TheSiemensbriberyscandal.docx

8/13/2019 TheSiemensbriberyscandal.docx

1/7

1. Company Description

Siemens AG was founded in 1847 in Berlin. Its founder, Werner von Siemens began the

business with the manufacture of pointer telegraphs. Today, the company has grown to become

one of the worlds largest electronics and electrical engineering companies; with 4,05,000

employees around the world. Siemens is active in 190 countries. The group is involved in fourmain business areas. The Energy sector is a leading supplier of products, solutions and

services in the field of energy. The Healthcare sector offers products and consulting services to

the healthcare industry. The Industry sector supplies innovative products and services to

industrial customers. The Infrastructure & Cities sector provides sustainable technologies for

urban centers worldwide. Two additional cross-segment central divisions activities offer

financial services and real estate for the rest of the Siemens group.

Siemens AG relies heavily on the output of its R&D operation, and invested EUR 4.2

billion into research and development during the 2012 fiscal year. Siemens AGs revenues

amounted to EUR 78.3 billion in 2012.The company has developed an Environmental Portfolio

that promotes environmentally-friendly technologies and products. During 2012, the

Environmental Portfolio generated revenues of EUR 33.2 billion, representing 42% of the

groups total revenues. The performance of the Environmental Portfolio is up 10% year-on-year

on a comparable basis and has led to a reduction of 332 million tons of CO2 emissions among

Siemens customers in 2012. In 2010, the group set a target aiming to reach EUR 40 billion in

revenue from its Environmental Portfolio by the end of the 2014 fiscal year; at the current rate, it

is on track to reaching this ambitious goal. Siemens' sustainability strategy extends well beyond

environmental products, as it has implemented best in class practices in areas ranging from

customer relationship management to supply chain management1.

1. Vision

2

Siemens vision is to be a pioneer- this is their vision, their identity and their main defining

characteristic. The vision is based on their values responsible, excellent and innovative ,

which provide the foundation for their success. Being a pioneer in each sector they operate:

- Energy efficiency

- Industrial productivity

- Affordable and personalized

- Intelligent infrastructure solutions

2. Mission

On the basis of its forward-looking technology and solutions, the mission of Siemens is

to produce a wide range of products and solutions designed with the environment and engage

with climate change.


2/7

3. Strategy

The company strategy shows how to make its vision a reality. Siemens is aiming to

capture and maintain leading market and technology positions in all its business in order to

achieve sustainable profitable growth and, thus, continually increase its company value. For this

reason its strategy is reflected in three different directions:

1. Innovation driven growth markets- The Company is breaking new ground while focusing

on growth markets. Its activities are closely geared to innovation driven markets with

long term potential and they intend to play a leading role in these markets. To reach this

goal, Siemens is continuously strengthening its offerings and further expanding its

environmental portfolio.

2. Get closer to its consumers- They want to be close to their markets, our partners and our

customers. For these reason another strategic aim that they are pursuing is the

professionalization and expansion of their service portfolio. They are opening up a large

number of new business opportunities and reinforcing customer retention. Moreover, to

better understand what really helps their customers, Siemens is constantly intensifyingits already wide ranging interaction with them.

3. Use the power of Siemens, One Siemens- To rank among the best, it is important to

excel in everything to do, and that means you need an outstanding team. Because of

this, their last commitment is their employees integrity. The One Siemens strategy is

based on the idea of each employee contribute to the company success with his

knowledge, his compromise and his pioneer spirit. In addition, Siemens always operate

under the name of Siemens; they only use one brand for all their business as their

objective is to transmit confidence and innovation through all their products.

Having given a brief introduction of the company, we move onto the main topic of the termpaper.

2. The Siemens bribery scandal

1. Corruption in Germany

Germanys GDP is 3.25 trillion USD, 6 thlargest in the world, as of 20123. Germanys

economy is driven by the service sector which accounts to around 70 percent of the Germaneconomy. Germany is relatively poor in raw materials but a leader in engineering, especially inautomobiles, metals, machinery and chemical goods. Of the worlds 500 largest stock marketlisted companies, 37 are headquartered in Germany. Of them, the 10 largest are Volkswagen,

Allianz, E.ON, Daimler, Siemens, Metro, Deutsche Telekom, Munich Re, BASF and BMW.

Other large companies include Bayer and Merck, Robert Bosch, Commerzbank andThyssenKrupp4.


