Siemens: From Systematic Global Corruption To International Best Practice (2)

ccording to the UK based Institute of Business Ethics, IBE, "…the key to regaining public trust after a scandal is the swiftness of a company’s response, the accuracy of its problem diagnosis, and the installation of proper mechanisms to prevent the problem from occurring again…", these exactly formed the template upon which Siemens’ transformation from an organisation in violation of anti-corruption and anti-bribery provisions to one that excels in international best practices.
As reported in a recent IBE report, Siemens’ turn around took the following form: "In 2007, under the auspices of newly appointed CEO, Peter Löscher, the firm launched a month-long amnesty programme for employees to come forward, excluding former directors. Forty whistleblowers brought more incriminating evidence, extending the scandal’s reach into the previous management board. Transparency International co-founder, Michael Hershman was brought on board as an advisor.
Siemens also launched a comprehensive programme of training and education on anti-corruption practices for its employees.
It should be noted that though, the scandal shamed Siemens, not only in the eyes of furious shareholders and investors, but also the German public, and it brought humiliation to thousands of its employees. Its trustworthiness came under intense scrutiny; its integrity was called into question, as well as the benevolence of its senior leaders in appearing to tolerate such practices. One leading group of shareholders questioned the board’s basic competence for its handling of the affair.
Still, its leaders at that time and key executives, including the then CEO, Klaus Kleinfeld (2005-07), repeatedly denied awareness or involvement. Chairman, Heinrich von Pierer, CEO during the period under investigation (1992-2005), was "visibly contrite" when he faced shareholders in January 2007, citing his "deep distress" that his compliance regime had not prevented the alleged misdeeds.
Thus, the firm’s first statements appear to be an example of an ill-suited cursory or defensive acknowledgment, attempting – unsuccessfully – to downplay a developing scandal prematurely.
This tactic appeared self-serving and did little to protect, let alone enhance, stakeholders’ impressions of Siemens’ integrity.
Many viewed it as incompetent. Indeed, senior executives made public pledges to restore the firm’s battered reputation just a month later.
As well as four international investigations, Siemens announced their own internal inquiry. Siemens wanted to have in place "a system that will prevent and detect unethical and illegal conduct and serve as a benchmark for other companies."
The exhaustive internal investigation was overseen by an external third party Compliance and Anti-corruption Professional – the New York firm, Debevoise & Plimpton. Their rigorous approach alienated some Siemens’ managers. However, the length, depth and breadth of their investigation seemed to convince most skeptics inside the firm of the pressing urgency of reforms, its thoroughness being a tangible display of ability and integrity.
But this exhaustive diagnosis still met with internal resistance, and it was not until the following year that the most serious revelations came to light. This followed the departures of the CEO and chairman, and the decision by the newly appointed CEO, Peter Löscher (2007-present), to announce a month-long amnesty for employees to come forward, explicitly excluding former directors.
Forty whistleblowers brought more incriminating evidence, extending the scandal’s reach into the previous management board.
Several systemic elements have been cited as contributing to the scandal, including:
a) an aggressive growth strategy that, arguably, compelled managers to see bribes as a "tempting short-cut" to hitting tough performance targets;
b) a complex, de-centralised, matrix-like structure that allowed divisions to effectively run themselves, with minimal oversight from HQ, and
c) "feeble" processes on checks and balances and accountability that allowed the payments to be made.
But perhaps above all, commentators remarked upon Siemens’ corporate culture at the time which seemed openly tolerant of such activities, helping staff to feel that bribes were "not only acceptable but implicitly encouraged", allowing them to be complicit in the deceit. A professor at the University of Frankfurt said: "It is hard to believe that something on this scale could be so organised and that no control was in place to catch it". However, it should be noted that bribes were relatively common practice in German business at the time, and even tax-deductible.
Earlier on, the board appointed Michael Hershman, co-founder of Transparency International, to serve as its adviser – a shrewd and high-profile act of ‘trustworthiness demonstration’, via affiliation with a leading anticorruption expert. Hershman argued that the challenge facing Siemens was to "create a culture in which managers do not fall back into easy, and illegal, patterns of behaviour".
 
Sir Chukwu Jideani
 

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