The siemens bribery scandal is one of the most well-known cases in history, but it doesn’t seem to be going away anytime soon. The siemens case study essay will examine many different perspectives on why siemens continues to have involvement with some of the biggest scandals in recent decades.
The Siemens corruption scandal exposed a tension faced by multi-national companies attempting to gain a competitive advantage through international operation; in particular, how can they balance their own ethical and legal criteria with the customs needed to do business effectively, or perhaps at all, in foreign markets?
Prices start at $12
Prices start at $11
Prices start at $14
Prices start at $12
Co-determination, which was introduced by German Chancellor Willy Brandt in 1970 to allow workers a greater say in management decisions, has since drawn harsh criticism for stifling competitiveness and creating unsustainable situations for management. It’s not only due to Siemens that it’s coming back. The forced resignation of Klaus Kleinfeld, despite the company’s success during his time in office, reflects the difficulty international managers encounter with conflicting operational methods and raises further issues about accountability within an organization.
According to the case study author, the Siemens affair is a reflection of what many companies believe is an inescapable “ethical cost of intense competition in international markets,” particularly emerging markets, where contracts payments are considered routine and perhaps even necessary. ?Perhaps the most glaringly problematic finding is that top management at Siemens AG claims they were unaware of widespread, and arguably obvious embezzlement resulting in lucrative foreign deals.
Is there anything wrong with the German corporate governance system? The 2007 controversy that resulted in charges against Siemens’ Chief Information Technology, Johannes Feldmayer, and Chief Finance Officer, Karl-Hermann Baumann, was fueled by unlawful payments intended to circumvent German corporate governance rules. In this case, IG Metall argued that Siemens was illegally funding AUB, a smaller rival union, in an attempt to expand and nurture it as a supporter in the negotiations.
This scandal, which occurred when it was discovered that the firm had employed children in its factory in Bangladesh, signaled the start of a series of unethical actions by other German-based businesses that have subsequently been criticized for violating the Co-Determination legislation. The Co-Determination law established a two-tiered system with a supervisory board overseeing the management board to allow workers input into corporate decision-making via a two-tier structure.
Critics, on the other hand, charge that the legislation restricts the management board’s capacity to make strategic decisions due to labor holding 50% of the seats on the supervisory board’s executive committee. I concur with the author’s conclusion that this creates “a suspicious collusion between management and labor representatives.” The overall result was frequently agreements reached before formal meetings to help management achieve its goals.
Although the law was intended to restore balance to corporate governance, I feel that the risk of corruption in labor representatives, or on the other end of the spectrum, obstruction of management board members has a destabilizing effect that is likely to show up in questionable and malfunctioning partnerships like Siemens.
Another component of the Co-Determination law bars supervisory board members who are not German, regardless of their competence or viewpoint. Naturally, as a consequence, there is a restricted pool of prospective candidates with which to choose, many of whom may have been behind Kleinfeld’s ouster. The author notes that the lion’s share of the bribery scandal occurred under Heinrich von Pierer, who was CEO from 1992 until 2005 and supervisory board chairman from 2005 until 2007.
Anne Kleinfeld took charge in 2005, and in just two years she had successfully overhauled the company, as shown by a 26 percent stock price rise. This was not without its difficulties, however, since it’s believed that Kleinfeld’s aggressive management style, which is often referred to as “American,” did not go down well with the more conservative supervisory board. As a result , analysts suggested that the bribery allegation was used as an opportunity to get rid of Kleinfeld, calling for a “new beginning.”
I agree that this is a distinct possibility. Kleinfeld’s growth was incredible, especially given the short time frame. Furthermore, the actual instances of bribery occurred during von Pierer’s term as CEO; and he had already stepped down from the supervisory board. Nonetheless, under the Co-Determination legislation’s powers, the supervisory board elected to reassign Loescher as CEO, indicating to me that its concern with Kleinfeld was not based on poor performance.
Why Are They Taking Such a Risks? The history of Siemens AG depicts a successful and perhaps dominant multinational corporation with a reputation for having a war chest of talents and cutting-edge goods. Then, why would an organization with this track record and list of worldwide triumphs become involved in unlawful conduct?
The author discusses the views of industry experts that believe the solution is straightforward; many businesses regard the payment types at the center of Siemens’ scandal as a necessary cost of doing business in today’s global economy. At first glimpse, the circumstances of this case might appear to corroborate this hypothesis.