3/7

Germany has traditionally enjoyed a reputation for being one of the least corruptcountries in the world. It has a rank of 13 out of 176 countries in the Percieved Corruption Indexby Transparency International5. However this image has taken a hit following a spate of high-profile corruption scandals which include the Siemens bribery scandal (the largest of them all)that came to light in November 2006. Frankfurt prosecutor Wolfgang Schaupensteiner chargesthat corruption in Germany is not a matter of individual cases, but of structural forms oforganized corruption, where bribes are part of business policy.

German law was comprehensively revised in 1997. Several international agreementswere signed with the formation of the European Union in mind. However, they havent beenratified yet. While the 1997 laws have made stringent action against public officials possible,there is still not much clarity with regards to private corruption and international corruption. Apartfrom the case of the EU Joint Action on Corruption in the Private Sector, the Bundestagconfined its implementation legislation to the minimum requirements of the respectiveinternational legal instruments6.Germany has signed the United Nations Convention Againstcorruption. The convention if ratified obliges states to put in place detailed and specificsafeguards against corruption. Germany has yet to ratify it7.

2. Corporate corruption

Globalization has become a motor of corruption in Germany. Germany is a majorexporter and the increasing level of profits earned abroad may have tempted employees toaccept bribes and also give bribes to win business. Only in 1997 did Germany passed lawsallowing prosecutors discretion to bring corruption cases themselves. Germany developed newlegal means to prosecute such cases of bribery conducted by German companies abroad.

Aggressive prosecution has resulted in a number of cases coming to light

involving many German giants.An employee of German automaker BMW was jailed in 2007for accepting bribes from automobile parts makers. Chemical giant BASF was caught

participating in a huge conspiracy to fix vitamin prices8

. Five people have been arrested ina massive bribery scandal involving Europes biggest electronics goods retailer Media Markt9.2008 saw a German court convicting top executives of car maker Volkswagen10. Other Germancompanies like Merck, MAN SE, Allianz SE, Manroland AG, Metro AG and Uno Schneider havealso been indicted for bribery. However, the biggest of them all involved German engineeringconglomerate Siemens AG11.

3. Siemens bribery scandal

On November 15 2006 prosecutors raided offices and homes of Siemens staff as part ofan investigation into suspected cases of embezzlement. Chief Executive Officer Klaus Klienfeldwas considered a witness, not a suspect. On November 22, Munich prosecutors announced that

they were investigating the disappearance of 296.3m$ from Siemens accounts. The followingday saw Siemens setting up an anti-corruption taskforce. On December 12, Siemens arrestedThomas Ganswindt, the person who used to run its telecom business. January 3 2007 saw theannouncement by a German prosecutor that Siemens was being investigated for a possibleabuse of the United Nations oil-for-food program in Iraq. On May 14, two managers weresuspended for paying illegal bribes to contractors of Italian utility firm Enel to win turbinecontracts. Meanwhile the CEO resigns alongwith many top level executives and he wasreplaced by Pharmaceuticals division head Peter Loscher. On October 4 Munich court fines


4/7

Siemens 201m euros. Siemens was also being investigated by Securities and ExchangesCommission of USA. On Nov 5 2008 Siemens agreed to pay a fine of 800m$ to U.S authoritiesfor violating the Foreign Corrupt Practices Act. It also agreed to pay an additional 540m$ fine toGerman authorities on top of the 201m$ paid earlier12.

The scandal cost Siemens an estimated total of 2.6b$, 1.6b$ as fines paid in Germany

and U.S.A and 1b$, the cost of internal investigations and response measures.

4. The methodology

The telecommunications department paid 5m$ to politicians of Bangladesh, 12.7m$ forgovernment contracts in Nigeria. It paid 40m$ in bribes to secure 1b$ worth contract to producenational identity cards. 20m$ was spent in Israel for payments to secure power plant contracts,16m$ in Venezuela for railway lines, 14m$ in China for medical equipment and 1.7m$ toSaddam Hussein and his cronies.

The question that remains is to ascertain the reason for the unprecedented levels ofcorruption in the top echelons of a global company. World War 2 inflicted heavy losses on

Siemens. The company turned to markets in less developed regions and bribery was thereliable and ubiquitous sales technique according to American prosecutors. Bribes were taxdeductible prior to 1999. Germany joined the international convention by signing lawspreventing corrupt practices. This led the company to create a paper program to divert funds tooffshore accounts.

Money was diverted into accounts in Austria, Switzerland, Dubai, Virgin Islands andLiechtenstein. The common method to bribe was the use of an outside consultant who wouldroute the money to the ultimate recipients. There were 2700 such consultants worldwide whohelped do the dirty work13.

