Introduction
Siemens is an engineering company that deals with industrial, manufacturing and construction of electrical equipment. It is the worlds’ number one largest electrical company with its International headquarters in Munich and Berlin, Germany. Siemens Company was founded in the year 1847 by Warner von Siemens in Berlin, Prussia, under industrial conglomerates. Their products vary from communication systems, medical equipment, industrial automation, building technologies, fire alarms, power generation, and home appliances to mention but a few. Siemens service provision is categorized under three main sections namely: – Construction, Business, and Financing services.
For the period spanning more than one-and-half centuries, siemens has spread its branches to well over 190 countries all over the world with an employee base of 0.4 million (www.siemens.com). Their business slogan states their aim of being the best in customer service…had they not suffered the setbacks by the numerous cases of mismanagement, corruption, and bribery cases, they would have lived true to that dream. Numerous reports have been released on their involvement in corruption cases which has tainted their reputation. A private committee appointed to investigate the extent of these illicit deals revealed that about US$2 million (1.3 billion euros) in slush funds have been used in various illegal projects to buy favor to Siemens Company. The criminal activities cut across several countries in the world where Siemens has branches and where it does not.
Activities to the Society
During these hard economic times, when every person is struggling to make ends meet and save as many finances as possible, Siemens has not been left behind in the struggle to help society in this fight. They have come up with a lot of projects to help their customers enjoy a decent and affordable living by reducing fuel and energy use. Some of the reported activities include: – establishing programs that are geared to make chemicals and fuel from Second Generation Biofuel.
Through the Siemens Foundation, the Siemens Company has devised a way to help society. The foundation is aimed at rewarding students and AP teachers who have shown exemplary performance and excellence. One of the foundations pilot projects is the Siemens Westinghouse Competition in mathematics, science, and technology. Through the project, individuals, as well as corporate entrants, can win scholarships up to a tune of US$ 100,000. The total expenditure of the Siemens Company on their award projects is estimated to be about US$ 2 million annually (www.siemens.com).
Problems and Challenges
Just like other major companies in the world, Siemens has not escaped the wrath of accusations on its dealing by the top managers. It has been dodged with many controversies and wrongdoings in the past and even to date. For instance, the year 2007 was no good one for the company at all; it was tainted with unfriendly occurrences touching on the evils committed by the Siemens top brass management. Just at the beginning of the year in January, the European Commission fined Siemens a total of 396 Euros for rigging electricity markets for a period of sixteen years (1988-2004). Siemens Company together with eleven other companies like Alstom, AE Power Systems, Schneider, Toshiba, ABB, VA Tech, Fuji, Hitachi Japan, Mitsubishi Electric Corp, and Areva were involved in the cartel. Siemens was accused to be the master minder behind the cartel that was involved in rigging bids for contracts procurement, allocating projects to only within members within their groups, fixing prices, sharing confidential information of commercial importance, and lastly sharing market opportunities. By the virtue of playing a leading role in the criminal act, Siemens earned itself the highest fine.
In March 2007, one of Siemens significant board members, Mr. Johannes Feldmayer, was accused and arrested because of financing a labor association, rival to the Union IG Metall (Industrial Union of Metal workers-Representing both blue and white-collar job employees in the industry), and this further lead to the investigation of all the other board members who denied to have committed any wrong. Feldmayer was accused of tipping a former Workers Union boss (the Association of Independent Employees-AUB), Mr. Schelsky. The money was to reduce IG Metall’s influence by buying AUB’s loyalty through Schelsky. The Bavarian (Nuremberg) court handed heavy penalties on both the accused persons; Mr. Feldmayer was fined 28,000 euros while Mr. Schelsky received a sentence of four-and-a-half years for receiving a bribe and on tax evasion. The court prosecutors are further seeking to add on top of the sentence a three–and–half–year imprisonment on Feldmayer and six years to Schelsky.
The financial reports taken on the latest financial year indicate that as the sales rose by an average of 11.9 % score, the net profits declined by 9.6%. This was the scenario both at the parent Siemens Company as well as all their branches. No one had ever anticipated such dismal performance and decline within a year. The management reasoned that the reason for such a scenario where profits fell like that was due to the new large projects that had been initiated and inquired the company some costs to overrun (Mobis Philipose, 2008). The losses are also attributed to the increment of taxes on their engineering products. The management reported delays in both execution and orders hence leading to the fall in revenue. Siemens’s tight credit conditions are also to blame for the crisis; the customers are forced to delay their plans for expansion in the service delivery and product provision due to the conditions set by the credit system.
The Siemens Bribing Scandal
In April of the same year (2007) that a senior Siemens board member was arrested on accusation of bribery. A Mobile Company, Nokia which was to merge with Siemens to form a 50/50 joint venture delayed the deal for some time, thanks to the ongoing bribery allegations on Siemens (Herald Tribune Report, 2007). Six months later, a Munich court found Siemens company guilty of paying bribes as kickbacks to ministers and other public officials in Nigeria, Russia, and Libya so that they could be awarded government contracts. They admitted the charge and were in turn fined a total of 201 million euros, and the contracts were also counseled. Mr. Ernst Keil-von Jagemann and his counterpart Mr. Wolfgang Rudolph nodded to the accusations that tied them to corruption and misappropriation of funds. Jagemann was found guilty of 75 charges and was fined 12,000 and two years behind bars. Rudolph was directed to pay 20,000 to charity and given a nine-month sentence after being charged on two accounts.
