Executive Summary
Siemens remains one of the most profitable organizations and reputable brands in the world today. In 2007, this German corporation reported profits of around 2.7 billion US dollars. During the same period, Klaus Kleinfield, the organization’s chief executive officer (CEO), was not sure how he would manage the affairs at the company and whether he would continue being the leader. At the time, Siemens was being investigated for bribery and business malpractices that had taken place several years earlier.
The preliminary investigations revealed that the company had paid large sums of money to different government officials and companies to maximize sales. The case identifies the two-tier system of corporate governance as the weakest link or causal factor for the recorded challenges. The model practiced in Germany is comprised of both a supervisory and management board. The members of such boards made crucial decisions and engaged in determinations that had the potential to influence the company’s organizational performance. The emerging question was how and who was to take responsibility for the events recorded at this giant corporation.
Introduction
Siemens remains one of the most successful corporations in Germany and across the globe. Currently, it operates and delivers products in a number of areas, including power, medical and lighting, information and communication systems, and transportation. Many customers identify Siemens as a successful corporation that delivers high-quality and advanced products to different clients. Over the years, Kleinfeld has been focusing on the best goals, initiatives, and activities that can help Siemens achieve its business targets.
By 2005, he had presented a mantra that focused on the most important dictums that could drive organizational performance. These included customer focus, global competitiveness, and innovation. However, the ineffectiveness of the promoted double-layered corporate governance structure created room for poor decision-making and subsequent cases of bribery and corruption. This case study digs deeper into these corporate governance issues and provides evidence-based recommendations that can help turn things around.
Problem Identification
The presented case identifies Siemens as a successful corporation that has fallen into trouble due to a corporate governance structure that is characterized by these two boards: supervisory and management. This two-tier arrangement continues to remain common in the German setting and allows companies to pursue their goals. However, the arrangement has created a culture of co-determination that only fosters harmony, cooperation, and trust (Mathew & Donepudi, 2007). In such a case, employees and other labor union leaders are allowed to participate in such boards and help reshape the decisions made.
This model has led to various challenges that have the potential to disorient decision-making processes and governance arrangements. For instance, many companies in Germany are finding it hard to compete globally and maximize their income levels. Conflicts of interest have become common in the recent past. Additionally, more leaders and workers have been finding it easier to collaborate and engage in wrongdoings.
Such issues have made it impossible for different companies, such as Siemens, to monitor all operations and decisions made. Some of the top leaders in each of the two boards tend to have common interests and vote unanimously since they pursue similar goals (Mathew & Donepudi, 2007). Consequently, the cases of corruption and bribing have affected the image of Siemens as a leading company at the global level. The current CEO has also inherited such a problem at this organization. Additionally, different stakeholders have mixed reactions regarding his continued stay at Siemens.
Problem Analysis
The challenges and issues emerging at Siemens have made it possible for more stakeholders to examine the nature of corporate governance in Germany and its weaknesses. Currently, Siemens has found itself under scrutiny for conflicts of interest and decisions that were made several years ago to dictate the recorded level of sales. Some of the leaders at the time were involved in such wrongdoings since they were keen to engage in actions and recommendations that would result in increased profits and subsequent share-price increments. The model allowed the involved partners to make unanimous decisions and focus on the best ways to maximize their personal gains (Mathew & Donepudi, 2007). Unfortunately, these issues have created additional predicaments that have the potential to break a company that continues to record increased gains.
The formation and promotion of a two-tier system have led to the concept of co-determination. Such a model could be troubling since executives are required to complete dual roles. Such individuals tend to make decisions that favor the demands of labor unionists and colleagues. The presented case reveals that most of the determinations made in different companies in the country tend to be unanimous. The end result is that the affected company will not have key people questioning such decisions and focusing on the most appropriate actions that have the potential to deliver desirable results (Mathew & Donepudi, 2007). These issues have resulted in a scenario whereby wrongdoings tend to remain common and affect the overall gains recorded in most of the corporations across Germany.
While promoting chances of poor decisions and malpractices, the two-tier model is associated with the concept of co-determination. The case reveals that such a system is a leading source of hindrance and makes it impossible for companies to invest successfully in different foreign countries. Consequently, the companies have been unable to compete successfully in the global arena and record the relevant gains (Mathew & Donepudi, 2007). This development explains why most German corporations have been finding it hard to pursue their goals at the international level and meet the demands of more customers. These issues could explain why the companies were becoming less competitive and incapable of attracting more potential clients.
