updated 4/25/2007 2:57:35 PM ET 2007-04-25T18:57:35

Siemens AG Chief Executive Klaus Kleinfeld, who pledged to restore the reputation of the company as it was being investigated for corruption, said Wednesday he will not renew his contract with the industrial and engineering conglomerate.

The company said Kleinfeld’s decision came after the supervisory board had proposed postponing discussions about his contract extension.

“Kleinfeld informed the supervisory board at its meeting today that he is no longer available for a renewed contract effective Oct. 1,” Siemens said in a statement after the board met.

Some members of the supervisory board — which is the equivalent of a U.S. board of directors — reportedly wanted to oust the 49-year-old, who has been with the company for 20 years and CEO since January 2005.

“In times like these, the company needs clarity about its leadership. I have therefore decided not to make myself available for an extension of my contract,” Kleinfeld said in a statement. “The company must have complete freedom of action.”

Siemens said the board had no immediate replacement for Kleinfeld lined up, but he would stay in the job through the expiration of his contract on Sept. 30.

Shares of Siemens fell nearly 1 percent to close at 88.36 euros ($120.60) after the announcement.

The company — which makes products ranging from cell-phone network components to trains and is Europe’s biggest engineering company by sales — has been rocked by investigations in Germany, Italy and Switzerland over whether money totaling hundreds of millions of dollars was taken from corporate accounts and used to pay bribes to help land telecommunications deals.

The situation has led to a growing outcry about the state of ethics in corporate Germany.

Kleinfeld was never under suspicion and, after the bribery allegations arose, he hired an outside anti-corruption expert and a law firm to examine and revise the company’s anti-corruption safeguards.

Siemens was stoic about the decision, saying in a statement that the company “can show major business successes today, yet at the same time is in the midst of an intensive investigation of corruption. Especially in times of such challenges, employees, customers, and the capital markets expect clear leadership more than ever.”

New board chairman Gerhard Cromme said Kleinfeld is leaving Siemens in better condition than when he took over as CEO from outgoing board Chairman Heinrich von Pierer.

“Under the management of Dr. Kleinfeld, the company was given a strategic reorientation that will ensure sustained success,” Cromme said in a statement.

Von Pierer said last week that he would step down at Wednesday’s board meeting, but said the move was not related to the investigations.

In his farewell letter, he noted that despite “its outstanding business performance, Siemens has run into a difficult situation due to the in part apparent and in part alleged misconduct of a number of managers and employees.”

Siemens said Cromme was named chairman of the supervisory board, effective immediately.

Until last week it seemed as though Kleinfeld was on course for an easy contract renewal, despite the bribery investigation of the Munich-based company.

But the Financial Times Deutschland reported Tuesday that some on the board, including Cromme, who is chairman of ThyssenKrupp AG, and Deutsche Bank CEO Josef Ackermann were moving to oust Kleinfeld in favor of a new executive.

There have been media reports that Wolfgang Reitzle, CEO of gas and chemicals maker Linde AG, was a likely candidate, but Linde said Wednesday that he had no plans to leave the company.

Another name mentioned is Wolfgang Bernhard, who left Volkswagen AG in January after a power struggle that resulted in Martin Winterkorn taking over as CEO.

Ahead of the meeting, analysts questioned why the board, even a few members, would want to effect a change at the CEO level, particularly in light of the better-than-expected second-quarter results released Tuesday.

Sal. Oppenheim said the change would be negative and posed a risk to shareholders because any CEO brought in from the outside would take up to a year to get up to speed.

Siemens said it earned 1.26 billion euros ($1.71 billion) in the second quarter compared with 923 million euros in the same period a year earlier. That was better than the 1.13 billion euros ($1.54 billion) analysts had forecast.

Sales rose 10 percent to 20.63 billion euros ($28.16 billion), also beating expectations. Siemens will publish its full quarterly report Thursday.

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