As if that was not enough, in May 2007 two more members of the executive office of the Siemens Company were found guilty of paying a bribe of 6 million euros to help Siemens win contracts to supply natural gas turbines with an Italian energy company, Enel. The German court established that the offense was committed from the year1999 up to 2002 valuing the total cost of the contract at 450 million euros (The New York Times, 2007). A fine of 38 million euros was imposed on the charge.
Currently, the company is again under scrutiny and investigation on suspicion that from 2002-2006, a former member of Siemens’s management board Mr. Johannes Feldmayer together with Mr. Karl-Hermann Baumann and Mr. Heinz-Joachim Neuburger (ex-chief financial officer ) got involved in bribery cases. Unclear payments amounting to over US$1.9million and 1.3 million euros to officials in different countries including the United States and Germany is what triggered the inquiry.
Controversies were not just about to end with the year 2007 as thought by some hopefuls. Just before the corruption dust settled, another blow came crumbling Siemens to the ground. On Tuesday of July 2008 in Greece, it was revealed that a number of politicians in the country had received money from Siemens slush funds to help it secure a contract through its main telecommunications operator OTE to create a lucrative security system for the 2004 Athens Olympics. The investigations that had been ongoing for two years came to an end with the prosecutor filing charges of money laundering and corruption between the Siemens Engineering company, OTE, and the Greek State.
Even though no particular individual has been charged, reports indicate that more than 100 individuals have already testified to the prosecutor at Athens Panayiotis Athanassiou over the period during the investigation to help shade more light on the saga. Those that had appeared on the stand before the investigating committee include former executive officials of Siemens AG Greek unit and OTE, a number of stockbrokers, and businessmen who participated in one way or another to bridge the deal. The Greek media reports have it that, the revelations have caused major splits and waves in the political arena of the country (Greece). The major political parties (the Ruling New Democracy Conservatives and Opposition Pasok Socialists) have different opinions on the matter…further revelations disclose that leaders from both sides received some payments from the slush funds. [But of cause none of them owned up to having received any gifts or perks from Siemens].
From the time reports were published by Greeks most respected daily (Kathimerini) that the Siemens Company might have used the money to the tune of 12 million euros for the main political party in Greece in 1998 and 2005, pressure has been mounting on the Greek Prime Minister Karamanlis to open a parliamentary investigation on the matter and stop covering up. [But this will only take place after the judicial investigations are completed].
To add more salt to the Siemens wound, the Norway police on the same date, July 1st, 2008 slapped a fine on the German Engineering Giant-Siemens for the allegation of corruption reported in defense contracts. The fine amounted to US$400,000. That fine marked the second one that Siemens was suffering in the hands of the Norwegian government on similar accusations. Siemens Company has decided to contest the decision that had been made on both the charges. The bribery and corruption cases involving Siemens Company are widespread just like its branches, and since the year 2006, it has been in court battling against one case after the other.
Needs and Requirements
There was the need for the giant company Siemens to put the matter to complete rest and forge a way forward by clearing the names of the innocent individuals who were falsely accused, and at the same time charge the guilty ones. This is the reason which made the company jointly sue its ex-officials, i.e. two CEO and other nine members for bribery charges. The CEOs were accused of failing to act within the stipulated code of ethics that requires them to act without negligence; they had neglected their supervisory duties in the periods when they were in office (2003-2006). Instead of acting as per the regulations, they got involved in illegal business deals as well as massive bribery and corruption.
In most cases, the money that was being used to found these illegal deals were the company money stashed in private Siemens accounts strictly to be used as a conduit for bribery. Mr. Reinhard, a former executive of Siemens in the ICN Division, admitted in court to having helped the creation of slush fund accounts and front officers to aid the illegal payment of “consultancy” fees which had the major objective of corrupting officials outside Germany. Such officials will eventually act in favor of Siemens [this clearly shows that there was no consultation involved-but pure corruption]. Reinhard was fined 108,000 euros after being found guilty of 49 counts on misappropriation of corporate funds.
Possible Solutions to the Problems
The bribery case led to a management shuffle, where the then chairman of the Supervisory board of Siemens AG Dr. Heinrich von Pierer got replaced by Mr. Gerhard Cromme and Peter Loscher replaced Dr. Klaus Kleinfeld as the president. The management has since then embarked on ways to stiffen regulations and tighten all internal operations to avert such corrupt acts. The penalties that have been imposed on the accused are believed to be able to go a long way to curb further malpractices.
