeted in his seat,
took a few sips of water, and looked at the emergency exit. Finally, he could no longer take it and in a low but
audible voice hissed “stop” to Gerner.

Page 7 of 9
In November 2012, Teeuwisse dropped the bomb. In the report entitled “Imtech: Working Through Its Capital,”
he concluded that Imtech was likely to have breached its bank covenants and that its 2015 targets were out of
sight. He recommended selling the stock. The stock price took a nosedive, and the initial reaction of Imtech’s
Board of Management was to fiercely attack Teeuwisse, suggesting that he was incompetent or trying to ma-
nipulate the market.
The situation got out of hand. By the end of January 2013, the Board of Management could no longer deny
that something was rotten in the state of Imtech. They publicly announced that they had signals about fraud-
ulent performance.
Fraud Uncovered
The German CEO, Klaus Betz – dubbed Kaiser Klaus – reportedly had a crucial role in the fraud, particularly
in inflating the financial performance of the German division. Imtech Germany’s six operating regions would
collect financial information at the beginning of each year. Regional management would produce information
believed to be accurate; however, throughout the year, they were instructed by the central management, pre-
dominantly by the CEO and the Chief Controller, to make unjustified alterations to that financial information.
This resulted in a separate set of financial information presented to the Board of Management and the exter-
nal auditor, KPMG. The alterations were not visible to the head office because they were made on an IT sys-
tem accessible only to Imtech Germany. They included aggressively optimistic valuations of work in progress,
valuations of outstanding receivables without proper provisioning, incorrect cost allocations between projects,
and carrying over losses on finalized projects to new projects to avoid these losses having to be recognized.
But cooking the books this way no longer sufficed for Imtech’s biggest and most prestigious project: Adventure
World Warsaw (AWW). 2 AWW was a venture by Peter Jan Mulder, a Dutch entrepreneur, whose previous
business had gone bankrupt. After the fraud surfaced, Mulder said in a newspaper interview that his initial
intentions were that the total cost of the project would be around 50 million euros. However, Klaus Betz and
Thorsten Klee (CEO Imtech Poland) convinced him that he should think much bigger. They told Mulder that
AWW also needed a waste incinerator and hotels and that he should not worry about financing since they
would help to arrange that. The expected cost of AWW ballooned to 680 million euros, making it the largest
project in Imtech’s history.

Page 8 of 9
Along the way it became clear, however, that it would be most unlikely that Mulder could arrange the financing.
Rather than admitting the fault and taking the loss, Betz continued the development of AWW and hoped for a
miracle. He hid the bad news from the Board of Management through various tricks, including collusion with
Mulder and a sham transaction with an Austrian bank Imtech normally had no business dealing with. The mir-
acle did not happen and the amount Mulder was due reached over 150 million euros – too large to hide, even
for Betz. The project turned horribly sour and resulted in a massive write-off.
Assignment Questions
From the reveal of the AWW scandal, Royal Imtech went straight downhill. More fraud was discovered and
Imtech eventually went bankrupt in 2015.
The construction industry has highly decentralized operations – it is a norm of the industry. Given this nature,
1. What do you think Imtech’s Board of Management should have done to mitigate risks?
2. How do you think the Board of Management should have responded to the outside world – especially
the questioning of the analyst – during the unfolding of the crisis?
3. Why do you think Imtech failed? Please give your analysis. You can look at it from strategy, leader-
ship, corporate culture, governance, internal control, stakeholder management, and other perspec-
tives.
Notes
1. All facts and figures came from Imtech website and Imtech’s company financial reports.
2. Poland was one of the Imtech Germany’s operating regions.
https://doi.org/10.4135/9781529761023

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Autonomy and Control: The Collapse of Royal Imtech

Author: Tao Yue, Melanie Beuken, Erik Roelofsen

© 2021 Rotterdam School of Management, Erasmus University All Rights Reserved.

2023 Sage Publications, Inc. All Rights Reserved