Summary of the Siemens Bribery Scandal

  Summary

       Background   

       Siemens, a Germany company with long history, is one of the world’s most important companies and Europe’s largest technology conglomerates, with 430,000 employees, $77 billion in revenue and industrial manufacturing. However in 2006, Siemens was caught in a corruption scandal for bribing employees of other companies for contracts. 

           Scandal

Some of the executive board members have been charged in this scandal. Kutschenreuter is the most senior Siemens executive found guilty of corruption so far. He was placed on probation for two years and fined 160,000 euro after admitting that he had covered up slush funds and bribes paid by his employees. The other concerned person, Hans-Werner Hartmann, who was in charge of accounting at the company’s telecommunications arm, was placed on probation for 18 months and fined 40,000 euro. The funds were used to bribe government officials and business contacts to win lucrative contracts in Russia and Nigeria. The managers admitted the bribery but defended themselves on the basis that it was not for personal gain and could be considered standard business practice in some countries where they did business.  

Results

As a result, Siemens was fined 30 million euro, which was approximately 7% of the total 420 million euro in bribes Siemens paid out. Combined, Siemens lost a total of 450 million euro in 2006 and lost most of the market shares in global business. In addition, the most important loss for Siemens is its good name and it will take a long time to regain the trust of customers and business partners. According to this scandal, German companies’ boards were also wondered if the German Co-determination law or Mitbestimmug* was flawed. 

To sum up, the best solution would be to set up some kind of international governing body and require that all business operate within those basic international standards so that all parties involved know what is allowed and expected and what is not thereby taking the unknowns out of the equation and equalizing the playing field for all concerned.

* Mitbestimmug is a practice whereby the employees have a role in management of a company.    

                                          Solution 

                                                                                    International Governing Body

After the bribery scandals were unearthed at Siemens, the company started many initiatives to strengthen its corporate governance and compliance controls. Siemens has laid down business conduct guidelines for its employees in dealing with government officials in a document on “Anti-public corruption compliance.” However, the most important solution which should be taken is to set up some kind of international governing body and require that all business operate within the basic international standard. We think that the international governing body will be created by WTO (World Trade Organization) which  already has enough authorities and influences among the world. And the officers of WTO will take charge of this body. In order to reduce the different cultural differences between different countries. The members of this body should come from different countries and will be paid by WTO. The regional restrictions or laws will be made.

Benefits of the Governing Body

As a result all parties involved know what is allowed and expected and what is not thereby taking the unknowns out of the equation and equalizing the playing field for all concerned. Gradually increasing along with the amount of multinational companies, companies were resorting to illegal payments to win international contracts especially in some emerging economies where the practice was common. 

Siemens along with many other companies was found guilty of paying bribes to secure contracts abroad but the employees of Siemens defended themselves on the basis that bribery was not for personal gain and could be considered standard business practice in some countries where they did business. Thus it can be seen that how important the international governing body is to regulate the transnational corporations’ behaviors when do they conduct business in different culture. Along with the establishing of international governing body, bribery and corruption will be identified; the international systems and measures will be taken. 
Future of the Governing Body

Additionally, the problems resulted by the difference between laws with global operation from governments to governments will be decreased. In all, in order to solve the business bribery problems among the word, it is urgent to focus on establishing the international governing body now. 

Outlook of Siemens

That the company officials at Siemens had resorted to bribing was not in question, but the remaining questions were even more worrying—how much knowledge did company official have about the fraud. As Manuel Theisen, a professor of business and tax law at Ludwig-Maximilians-Universitat in Munich said, “this individual case is of significance because it shows clearly that a system of bribery was installed. The rest is now just a question of numbers and dimension. That unearthing the system of bribery is certainly an important milestone.” There was also mounting pressure on Siemens to explain how all these cases of bribery—both within Germany and externally went unchecked by the top management for so many years. 

We think they will face a lot of barriers such as how to rebuild the name of Siemens. Because in the business world the most important thing is the reputation of the company, now Siemens is involved in this bribery scandal, as a result, some of its partners will not believe it any more. In addition, Siemens should start to make others trust it again, reverse the brand image and cannier on business laws. It should rebuild the company members’ organization such as making the employees involved in the company’s decision making process.                 

On the other hand, Siemens was influenced by the bribery scandal a lot; they are a multifaceted company it has great infrastructure and resources, and they are the only company which has covered ten fields, such as automation, healthcare and mobility. Thus Siemens can make up its loss by advanced technology. If they have the most advanced technology in the world, there is no need for them to bribe other companies for contracts. Siemens has an advantage in energy attenuate source, so their company can focus on alternate energy especially in solar area and expects to make ground in that direction. Although it is difficult for Siemens to save its situation, Siemens has the potential to make a strong comeback and with its dedicated team, they can fully developed technology, advanced design.

To sum up, if Siemens can make the bribery disappear from it and approve its technology, Siemens will have chance to be strong again.