According the U.S Department of Justice, as much as 1m euros could be withdrawn at a

time, in the telecommunications department, to win contracts. Cash desks were set up whichallowed employees to bring empty suitcases to be filled with cash. It operated on an honorsystem. Few questions were asked, no documents were required and managers who asked formoney were asked to approve their own requests14.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "Thispattern of bribery by Siemens was unprecedented in scale and geographic reach. Thecorruption alleged in the SEC's complaint involved more than $1.4 billion in bribes togovernment officials in Asia, Africa, Europe, the Middle East, and the Americas. Our success inbringing the company to justice is a testament to the close, coordinated working relationshipamong the SEC, the U.S. Department of Justice, and international law enforcement, particularlythe Office of the Prosecutor General in Munich." The full transcript of the SEC announcement

can be read here...http://www.sec.gov/news/press/2008/2008-294.html.

Bribery was Siemens business model.
http://www.sec.gov/news/press/2008/2008-294.htmhttp://www.sec.gov/news/press/2008/2008-294.htmhttp://www.sec.gov/news/press/2008/2008-294.htm


5/7

4. Siemens Response

1. Offering amnesty to those who indulged in bribery

SIEMENS offered amnesty to those who were involved in the bribery incidents, i.e. ifthey came in and confessed on the situation under which they had to resort to bribery, theywouldnt be fired. And about 130 people came in and explained where the money had gone andwhat their role had been15.

2. Press releases & Public speeches

Peter Loescher was given the responsibility of cleaning up SIEMENS AGs image.Though SIEMENS AG had tried to downplay the extent of bribery when the news broke out,Peter Loescher, who was brought in to replace Klaus Kleinfeld, decided to be more transparentwith the public on the issue and tried hard to restore the image of the company. For instance,Peter Loeschers speech at Columbia University is one instance of many such endeavours16

3.Organizational changes

A lot of the pressure that led to the bribery scandal happened to be attributed to theorganizational structureand culture. Several systemic elements were cited as contributing to thescandal, including: an aggressive growth strategy that compelled managers to see bribes as atempting short-cut to hitting tough performance targets; a complex, matrix-like structure thatallowed divisions to effectively run themselves, and poor accounting processes17

Siemens appointed Michael Hershman, co-founder of Transparency International, toserve as its advisera shrewd move to affiliate itself with a leading anti-corruptionexpert.

Siemens rolled out strict new rules and anti-corruption/compliance processes. It hiredover 500 full-time compliance officers (up from just 86 in 2006), and a former Interpolofficial to head its new investigation unit. It also established compliance hotlines, and anexternal ombudsman based worldwide and online. It created a web portal for employeesto evaluate risk in their client and supplier interactions.

In an attempt to change its internal culture, Siemens launched a comprehensive trainingand education programme on anti-corruption practices for its employees. By 2008,Siemens had trained more than half its 400,000-strong global workforce on anti-corruption issues.

Siemens announced it would avoid competing in certain known hotspots for corruption orunethical practice, such as Sudana simple gesture, although not materially punishing

to the company's finances. More substantial was the decision to voluntarily suspend its applications for funding from

the World Bank for two years. It also agreed to a 15-year programme to pay $100m tonon-profit organisations fighting corruption. Finally, the firm took over 900 internaldisciplinary actions, including dismissals.

As well as the staff amnesty, Lscher replaced Siemens' dauntingly complex matrixstructure with a more streamlined one comprising just three divisions, whose MDs sit on


6/7

the board. Millions of bank account statements, documents and transactions werereviewed.

4. Structural Changes18

References1 -http://www.siemens.com/about/en/history.htm2 - http://www.siemens.com/about/en/values-vision-strategy/values.htm3 - https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html4 - http://money.cnn.com/magazines/fortune/global500/2010/countries/Germany.html5 -http://www.transparency.org/country#DEU6 - http://www.germanlawjournal.com/pdfs/Vol07No09/PDF_Vol_07_No_09_785-792_Developments_Wolf.pdf