Some other steps that Siemens took on the guilty officials include cutting all ties with them in terms of; office space, all consultant contracts as well as any other business deal, this is then crowned by charging them in the court of law, as the laws of the land dictate. Even though things are not looking that pretty for the company, all is not lost. With the input prices coming off, and through tight regulations set to guide the manager’s operations and administrative costs, the financial year 2008-2009 could witness an improvement in Siemens profit margin. Also on the brighter side, the Siemens Company has got plans to keep low their capital expenditure and if in case they have to use more, then they will put into use their cash reserve of about Rs 980 to avoid any form of borrowing (Shobhana & Varum).
To boost the investigation and dig out the truth on the secret dealings, the investigating committee has resorted to an unfamiliar strategy where the small fish have been granted amnesty so that they can reveal the evils done by the senior executives. The recommendations of some of the findings of the investigation suggest that further changes should be carried out to make Siemens’s corporate structure more transparent and leaner.
In the last report of Transparency International, it is revealed that Germany moved two steps high in the corruption list to number 14 out of the180 countries investigated. This, therefore, calls for something to be done to reverse the trend. The country is not willing to apply the UN initiatives and strategies meant to tackle corruption. To prevent further damage and loss of face value, the German government needs to view the issue with strong oversight and put all the regulations in place to control overseas bribery.
The independent media, law enforcers, the parliament as well as civil society have to take it upon themselves to see that the fight against corruption is revived to stem out the vice. Failure of these groups of individuals to act, coupled with weak institutions will result in surging cases of corruption in the society. If corruption moves out of control, then the consequences on the ordinary people with low earnings will be disastrous.
There has to be a global initiative to help address corruption. Corruption is of global concern, particularly the major multinationals that operate across the borders. The rate by which corruption has been increasing only indicates that there has been laxity or failure by the well-developed and rich nations to live up to their promise and unanimously join in the fight against corruption. If such countries still want to remain credible in the ‘eyes of the low-income countries, then they have to adhere to the rule of law and gain public confidence by stepping up the campaign…but first, they have to set a good example to the developing countries.
Further Solutions (Recommendations)
Under the leadership of Mr. Peter Loescher, a big forward leap has been made in a very short time. The entire team of the Siemens current board of directors has embarked on a process to prosecute all the former top management and try to find out what happened and who did what in every case. All the culprits will be held liable jointly if they are found to have neglected their duties as stated in the stock corporation law. In Germany and all her corporate activities abroad, it is an illegal offense to give or receive bribes and the law applies to everyone indiscriminately. Therefore, for whoever is found guilty of condoning such corrupt acts, the same law will apply to him/her. So, even if the said executives were not directly involved in the dubious acts, they will still be charged with negligence of duty and for not doing everything within their power to nip the slush fund project
Conclusion
A company that was once the most adored has undergone what can be referred to as baptism with fire and is now struggling to re-establish itself to represent a graft-free figure after being shaken to its core [a toll order indeed]. The corruption cases have caused a lot of distrust among the management staff leading to several resignations from the company. The company is now struggling to at least save its face from the public and try to waver away from the perception that it can never be of any match to more than thirty potential competitors.
The steps taken by the Siemens Company under the leadership of Mr. Peter Loescher are costing the company more money which they could have on the other hand saved or used for expansion. Reports have it that they have set aside more than 510 million euros on the fees and fines for lawyers and management consultations to help with the internal investigations of their members on the reported allegations.
We can also conclude by saying that, though the courts are trying to bring the individual perpetrators to book, a grave challenge lies with the organizational structure of Siemens Company which has been put under strict observation by the same courts on their perceived “irresponsibility’. But the courts have never had an easy ride on this as it is an uphill task to determine which of the specific numerous bosses of the company were intertwined in the corrupt affairs and more so it is hard determining where the money was taken to.
In a bid to rectify the issue and in whatever is being done, the main aim and mission of the new board members should be to unearth the secrets and call all the officials responsible for creating the slush fund to account…the steps should include an explicit decree or simply by tacit agreement with the practice. But there is one thing that everyone will agree with, that the top brass management was well aware of the dealings, for it would be unimaginable to say that all the handouts, gifts, payments, and kickbacks were approved without their knowledge.
Finally, this research found out that Siemens managed to acquire a great number of contracts in many countries in the world-this raised eyebrows, and to add to that it is known to everyone that such is not possible to be awarded such many contracts without the involvement of tips/kickbacks. In any dealing involving kickbacks, there is a possibility of tax evasion, especially in the developing countries [which of cause is corruption]. In the 1990s, the industrialized nations unanimously agreed to root out corruption and create a corruption-free world and promote democracy. They therefore completely banned all illegal practices and established democracy as a law…this law applies even to Siemens.
Works Cited
- “Bloomberg.com”. 2008.
- “Siemens AG – Annual Report” (HTML). (2008).
- “Siemens history”. 2008.
- “The New York Times”. 2008.
- International Herald Tribune: “Bribery trial deepens Siemens woes”, 2007.
- Mobis Philipose “Money Matters: Siemens hit by cost overruns” 2008.
- Shobhana Subramanian & Varum Sharma: “Siemens: Growth trips”: Mumbai 2008, 0:12 IST