Introduction
The case offers insight into the legal issues Siemens AG and three subsidiaries experienced in the late 2000s. Siemens AG is among the biggest and most popular electrical engineering firms in the world. The firm was established in 1847 in Berlin, and its headquarters are in Munich, Germany. The essay aims at providing a summary of the case and outlining the basic terms and the steps that senior management must take to prevent an incident like this from occurring again.
Case Summary
Cases of tax evasion, bribery, and money laundering have been laid against Siemens AG by authorities globally. It was noted that Siemens AG had paid approximately $1.9 billion in improper disbursements to outsiders from 2001 through 2007 using various mechanisms (Berghoff, 2017). The company and its three subsidiaries had pleaded guilty to breach of charges associated with the Foreign Corrupt Practices Act (FCPA) as the U.S. Securities and Exchange Commission, and the Department of Justice stated (Washington, 2008). The firm pleaded guilty to a two-count information charging criminal violations of the FCPA’s internal controls and records and books provisions.
Further, Siemens Argentina pleaded guilty to a single account of information charging conspiracy to breach the records and books provisions of the FCPA. Siemens Venezuela and Siemens Bangladesh each pleaded guilty to different single-count information charging conspiracy to breach the FCPA’s anti-bribery, records, and books provisions. Siemens AG decided to pay $448.5 million as a fine while Siemens Bangladesh, Venezuela, and Argentina each approved to pay a $500,000 fine, all amounting to $450 million as a total criminal fine (Washington, 2008). Therefore, it is most likely to offer brides by MNCs to establish relationships and obtain contracts in global business transactions.
Furthermore, based on the court documents, starting from the mid-1990s, the corporation was involved in organized efforts to fabricate its company records and books and knowingly failed to execute and circumvent current internal controls. The knowing failures in and circumvention of internal controls of Siemens AG from the time of its listing on the New York Stock Exchange (NYSE) on March 12, 2001, to 2007, the company had disbursed a total of close to $1.36 billion using different mechanisms. Close to $554.5 million was remitted for unknown purposes comprising an estimated $341 million in direct payments to business consultants for unknown purposes (Washington, 2008). The company used the remaining $805.5 as corrupt payments to foreign officials using mechanisms such as slush funds and cash desks.
Moreover, the company management made another lucrative business from contracts overseas through bribery. The four Siemens AG subsidiaries from 2000 to 2002 were awarded 42 contracts that amounted to a combined value of over $80 million with Iraq’s government under the United Nations Oil for Food Program (Berghoff, 2017). The company had to pay kickbacks to the government of Iraq amounting to $1,736,076 and they attained profits of over $38 million on the 42 contracts (Washington, 2008). Siemens AG subsidiaries inflated the contract price by approximately 10% before submitting it to the United Nations for consent and improperly channeled payments to alleged business consultants.
Consequently, as the plea and charging documents reveal, from September 1998 to 2007, Siemens Argentina made substantial payments to different Argentine officials. This was paid directly and indirectly in exchange for favorable business considerations concerning the $1 billion national identity card project (Howard, 2017). In this case, it was discovered that Siemens Argentina remitted close to $31,263,000 to different Argentine officials as corrupt payments using different payment mechanisms. All of these were included in Siemens AG’s books and records containing the falsified corrupt payments. Based on the court documents, from November 2001 through May 2007, Siemens Venezuela admitted to having paid $18,782,965 as corrupt payments to different Venezuelan officials. Siemens Bangladesh in the plea and charging documents admitted from May 2001 to August 2006 paid $5,319,839 in bribery (Washington, 2008). It was purported as payments for business consultants to different Bangladeshi officials to obtain favoritism in the bidding process.
The Siemens AG bribery scandals were key events that had a substantial effect on the operations of the company and its reputation. The scandals led to key ethical issues for the corporation. Being engaged in corruption dealings was a bad image for the firm and affected the confidence of stakeholders. It was discovered that corrupt deals in Siemens AG went beyond what the managers were doing and bribery was an entrenched aspect of the company. Bribery the company becomes a normal way of conducting their business (Howard, 2017). This implies that corruption goes deeper than the management level and may become part of the organizational culture.
However, with bribery being entrenched in the organizational culture, it shows the ethical issues that the corporation violated because corruption was present at all organizational levels. The company had to remit more than $1.6 billion in fines, disgorgement, and penalties for profits comprising $800 million to US authorities. The case was successful by the utilization of the mutual legal help provisions of 1997 under the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in Global Business Transactions which was enacted on February 15, 1999. The significant amount needed to pay stresses the level of bribery and corruption that was happening at the company (Washington, 2008). The effect of these bribery activities was conducted was felt across the world because it has been going on in several markets.
The Steps Senior Management Should Take to Prevent Such an Incident
The senior management of Siemens AG due to the bribery scandal that surrounded the company, they are required to change the organizational culture. The corporation had to restrict the influence of the co-determination law of Mitbestimmung on the board of management. Many years after the Siemens AG system of cross-shareholding aimed to protect companies post-war from complete capitalism, the pressure wave was broken up because finance groups resold their shares mostly to foreign investors. Further, the company’s senior management needs to group the country’s operations into clusters and establish a managerial team to oversee the whole (Orlitzky & Monga, 2017). Some of the subsidiaries need to operate as discrete companies, with the regional teams acting virtually independently.
Based on some firms’ practices, which experienced corruption scandals like Siemens AG, it is important to create a person accountable for global performance in each business, place the national operations in clusters considering their location, and appoint the managers to oversee the whole. Lastly, the corporation should embrace diversity in its board of directors and top management. They need to change the “too male, too white, and too German” culture of the organization. The company had never placed a woman on its managing board even though the participation of women has a huge influence on its performance (Lagunes, 2021). In addition, a multinational corporation such as Siemens AG operating in over 190 nations has to permit overseas executives to be on the management board.
Conclusion
In conclusion, Siemens AG was seen as one of the most productive and powerful firms in the electronics field and those bribery scandals influenced its popularity and business in the world. The analysis reveals that corruption was entrenched company’s culture. However, some of the steps the company should take to avoid such cases are to embrace diversity in management and create a person accountable for global performance in each business.
References
Berghoff, H. (2017). “Organised irresponsibility”? The Siemens corruption scandal of the 1990s and 2000s. Business History, 60(3), 423-445.
Howard, R. (2017). Wells Fargo CEO, local and federal officials testify on banking scandal: September 20, 2016. Historic Documents of 2016, 1(5), 471-483.
Lagunes, P. (2021). Three corruption scandals, three Field experiments. The Eye and the Whip, 3(5), 1-15.
Orlitzky, M., & Monga, M. (2017). Integrity in business and management: Cases and theory (3rd ed.). Taylor & Francis.
Washington, D. C. (2008). Siemens AG and three subsidiaries plead guilty to Foreign Corrupt Practices Act violations and agree to pay $450 million in combined criminal fines. U.S. Department of Justice. Web.