Siemens: From Systematic Global Corruption To International Best Practice (3)
With Hershman’s guidance, Siemens rolled out a new set of strict rules and processes on anti-corruption and compliance across the global business, designed to affirm what constitutes trustworthy business, and to impose constraints on operating procedures to make it happen, including a global Compliance Programme with a three pillar system: ‘preventing, detecting and responding.’ They hired over 500 full-time compliance officers (up from just 86 in 2006), and their new investigation unit would be led by a former Interpol official – a tangible investment in controlling for trustworthy conduct (‘distrust regulation’). Alongside stricter requirements concerning relationships with ‘consultants,’ Siemens established compliance help-desks and hotlines, and an external ombudsman based worldwide and online. They created a web portal for employees to evaluate the risk in their client and supplier interactions. These interventions are targeted at shaping employees’ integrity through improvements in their ability, while treating any potentially compromised employee coming forward with benevolence and fairness. Yet, as Hershman says, “there are new processes, new people, new procedures... but that does not make a difference in the world unless there is a change in culture.”
Siemens had launched a comprehensive programme of training and education on anti-corruption practices for its employees. By 2008, Siemens had trained more than half its 400,000-strong global workforce on anticorruption issues, whether on web-based courses or in ‘classroom’ formats.
Siemens also signalled a shift in strategy, in terms of commercial opportunities, announcing early on (February 2007) that it would avoid competing in certain known hotspots for corruption or unethical practice.
The then new CEO - Peter Löscher, had declared, “Highest performance with highest ethics – this is not a contradiction, it is a must.” As well as the amnesty, he supplemented the previous reforming interventions by replacing Siemens’ dauntingly complex matrix structure with a more streamlined structure comprising just three divisions, whose MDs sit on the Board.
Löscher called for “clear lines of responsibility, a high level of transparency and maximum speed” to enhance communications between managers and direct reports.
The firm continued its review of millions of bank account statements, documents and transactions throughout 2008, and has been praised for its efforts to identify unacceptable practice and to prevent reoccurrence (‘distrust regulation’ via a systematic evaluation).
Overall, the scandal cost Siemens $2.5bn, including $2bn of fines, as well as the cost of an exhaustive analysis of its financial transactions, bail payments for indicted executives, and fees (around $63m) to outside advisers. The firm was also barred from dealings with certain clients.
The cost to employees of two long years of shame under intense and hostile public scrutiny, especially in Germany, is difficult to calculate. Löscher, the current CEO, has been commended for his approach to ending corruption within Siemens, but he has argued that changing the corporate culture to one driven by ethical standards “is a marathon for us, not a sprint.”
By June 2008, however, some company executives were sufficiently confident to declare Siemens “the squeakiest clean company.”
The executive charged with overseeing its compliance and ethics, Peter Solmssen, said in October 2008: “We are quite confident we have eliminated anything systemic... But it’s never over.”
The quick wins we could all gain from the Siemens’ story demonstrates that
• Unethical behaviour can be very costly.
• Premature dismissals of developing scandals can appear self-serving and incompetent, and a further violation of trust compounding the original problem.
The trustworthy course of action is to acknowledge the accusations and to share any known facts, and to initiate a full, urgent and independent enquiry.
• Independent, ideally external, investigations are the most credible indicator of trustworthiness. The painful rigour of such an investigation can be resented, but it must be endured, until the full extent of the failure is laid bare.
• Discovering the true scale and depth of a trust failure may only be possible when senior leaders leave, and an amnesty is offered to staff to encourage them to come forward.
• The time-scale for a major ethics overhaul is long - measured in years not months - as it invariably involves cultural change.
• Structural, procedural and cultural interventions should be adopted concurrently. For example, strengthening compliance monitoring and codes of conduct (a form of ‘distrust regulation’) must be backed up with senior leaders’ exhortations and training investment (‘trustworthiness demonstration’).
Sir Chukwu Jideani
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