Conflicts of interest at this company have been emerging due to the nature and manner in which decisions tend to be made. Specifically, the model creates a unique scenario whereby employee representatives and trade unionists are required to have a say in key business decisions. For instance, the members are capable of deciding who should be dismissed or needs to stay on the company’s management board. These individuals will come together and make the same choices without any form of opposition. The emerging challenge is that most of the wrong decisions tend to go through unopposed (Mathew & Donepudi, 2007). The individuals will also be unable to make timely decisions since the members might take a long to meet. In some cases, companies might engage in actions and projects that are questionable or capable of affecting the intended organizational goals.
From this analysis, it would be agreeable that the members of both the supervisory and management board at Siemens appear to have made unilateral decisions. Such individuals went further to direct huge sums of money to different labor unions to engage in unhealthy business practices. For instance, the senior executives at the management board were questioned for colluding with Wilhelm Schelsky to work against another union by the name IG Metall (Mathew & Donepudi, 2007). Such an act was intended to influence the decisions made and make it possible for the leaders to pursue their aims.
This arrangement would make it possible for the members of the boards to dictate who stayed on the management board or not. The same scenario took place in 2005, thereby leading to the resignation and dismissal of von Pierer (Mathew & Donepudi, 2007). Most of the scandals taking place at Siemens were not new to members of the boards. However, the promoted model created a scenario whereby all insiders had increased chances of being part of most of the scandals. Similarly, those from the outside would lack adequate resources and networks to protect against any wrongdoing. The co-determination model, therefore, created new opportunities for the leaders at Siemens to engage in malpractices and make poor decisions that we’re incapable of supporting the anticipated organizational goals.
During the same period, several companies were found to have engaged in similar malpractices that triggered corporate investigations. For instance, Deutsche Bank and Volkswagen were being accused of engaging in dealings that involved millions of US dollars. Such corporations were found guilty of paying senior leaders, officers, and labor representatives from different countries to support their business models. Some of them had focused on actions that would guide them to make key managerial decisions or acquire goods, thereby maximizing sales (Mathew & Donepudi, 2007).
Consequently, most of these companies realized that the formulated two-tier model only affected the effectiveness of the decision-making process. Some professionals went further to argue that the model led to a general practice that created more problems. Most of the divisions were incapable of engaging in processes and formulations that would result in positive goals. The country had also made corruption and bribery of foreign leaders and officials a norm. Such scenarios made it impossible for most corporations to overcome the challenges arising from poor corporate governance.
Recommendations
The lessons and observations made from the studied case could offer powerful insights and ideas for helping Siemens and other corporations overcome the recorded problems. First, the presence of a two-tier model for decision-making has created a scenario whereby unanimous voting patterns are recorded. In most cases, the involved individuals do not make decisions that favor or address the interests of all the participants and key stakeholders (Mathew & Donepudi, 2007).
Instead, they tend to focus on their personal interests and the benefits they stand to gain from the accrued financial resources. The delays experienced throughout decision-making processes create room for wrongdoing and encourage leaders to focus on their common interests. The government can consider this weak link and liaise with the relevant policymakers to introduce new laws that put an end to this two-tier system. Such a strategy will overcome the recorded challenges and take more companies closer to their business aims.
Second, the issues emerging from the case try to reveal some of the problems arising from the absence of effective corporate governance. The most appropriate recommendation is for German corporations to learn additional lessons from some of the successful corporations in the United States and other parts of the world, such as General Electric (GE). This approach will help more companies start to formulate and develop a unique set of rules, practices, and guidelines that dictate the decisions and goals of the board of directors (Mathew & Donepudi, 2007). These professionals will also focus on the best approaches to manage operations and avoid engaging in practices that could erode public confidence. The model will make it possible for more German corporations to take the concepts of security, accountability, and transparency more seriously than ever before. Such an approach will increase the chances of success and maximize the recorded profits.
Finally, the concept of stakeholder involvement is recommendable and capable of helping Siemens and other companies in Germany overcome most of the challenges recorded above. This strategy means that more people will be allowed to make decisions and monitor the initiatives different professionals make (Mathew & Donepudi, 2007). The relevant industries, analysts, and auditors should have a say in the decisions made in any given organization. When more professionals consider these issues, the chances are high that companies will make informed decisions and consider the best ways to maximize stakeholder confidence. Firms that take these issues into consideration will overcome most of the experienced challenges and eventually become more profitable.
Conclusion
The above discussion has identified some of the problems that Siemens is facing presently. Such predicaments are associated with the promoted corporate culture and decision-making models. These issues are similar to the ones other corporations in Germany have encountered within the past few years. The outlined recommendations are evidence-based and capable of guiding different stakeholders to engage in decisions and practices that can support the delivery of positive results. Leaders of corporations should, therefore, consider such suggestions if they are to overcome most of the challenges and eventually dominate their respective industries or business sectors.
Reference
Mathew, M., & Donepudi, A. (2007). Siemens saddled with scandals (A): Doubts over German board structure. Case Centre.