The organization processed €200 million in fraudulent payments over a seven-year period from 1999 to 2006. Official Siemens records showed the payments as having gone to external consultants, although it was discovered that they were really paid to foreign purchasing officials and that the expenses coincided with the procurement of “fixed line telecommunications business in various international markets,” including Italy, Puerto Rico, Greece, and the United States.
By March of 2007, two former Siemens executives were convicted of corporate funds embezzlement for the purpose of bribing foreign officials. The workers maintained that their actions did not violate any laws or result in personal profit, and that they were taken only to enhance Siemens’ business position. They claimed that all they did was work in order to obtain a lucrative contract with Enel in which the payments were required as part of the standard bid procedure.
In fact, Siemens AG contended that the court order compelling forfeiture of profits from the contract prior to 2002, when Germany passed a law prohibiting kickbacks to private officials outside the country, lacked legal standing. As previously said, these occurrences may appear to support the claim that questionable payments and lax ethical standards are an acceptable cost of doing business. However , I believe they show a flawed corporate culture and strategy.
They are proof of a system in which technological innovation has given way to unrestricted growth, with the unnatural duplication of monopolistic type control over infrastructure in developing countries that was enjoyed during past decades in other parts of the now industrialized world.
If Siemens had improved its technologically competitive edge, it wouldn’t need to rely on its financial strength as much to get into markets. Is this the New Cost of Doing Business? It’s difficult to comprehend why top management at Siemens has yet insisted that despite the breadth, depth, and intricacies of the bribery scandal, they were ignorant of it. Furthermore, they accept no blame for their failure to maintain adequate internal compliance procedures other than acknowledging their lack of such systems.
I’m unconvinced by the veracity of this argument because of the obviousness and size of the payments, as well as their direct relationship with obtaining highly lucrative contracts. Furthermore, I find it difficult to believe that entire sections of Siemens’s executives would be willing to commit criminal offenses for the sake of their employer but not themselves.
The debate over whether events such as those discovered at Siemens are typical and acceptable expense of doing business abroad must be framed in terms of the top management’s complete denial of responsibility. Even when it is outside the company’s home country’s norms, a genuine, above-board cost is recorded, tracked, and justified. It is not hidden from shareholders. There need not be a scapegoat-able buffer between top management and it. I believe that if there is no simple light to shine on it, it is unquestionably unethical.
It is legal in some countries, however it depends on the legislation in the nations where the company does business. I could imagine a scenario in which a firm openly distributed “incentive” payments on the books as well as legally. Firms also have alternative options open to them. They may improve their services to increase the bid’s competitiveness, or they may create incentives that are acceptable under law. They could banish any future opportunities for bribery with a steadfast and unshakable zero-tolerance policy, recognizing that educating those running bid processes in markets where it is common to receive questionable payments will be required.
The Kleinfeld Conclusion. The Siemens AG supervisory board did provide valid grounds for not renewing Kleinfeld’s contract, given the events that were breaking during his time as CEO; nevertheless, I believe they were mistaken in their decision because of his track record of outstanding and quick successes.
Despite the fact that his termination appeared to please the board, I believe that Mr. Loescher’s exit will not encourage management or investors if he is unable to maintain the growth rate intended by Kleinfeld. This is a cause for concern since confidence has an impact on value, making it more difficult to get over the bribery scandal. Was It Worth It? One key question remains: was Siemens really at fault, given how common these sorts of problems seem to be among other German firms; or was their only crime being caught?
It is my belief that the scale of the “bribing” at Siemens makes it highly unlikely that knowledge of it would stay hidden. I think Siemens had to have anticipated this, thus the demarcation between top management and the “bribers.” They made a strategic business choice in favor of whatever the outcome may be, whether positive or negative, since obtaining a foothold in these markets was deemed to be more beneficial. Yes, Siemens is responsible; and yes, they are fine with it.
The Siemens bribery incident, which occurred in the 1990s, was one of the worst indignities that a respectable firm can suffer to gain market edge. The firm paid bribes to various countries throughout the world in order to win bids and establish its market prior to 1999. China received $14 million in bribes, Israel received $40 million, Argentina acquired $40 million, and Bangladesh obtained $5 billion in funds illegally. It’s believed that total payouts exceed $1.4 billion.