7 -http://www.ropesgray.com/asheeshgoel/~/media/Files/articles/2012/05/20120521_ABC_Book.ashx8 - http://www.nytimes.com/2007/02/15/business/worldbusiness/15scandal.html?pagewanted=all9 - http://www.businessinsider.com/media-markt-corruption-scandal-2011-10?IR=T10 - http://www.spiegel.de/international/business/vw-sex-and-bribery-scandal-sentences-handed-down-in-corruption-affair-a-537137.html11 -http://www.economist.com/node/788790212 - http://uk.reuters.com/article/2008/12/15/us-siemens-timeline-idUKTRE4BE4ID2008121513 - http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html?pagewanted=all&_r=014 -http://www.economist.com/node/12814642
http://www.siemens.com/about/en/history.htmhttp://www.siemens.com/about/en/values-vision-strategy/values.htmhttps://www.cia.gov/library/publications/the-world-factbook/geos/gm.htmlhttp://money.cnn.com/magazines/fortune/global500/2010/countries/Germany.htmlhttp://www.transparency.org/country#DEUhttp://www.germanlawjournal.com/pdfs/Vol07No09/PDF_Vol_07_No_09_785-%20792_Developments_Wolf.pdfhttp://www.germanlawjournal.com/pdfs/Vol07No09/PDF_Vol_07_No_09_785-%20792_Developments_Wolf.pdfhttp://www.ropesgray.com/asheeshgoel/~/media/Files/articles/2012/05/20120521_ABC_Book.ashxhttp://www.nytimes.com/2007/02/15/business/worldbusiness/15scandal.html?pagewanted=allhttp://www.businessinsider.com/media-markt-corruption-scandal-2011-10?IR=Thttp://www.spiegel.de/international/business/vw-sex-and-bribery-scandal-sentences-handed-down-in-corruption-affair-a-537137.htmlhttp://www.spiegel.de/international/business/vw-sex-and-bribery-scandal-sentences-handed-down-in-corruption-affair-a-537137.htmlhttp://www.economist.com/node/7887902http://uk.reuters.com/article/2008/12/15/us-siemens-timeline-idUKTRE4BE4ID20081215http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html?pagewanted=all&_r=0http://www.economist.com/node/12814642http://www.economist.com/node/12814642http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html?pagewanted=all&_r=0http://uk.reuters.com/article/2008/12/15/us-siemens-timeline-idUKTRE4BE4ID20081215http://www.economist.com/node/7887902http://www.spiegel.de/international/business/vw-sex-and-bribery-scandal-sentences-handed-down-in-corruption-affair-a-537137.htmlhttp://www.spiegel.de/international/business/vw-sex-and-bribery-scandal-sentences-handed-down-in-corruption-affair-a-537137.htmlhttp://www.businessinsider.com/media-markt-corruption-scandal-2011-10?IR=Thttp://www.nytimes.com/2007/02/15/business/worldbusiness/15scandal.html?pagewanted=allhttp://www.ropesgray.com/asheeshgoel/~/media/Files/articles/2012/05/20120521_ABC_Book.ashxhttp://www.germanlawjournal.com/pdfs/Vol07No09/PDF_Vol_07_No_09_785-%20792_Developments_Wolf.pdfhttp://www.germanlawjournal.com/pdfs/Vol07No09/PDF_Vol_07_No_09_785-%20792_Developments_Wolf.pdfhttp://www.transparency.org/country#DEUhttp://money.cnn.com/magazines/fortune/global500/2010/countries/Germany.htmlhttps://www.cia.gov/library/publications/the-world-factbook/geos/gm.htmlhttp://www.siemens.com/about/en/values-vision-strategy/values.htmhttp://www.siemens.com/about/en/history.htm


7/7

15 - http://www.npr.org/2012/05/01/151745671/companies-can-recovery-from-bribery-scandals16 - http://professorjickblog.com/post/21272766224/siemens-ceo-peter-loscher-a-company-is-only-as-good-as17 - http://www.theguardian.com/sustainable-business/recovering-business-trust-siemens18 - http://www.siemens.com/press/pool/de/events/pressegespraech/press-briefing-silde.pdf
http://www.npr.org/2012/05/01/151745671/companies-can-recovery-from-bribery-scandalshttp://professorjickblog.com/post/21272766224/siemens-ceo-peter-loscher-a-company-is-only-as-good-ashttp://professorjickblog.com/post/21272766224/siemens-ceo-peter-loscher-a-company-is-only-as-good-ashttp://www.theguardian.com/sustainable-business/recovering-business-trust-siemenshttp://www.siemens.com/press/pool/de/events/pressegespraech/press-briefing-silde.pdfhttp://www.siemens.com/press/pool/de/events/pressegespraech/press-briefing-silde.pdfhttp://www.siemens.com/press/pool/de/events/pressegespraech/press-briefing-silde.pdfhttp://www.theguardian.com/sustainable-business/recovering-business-trust-siemenshttp://professorjickblog.com/post/21272766224/siemens-ceo-peter-loscher-a-company-is-only-as-good-ashttp://professorjickblog.com/post/21272766224/siemens-ceo-peter-loscher-a-company-is-only-as-good-ashttp://www.npr.org/2012/05/01/151745671/companies-can-recovery-from-bribery-scandals

Documents

TheSiemensbriberyscandal.docx