Debjyoti Roy

PRN: 19020848006
Global Business Management
28 March 2020

Siemens: Engineering Change in Anti-corruption

Questions:
Answer from the perspective of Siemens being a global company operating with different national
cultures, value systems and challenges.

1. What were the main causes of the Siemens corruption scandal at a global level?

The Siemens case started coming to light in the early 2000s when prosecutors in Germany and the
US first began investigating allegations of bribery at the company. The firm and its leadership initially
denied any knowledge of the payments. But with more incidents coming to light, the magnitude of
the payments becoming ever higher, and trials of former company managers suggesting that bribery
was common practice in the firm, this position became increasingly tenuous. As the scandal

1
‘bribery was
Siemens’
business model’
- anonymous prosecutor

unfolded, it became clear that bribery at Siemens was not simply a case of a few rogue managers
acting alone and breaking the company rules to secure lucrative overseas contracts.

• Corruption looked to be endemic in the company, or, as one prosecutor put it, ‘bribery was
Siemens’ business model’. The various investigations and subsequent trials brought to the
surface a murky picture of the payments made to public officials in a bid to win large overseas
contracts for the company.

• Given that much of Siemens’ business relies on large government contracts, often in developing
countries with poor governance and a high prevalence of corruption, Siemens’ managers had
often found themselves in a competitive market where they and their rivals were frequently
expected to bribe to secure business.

• According to various witness statements, Siemens’ employees often simply thought that bribery
was how the game was played and that they had to engage in corruption in order to win
business, keep jobs secure and their company strong.

• Corruption appeared to be seen in rather amoral terms and as a victimless crime—if a crime at
all. Furthermore, it did not exactly help that the German corporate tax code only made bribery
technically illegal in the late 1990s. Until then, bribes paid in foreign countries were even tax
deductible and were declared under the notorious label ‘useful expenses’ (in German: nützliche
Aufwendungen).

2. Critically evaluate the initiatives that Siemens has implemented to address bribery problems
across its operations. What kind of balance has Siemens struck between values and compliance-
based approaches to ethics management?

Löscher, the new CEO, needed to act fast to head off the bribery scandal, but he also faced a
company with corruption apparently deeply engrained in its culture, making it particularly hard to
initiate a major change in attitudes. Many Siemens employees had been with the company for their
entire career, leading to densely woven webs of contacts, informal relationships, and networks, in
which problems like corruption (and its cover-up) could thrive. As the trial hearings revealed, the
maintenance of corruption on the scale alleged at Siemens had actually required a deep degree of
loyalty from employees.

• Within the first few months of his tenure, Löscher had made wholesale changes, including
replacing 80% of the firm’s top-tier executives, 70% of its second tier and 40% of its third tier.

2
 To ensure that auditing personnel throughout the company were competent, every member of
the firm’s 450 audit function was required to reapply for their jobs.

• Siemens also brought in a new General Counsel, appointed the co-founder of Transparency
International (an international anti-corruption NGO) to serve as its compliance adviser, and
agreed to cooperate with the US authorities in its investigations.

• The firm also initiated an amnesty for any whistleblowers with knowledge of bribery in the
company (which was taken up by more than 100 staff) and spent millions on an internal
investigation conducted by a US law firm.

• The new leadership team began spreading the message across the company that ‘only clean
business is Siemens business’.

• The firm set up a compliance management system to oversee the prevention, detection and
response to legal and ethical violations at the firm. From 86 compliance officers in 2006, the firm
soon expanded to more than 500.

• Siemens also developed a series of anti-corruption compliance policies, tools, and

communication channels, including a compliance audit department, web-based risk assessment
tools for employees, and 24/7 secure reporting channels for employees and external
stakeholders.

• The new compliance system also involved systematic training for Siemens employees. Between
2007 and 2013, the firm completed over 300,000 compliance training sessions for staff, about a
third of which were classroom based over four to eight hours, and the rest were online.

• The company also instituted intensive and ongoing training for compliance officers, regular
training for ‘sensitive functions’ such as sales, and a compliance module for new employees.

• In 2012, compliance training was again refreshed to focus on face-to-face ‘integrity dialogue’
among managers and their teams. To this end, compliance officers train business unit managers,
the managers train the employees who report directly to them, and they in turn train the
employees that report to them.

• By September 2008, Siemens’ senior leadership has also visited 54 of the firm’s highest-risk
countries as part of a ‘compliance roadshow’ to explain to country managers and employees the
importance of compliance.

3. What is the relationship between corruption and business performance? Can ethics
management be organised to achieve business success and high ethical integrity simultaneously,
or are they contradictory goals?

A sizeable and growing body of evidence has provided clear indication that, at the aggregate level,
corruption is bad for business:

• Aggregate growth and firm performance is lower in highly corrupt settings, while markets
perform poorly when corporate corruption becomes commonplace compared to markets in
which firms typically refrain from corrupt behaviour.