The problem of bribery for Siemens can be traced back to a variety of factors, including the German legal environment before 1999 and Siemen’s poor business culture. The former has to do with a loophole in the legislation that allowed foreign nations to offer illegal gifts. Siemens made extensive use of this practice, and when the law was changed in 1999, the culture had already thoroughly infected its system. It continued to employ this approach and stated that money was utilized to continue its operations in numerous countries with ease. The company has been fined $1.6 billion and an extra $1 billion is required to restore its compliance with worldwide business procedures following the breach.
What explains the high level of corruption at Siemens?
The extraordinary corruption circumstances at Siemens may be explained by the legislation passed before 1999 that permitted it to develop. It is also a contributing factor to a poor company culture. Its executives believed that the practice would aid in the survival of the firm.
What would have happened to a manager at Siemens if he or she had taken a stand against corrupt practices?
Other executives may have opposed the manager who had the courage to take a different stand against company culture.
How does the kind of corruption Siemens engaged in distort competition?
The corruption at Siemens prevents rivals from competing in the same trade or country.
What is the impact of corrupt behavior by Siemens on the countries where it does business?
The consequences that stand out to a country receiving a bribe are that it jeopardizes local jobs and subjects citizens to excessive costs for goods.
What would have done a fair manager at Siemens?
As a manager, the first step is to introduce management change that is in accordance with national laws and good business practice.
Siemen’s corporate culture was rife with data corruption errors. They justified this kind of bribery by claiming that it was not illegal to offer bribes to government officials. This was correct, but not in the manner they intended; the law banning these practices changed in 1999, making them unlawful. 2 . When a manager at Siemens decides to confront data corruption, I believe he or she is most likely dismissed for being insubordinate. These lower-level executives may have been told by their superiors that it was time to move forward with the previous approach.
The boss may have been demoted or severely criticized by the top executives. Several. Siemens spent extra money in order to obtain future corporate acquisitions. This sort of in-initiative implies that other firms, regardless of whether they have an edge, lose business possibilities as a result of it. The notion of this sort of bribery completely dismisses competition since it only eliminates it unless others engage in corruption as well. According to some economists, offering such procedures as bribery is the cost of doing a better service.
They also stated that, because it may enhance efficiency and development in countries with rigid and inconvenient restrictions, as well as improve well-being in countries with existing political structures that distort the workings of the market system, they would accept this argument. However, additional economists believe that corruption might reduce business profits and result in sluggish economic growth. Your five. I believe we now have two ways to address this problem.
The first response is self-evident: to take immediate action to prevent additional corruption from happening, regardless of the costs required to resolve past offenses. The second approach, which is more realistic, is that I would consider all of the consequences if rapid action was taken now. Thousands of workers’ livelihoods are at stake. And thousands/millions of dollars in business may be lost.
The truth is, in my experience as a manager in the Siemens scenario, I would have been well-versed on all of the corruption and so a proponent of it as well, which implies that I would have continued to do business. However this does not imply that My spouse and i sympathize with data corruption in any way; rather there are circumstances for the situation, and I believe that what I previously said is known as a fair thinking.
Siemens was permeated by corruption. They justified it by stating that bribing government officials was not against the law. This is true, but the law changed in 1999 to outlaw such bribery. 2. If a Siemens manager had spoken out against corruption, I believe he or she would have been dismissed for being insubordinate. The higher-ups who encouraged this sort of bribery would have pushed for these managers to comply with their wishes.
3. Siemens spent extra money to preserve future commercial transactions. As a result, other companies, even those with an edge, lose business possibilities as a consequence of this corruption. The notion of such misconduct disregards competition because it simply eliminates it unless other firms also practice bribery. 4. Some economists believe that devising questionable tactics such as bribery is the only way to achieve a greater good.
The World Bank states that, “In countries where there are prevalent and complicated regulation, removing these barriers may result in more efficient markets with enhanced development potential.” It can also promote efficiency and growth in nations that have widespread and difficult regulations, according to them, as well as increase welfare in nations with established political structures that distort market mechanisms. Other economists, on the other hand, claim that bribery might reduce corporate returns and result in lower economic growth.
The first response is a no-brainer, and that is to take immediate action to prevent future corruption from taking place. Even if this means paying fines to end past corruption, I would consider all of the ramifications of immediately acting. The worry of having thousands of people’s livelihoods on the line. And the loss of millions/thousands of dollars in revenue.
This is an unyielding fact: if I were a manager in the Siemens scenario, I would have already been well aware of all of the corruption, and thus promoted it as well, which means that I would continue to do business as usual. However, this does not imply that I support corruption in any way; rather, there are certain conditions in the equation, and according to my previous statement, a reasonable conclusion.