BRIBERY SCANDAL AT SIEMENS AG Abstract
This case discusses the bribery scandals that were unearthed at Siemens AG (Siemens) in 2006 and 2007. There were a series of scandals that involved some of the company's employees bribing foreign officials to gain contracts and creating slush funds for this purpose. In another case, the company was accused of bribing labor representatives on the supervisory board in order to gain their support for its policies. After the German authorities conducted raids on in Germany, investigations were initiated on Siemens in several other countries like the US, Greece, Italy and Switzerland for possible misconduct. As a fallout of this scandal, the CEO of the company, Klaus Kleinfeld, and the chairman of the supervisory board, Heinrich von Pierer, had to resign even though they were not directly implicated. With bribery scandals surfacing in Siemens and many other German companies like Volkswagen, questions were also raised about the effectiveness of the Co-determination law in Germany, which advocated a system in which a supervisory board governed the management board and at least half the supervisory board seats had to be filled by labor representatives. In such a system, critics contended that the management always needed the labor representatives' support to be in job and gain support for company policies, which led to a suspicious alliance between them. The case also highlights the opinions of several analysts on the issues related to bribing by the German companies and Siemens in particular and the challenges the new CEO is likely to face at Siemens.
In December 2008, the Munich, Germany-based Siemens AG (Siemens) agreed to pay fines to the tune of ¼1 billion towards settlement of corruption charges that had hit the company since 2006. This included a record US$800 million fine imposed by the US authorities and another ¼395 million imposed by German authorities. This ¼1 billion was in addition to the billions of Euros that it paid in fines, back taxes and late interest charges by 2007.4 Peter Loescher (Loescher), who joined as the CEO of Siemens in 2007, following the major bribery scandal that broke out in the company, said, "We regret what happened in the past. But we have learned from it and taken appropriate measures. Siemens is now a stronger company."5 On May 14, 2007, a German court convicted two former managers of Siemens AG (Siemens) for diverting the company's money to bribe employees of Enel SpA6 (Enel), an Italian energy company.7 Both the former managers admitted that they had bribed employees at Enel who had demanded money in return for contracts. They also said that they had not done anything wrong as they did it for the benefit of the company and not for any personal gain. Moreover, there was no other way to win contracts in several countries abroad where bribing for contracts was a common practice, they said...
A Series of Scandals Rocks Siemens
Slush funds to win contracts abroad On November 15. unethical practices surfaced in other German companies including Volkswagen AG (Volkswagen).
Initiatives at Siemens
After the bribery scandals were unearthed at Siemens.... embezzlement of company funds and tax evasion.
Analysts opined that on account of increasing competition. some analysts felt that the Co-determination law or Mitbestimmung in Germany was flawed... Deutsche Bahn AG and Deutsche Post AG.. the company started many initiatives to strengthen its corporate governance and compliance controls. Siemens along with many other companies was found guilty of paying bribes to secure contracts abroad.. Here too.
Questions Relating to Ethics in Corporate Germany
Around the same time as the Siemens cases came out. tax inspectors and prosecutors in Munich. Deutsche Telekom AG. 2006. Siemens did not cover itself in glory as it was seen as having got rid of the unit because it could not easily lay off its employees. At Volkswagen.Siemens was initially started as Telegraphen-Bauanstalt von Siemens & Halske (Siemens & Halske) in 1847 by Werner von Siemens (Werner) and a mechanical engineer. Since several of the corruption scandals involved the bribing of labor representatives on the boards of German companies. A law firm Debevoise & Plimpton LLP (Debevoise & Plimpton) was appointed to conduct an independent and comprehensive investigation into the company's compliance and control system with the help of the independent auditor for Siemens. to probe suspicions of bribery..000 and received a suspended prison sentence in January 2007 for bribing labor representatives with money. and other cities of Germany.. foreign trips and prostitutes. a senior executive was fined ¼576.. KPMG. Johann Georg Halske (Halske). BenQ. around 30 offices and private homes related to Siemens and its employees were raided by some 200 police officers.. companies were resorting to illegal payments to win international contracts especially in some emerging economies where the practice was common.
Repercussions of the Scandals
The series of bribery allegations came in the aftermath of Siemens' sale of its loss-making mobile handset unit in 2005.
. to a Taiwanese company..
(Source: www. March 27. The company's revenues stood at 38. is that they will say 'OK. Enel produced and sold electricity mostly in Europe. we need to start taking this seriously'. 2008.» Understand the impact of the bribery scandals unearthed at Siemens AG on the company and the economic climate in Germany » Analyze the steps taken by Siemens AG to prevent such incidents in future
» Discuss the role of the co-determination law in the bribery scandals that surfaced in German companies "Based on our investigation so far. North. For delivery through courier (within India): Rs.Jeanette Balmer.. in 2007. 25 for Shipping & Handling Charges Themes Business Ethics Corporate Governance
.Jermyn Brooks.. 5] "Siemens Bribery Fines Top 1 Billion Euros.it). Malhotra. 300 + Rs. 6] Enel SpA (Enel) was Italy's largest power company." http://en. in 2007. with a 12% market share.dw-world. that allowed it to open new markets through secret payments to potential and existing business partners.de." 1 . "Siemens Looks for New Beginning after Bribery Scandals. 2008. May 14.enel. we have reason to suspect that Siemens ran 'black accounts' ." www.. when they see what happens to Siemens in terms of fines and the lost reputation of individuals like von Pierer or Kleinfeld. "Many people within Siemens knew about the method of payment.de. 7] "Former Siemens Managers Convicted of Paying Bribes. in 2006. former Siemens employee convicted in a bribery case. a spokeswoman for the office of the Swiss federal prosecutor.Horst Vigener.com. director of private sector programs at Transparency International." www. and Latin America. is that senior business leaders. December 15. Getting a contract isn't easy."3 . 2007
Case Details: Case Code Case Length Period Pub Date Teaching Note Organization Industry Countries
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BECG106 18 Pages 2006-2009 2010 Available Siemens AG Diversified Germany
Price: For delivery in electronic format: Rs. 300.epochtimes.dw-world. Enel was one of the largest distributors and vendors of natural gas in Italy.
4] Heide B. "What hopefully will come out of the Siemens affair .5 billion euros for the year 2006.." 2 .