• A newer branch of research has sought to examine the costs and benefits of corporate
corruption (typically bribery) for individual firms and demonstrates that, while there may
occasionally be some short-term gains, the costs outweigh the benefits in the longer term.

• The evidence in terms of the costs and benefits of corporate integrity is somewhat sparser.
Nonetheless, companies with anti-corruption programmes and strong ethical guidelines are
found to suffer up to 50% fewer incidents of corruption than those without such programmes,
indicating integrity programmes are an effective means of minimising losses which can be
incurred as a result of corruption, especially where it is detected.

3
One of the biggest challenges facing Siemens is ensuring that its ethics management does not
conflict with its business success.

• According to Löscher, ‘performance with ethics—this is not a contradiction, it is a must’, but if

their clients still seek bribes and their competitors are willing to pay them, then Siemens may
well be faced with a handicap.

• One way that the firm has sought to tackle this is through its anti-corruption outreach activities
that go under the banner ‘Collective Action’. That is, in addition to internal company changes,
Siemens also started to engage its external stakeholders in anticorruption efforts to create fairer
market conditions.

• This began as part of a groundbreaking settlement agreed with the World Bank in 2009 following
the firm’s acknowledged misconduct and the bank’s investigations into corruption in the
awarding of contracts to Siemens subsidiaries.

• The settlement committed Siemens to pay $100 million over 15 years to support anti-corruption
work, to co-operate to change industry practices, and work with the World Bank to fight
corruption.

• To comply with the settlement, Siemens launched the ‘Integrity Initiative’ with a budget of $100
million to support anti-corruption projects. It also took a lead in initiating project specific and
industry-wide compliance pacts to ensure fair bidding on public contracts. For example,
Siemens Argentina recently concluded a compliance pact with several competitors in the field of
energy transmission. In Brazil, Siemens has started to support a project aimed at creating
transparency when awarding infrastructure projects connected with the soccer World Cup in
2014 and the Olympic Games in 2016.

• The company also seeks to increase the compliance awareness of current and future business
leaders by conducting business roundtable discussions and presentations, and developing
learning materials for students. Löscher is widely credited with turning around the Siemens
corruption scandal and pulling the company out of its crisis.

• However, concerns over the firm’s performance and its failure to meet the CEO’s own aggressive
growth targets led to his ousting in 2013. ‘The clean-up man,’ one newspaper ruefully observed,
‘was swept aside’.

Although the relationship between ethics and management organisations since past have been
considered more or less, but with entering to information era , considering the ethical aspects of in
management for achieving to success are essential.

• Ethic the collection of sentences that determine the truth or falseness judgments of behaviour in
a society will be specified. But this kind of sentences varied and sometimes is contradictory and
a lot depends on the position and vision dimension.

• Moreover, although moral transformation of society according to its own dynamics, but cannot
be adapted itself to severe changes.

• Information age means the process of increasing importance to information production process
towards the production of goods and energy. In this process, the main source of production is
humans and most activities are innovation and creativity and the exchange of information.

• In addition to the information age makes network communication is obvious that the conditions
of its own ethical response also seek. The important thing is that judging people on things true
or false, strongly on their performance as the main factor is the effect of production and
exchange information.

• Communication network and also increase the power of social groups and thus have social
expectations of the organisations mentioned above, any activity following organisations lens is
placed.

4
 • Thus, although the main goal over time, the economic efficiency, but managers in the
information age should be to achieve success and social expectations of ethical judgments and
demonstrate appropriate reactions at best be able to make these expectations with the goals of
economic organisation are integrated to achieve higher goals are possible.

• With a view to morality and information age organisations starts and then the Information Age
Ethics relations with different aspects of management and organisations in general and then is
the information age organisation will be studied If we consider the eighteen and nineteenth
centuries as century of scientific innovation and discovery of mankind then the 20th & 21st
centuries should be known as applicable centuries of these changes in the filed of business and
industry undoubtedly, that the technology and industrial & business advancement of today's
world is result of same matter. But the changes quickness in recent century is so speedy that
each decade of it should enumerate equivalent to a century ,the study of changes in various
decades of twentieth century indicating of that emphasizes in business and industry is changing
from hardware to software and quantity to quality or from attention and concentration to
machine or tools is focusing to human and also accentuate is going from individual and
organizational profitability toward global social benefit .

• Attention to human resources is of most important phenomena of recent three decades. In last
hundred years we are witness to three process of attention to human i.e. Attention with
emphasis to his body abilities, attention with emphasis to his thought and mind, and now
attention with emphasis on his moral, ethics and his hearth.

• The role of human and sentiment factors and try for bringing up and active them for increasing
mental ability of human resources since if the concepts such as humanity , ethics and hearth
tendencies be mingled or mixed with work , business and management the success is certainly
is result of such system.

Therefore ethics management be organised to achieve business success and high ethical integrity
simultaneously in effective management of organisations.