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 four main 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. Vision2
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.

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 intensifying its 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 term paper.

2. The Siemens bribery scandal

1. Corruption in Germany
Germanys GDP is 3.25 trillion USD, 6th largest in the world, as of 20123. Germanys economy is driven by the service sector which accounts to around 70 percent of the German economy. Germany is relatively poor in raw materials but a leader in engineering, especially in automobiles, metals, machinery and chemical goods. Of the worlds 500 largest stock market listed 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 and ThyssenKrupp4.

Germany has traditionally enjoyed a reputation for being one of the least corrupt countries in the world. It has a rank of 13 out of 176 countries in the Percieved Corruption Index by Transparency International5. However this image has taken a hit following a spate of highprofile corruption scandals which include the Siemens bribery scandal (the largest of them all) that came to light in November 2006. Frankfurt prosecutor Wolfgang Schaupensteiner charges that corruption in Germany is not a matter of individual cases, but of structural forms of organized corruption, where bribes are part of business policy. German law was comprehensively revised in 1997. Several international agreements were signed with the formation of the European Union in mind. However, they havent been ratified 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. Apart from the case of the EU Joint Action on Corruption in the Private Sector, the Bundestag confined its implementation legislation to the minimum requirements of the respective international legal instruments6.Germany has signed the United Nations Convention Against corruption. The convention if ratified obliges states to put in place detailed and specific safeguards against corruption. Germany has yet to ratify it7.

2. Corporate corruption
Globalization has become a motor of corruption in Germany. Germany is a major exporter and the increasing level of profits earned abroad may have tempted employees to accept bribes and also give bribes to win business. Only in 1997 did Germany passed laws allowing prosecutors discretion to bring corruption cases themselves. Germany developed new legal 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 2007
for 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 in a massive bribery scandal involving Europes biggest electronics goods retailer Media Markt9. 2008 saw a German court convicting top executives of car maker Volkswagen10. Other German companies like Merck, MAN SE, Allianz SE, Manroland AG, Metro AG and Uno Schneider have also been indicted for bribery. However, the biggest of them all involved German engineering conglomerate Siemens AG11.

3. Siemens bribery scandal

On November 15 2006 prosecutors raided offices and homes of Siemens staff as part of an investigation into suspected cases of embezzlement. Chief Executive Officer Klaus Klienfeld was 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 following day saw Siemens setting up an anti-corruption taskforce. On December 12, Siemens arrested Thomas Ganswindt, the person who used to run its telecom business. January 3 2007 saw the announcement by a German prosecutor that Siemens was being investigated for a possible abuse of the United Nations oil-for-food program in Iraq. On May 14, two managers were suspended for paying illegal bribes to contractors of Italian utility firm Enel to win turbine contracts. Meanwhile the CEO resigns alongwith many top level executives and he was replaced by Pharmaceuticals division head Peter Loscher. On October 4 Munich court fines

Siemens 201m euros. Siemens was also being investigated by Securities and Exchanges Commission of USA. On Nov 5 2008 Siemens agreed to pay a fine of 800m$ to U.S authorities for violating the Foreign Corrupt Practices Act. It also agreed to pay an additional 540m$ fine to German 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$ for government contracts in Nigeria. It paid 40m$ in bribes to secure 1b$ worth contract to produce national 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$ to Saddam Hussein and his cronies. The question that remains is to ascertain the reason for the unprecedented levels of corruption 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 the reliable and ubiquitous sales technique according to American prosecutors. Bribes were tax deductible prior to 1999. Germany joined the international convention by signing laws preventing corrupt practices. This led the company to create a paper program to divert funds to offshore accounts. Money was diverted into accounts in Austria, Switzerland, Dubai, Virgin Islands and Liechtenstein. The common method to bribe was the use of an outside consultant who would route the money to the ultimate recipients. There were 2700 such consultants worldwide who helped 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 which allowed employees to bring empty suitcases to be filled with cash. It operated on an honor system. Few questions were asked, no documents were required and managers who asked for money were asked to approve their own requests14. Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "This pattern of bribery by Siemens was unprecedented in scale and geographic reach. The corruption alleged in the SEC's complaint involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East, and the Americas. Our success in bringing the company to justice is a testament to the close, coordinated working relationship among the SEC, the U.S. Department of Justice, and international law enforcement, particularly the 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.

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. if they came in and confessed on the situation under which they had to resort to bribery, they wouldnt be fired. And about 130 people came in and explained where the money had gone and what 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 transparent with 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 the organizational structure and culture. Several systemic elements were cited as contributing to the scandal, including: an aggressive growth strategy that compelled managers to see bribes as a tempting short-cut to hitting tough performance targets; a complex, matrix-like structure that allowed divisions to effectively run themselves, and poor accounting processes17

Siemens appointed Michael Hershman, co-founder of Transparency International, to serve as its adviser a shrewd move to affiliate itself with a leading anti-corruption expert. Siemens rolled out strict new rules and anti-corruption/compliance processes. It hired over 500 full-time compliance officers (up from just 86 in 2006), and a former Interpol official to head its new investigation unit. It also established compliance hotlines, and an external ombudsman based worldwide and online. It created a web portal for employees to evaluate risk in their client and supplier interactions. In an attempt to change its internal culture, Siemens launched a comprehensive training and education programme on anti-corruption practices for its employees. By 2008, Siemens had trained more than half its 400,000-strong global workforce on anticorruption issues. Siemens announced it would avoid competing in certain known hotspots for corruption or unethical practice, such as Sudan a 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 to non-profit organisations fighting corruption. Finally, the firm took over 900 internal disciplinary actions, including dismissals. As well as the staff amnesty, Lscher replaced Siemens' dauntingly complex matrix structure with a more streamlined one comprising just three divisions, whose MDs sit on

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

4. Structural Changes18

References
1 - http://www.siemens.com/about/en/history.htm 2 - http://www.siemens.com/about/en/values-vision-strategy/values.htm 3 - https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html 4 - http://money.cnn.com/magazines/fortune/global500/2010/countries/Germany.html 5 - http://www.transparency.org/country#DEU 6 - http://www.germanlawjournal.com/pdfs/Vol07No09/PDF_Vol_07_No_09_785792_Developments_Wolf.pdf 7 -http://www.ropesgray.com/asheeshgoel/~/media/Files/articles/2012/05/20120521_ABC_Book.ashx 8 - http://www.nytimes.com/2007/02/15/business/worldbusiness/15scandal.html?pagewanted=all 9 - http://www.businessinsider.com/media-markt-corruption-scandal-2011-10?IR=T 10 - http://www.spiegel.de/international/business/vw-sex-and-bribery-scandal-sentences-handed-down-incorruption-affair-a-537137.html 11 - http://www.economist.com/node/7887902 12 - http://uk.reuters.com/article/2008/12/15/us-siemens-timeline-idUKTRE4BE4ID20081215 13 - http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html?pagewanted=all&_r=0 14 - http://www.economist.com/node/12814642

15 - http://www.npr.org/2012/05/01/151745671/companies-can-recovery-from-bribery-scandals 16 - http://professorjickblog.com/post/21272766224/siemens-ceo-peter-loscher-a-company-is-only-asgood-as 17 - http://www.theguardian.com/sustainable-business/recovering-business-trust-siemens 18 - http://www.siemens.com/press/pool/de/events/pressegespraech/press-briefing-silde.pdf