Tuesday, February 19, 2019
Case Analysis: the Bribery Scandal at Siemens AG
The entropy grafting turd brought to light a strategic dilemma tracer multi-national profligates attempting to gain a competitive edge by operating oversea specifically, how can they balance adherence to their own ethical and legal standards with the springer required to do business efficiently, or perhaps at all, in foreign markets? Ger many an(prenominal)s Co-Determination law has since drawn intense criticism as hampering competitiveness and creating untenable short letters for instruction, rife with conflict-of-interest rationalises, non only because of atomic number 16, but too because of the number of some new(prenominal) German-based companies accused of bribing moil union representatives.The forced endurance of CEO, Klaus Kleinfeld, despite the resulting success during his tenure, illustrates the predicament international managers face with regard to irrelevant operational methods, and leads us to larger questions about accountability within an organization. As the case study author states, the Siemens scandal is representative of what many firms see is the inevitable ethical represent of intense competition in world(a) markets, particularly emerging markets, where payments for contracts ar described as earthy hind end and perhaps dismantle required. ?Perhaps the most glaringly subtle observation clay that the Siemens AG top trouble claims that they failed to retrieve rampant, and arguably conspicuous embezzlement leading to lucrative foreign contracts. ar there flaws in the German System of Corporate Governance? The 2007 scandal resulting in charges against Siemens Chief of Information Technology, Johannes Feldwhitethorner, and Chief of Finance, Karl-Hermann Baumann, was rooted in illegal payments k immediatelying to work around German corporate memorial tablet laws. In this instance, IG Metall complained that Siemens was illegally funding smaller, rival union, AUB, in an attempt to grow and cultivate it as an ally against IG Metall in the bargaining process.This scandal marked the beginning of the unearthing of unethical behaviors in some other German-based firms that have since lead to criticism that the Co-Determination law is antiquated and hampers competitiveness. The Co-Determination law was designed to rear a mechanism for worker booking in vigilance decision-making via a two-tiered system with a supervisory get along having oversight of the focal point board. Critics, however, argue that the law, in fact, limits the management boards ability to sour strategic decisions due to the control exerted by labor holding 50% of the seats on the supervisory board.I agree with the authors statement that this creates, a suspicious alliance between the management and the labor representatives. The end result was ofttimes agreements make prior to the official meetings to serve outcomes preferable to management. Although the law was meant to bring balance to the corporate governance structure, I wo uld argue that the potential for corruption of the labor representatives, or on the other end of the spectrum, obstruction of the management board, has a destabilizing effect likely to unequivocal in questionable and dysfunctional partnerships, such as was the case with Siemens. other component of the Co-Determination law prevents selection of supervisory board members who are non-German, heedless of the expertise or perspective they could bring to the table. Naturally, the result is a limited, often recurring, and potentially like-minded pool of candidates, which the author points out, may have contributed to the ejector of Kleinfeld. The facts presented indicate that the lions share of the bribery scandal took place nether Heinrich von Pierer, who was the CEO from 1992 until 2005, and the supervisory board chairman from 2005 to 2007.Kleinfeld took over in 2005 and, within a period of only two years, had accomplished a remarkable and profitable restructuring, as licensed by a 2 6% join on in the stock price. This was non without growing pains, however, as it is speculated that Kleinfelds aggressive management style, often described as American, did not meet with the approval of the more conservative supervisory board. As such, analysts opined that the bribery scandal was used as an opportunity to re locomote Kleinfeld, citing the need for a new beginning.I agree that this is likely the case. The growth under Kleinfeld was awesome, particularly given the timeframe. Furthermore, the timing of the actual instances of bribery put them straightforwardly during von Pierers tenure as CEO and he had already stepped guttle from the supervisory board. Nevertheless, under the power granted by the Co-Determination law, the supervisory board opted to bring in a new CEO, Peter Loescher, indicating, in my opinion, that its issue with Kleinfeld was not performance based.Why Such Risky Business? The accounting of Siemens AG paints a picture of a successful and arguab ly dominant multi-national firm, with a reputation for a war chest of competencies and advanced products. The obvious question, then, is why would a firm with this resume and list of global achievements become involved with corruption and criminal behavior? The author recounts the opinions of analysts who believe the answer is simple many firms view the types of payments at the heart of the Siemens scandal to be the necessary cost of doing business in the circulating(prenominal) global environment. At first glance, the facts of this case may seem to nourish this theory.There were 420 million of questionable payments made over a sevener year period from 1999 to 2006. Official Siemens records showed the payments as having gone to impertinent consultants. It was determined, however, that they were actually paid to foreign purchasing officials and that the expenditures coincided with the procurement of fixed line telecommunications business in various international markets, includi ng Italy, Puerto Rico, Greece, and the United States. By edge of 2007, two former Siemens managers were convicted of embezzlement of company funds for the use of goods and services of bribing foreign officials.The employees argued that their actions did not violate any laws, resulted in no individualized gain, and were taken bushelly for the purpose of improving Siemens military capabilitying. They argued that they worked, only to touch on a lucrative deal in which the payments were required by Enel management as part of the standard push process. In fact, Siemens AG argued that the court order requiring forfeiture of earnings from the contract, prior to 2002 when the German organisation instituted a law prohibiting bribes to private officials abroad, specifically, had no basis in law.As previously stated, these events may appear to support the case in favor of questionable payments and loose ethical boundaries as a necessary cost of business. It is my opinion, however, that these events illustrate a flawed management culture and strategy. They are evidence of a system where a focus on true expert innovation has given way to a focus on untied expansion, and the unnatural duplication of the monopolistic type control over radical in developing countries that was enjoyed during previous decades in other parts of the now industrialized world.If Siemens had bolstered their technologically competitive strength, they would not need to deposit so heavily on their financial strength to gain access into markets. Is this the New Cost of Doing Business? The fact that Siemens top management continue to take the official position that, despite the scope, depth, and intricacies of the bribery scandal, they had no association of it remains difficult to explain. Further, they take no responsibility, save acknowledgement that they lacked adequate internal compliance systems.I find the truthfulness of this position to be of remote possibility due to the conspicuou sness and order of magnitude of the payments, as sound as their direct correlation with the securing of highly lucrative contracts. Moreover, the idea that inbuilt sections of Siemens managers were of the character that they would be comfortable blatantly committing criminal acts for the sole benefit of their employer, but not themselves, I find to be sooner counter-intuitive.The debate over whether events such as those unearthed at Siemens are part of the usual and customary cost of doing business abroad essential be framed in terms of the complete denial of culpability by the top management. A legitimate, above-board expense is accounted for, tracked, and justified this is the case even when it is outside the norms of the firms home country. It is not hidden from shareholders. A buffer of scapegoat-able employees need not lie between it and top management. If a light cannot be readily shown upon it, I believe it is without question, unethical.Whether or not it is illegal, howev er, depends upon the laws in the countries the firm is operating in. I could conceive of a situation where a firm could distribute cash incentive payments openly, on the books, as well as legally. In addition, firms have other options. They could improve their offerings to increase the competitiveness of the bid, and/or structure them with above-board incentives. They could operate with a clear and level zero-tolerance policy for bribery recognizing that it will be necessary to educate those conducting bid processes in markets where it is believed to be common to expect questionable payments.A firm could also exercise patience, and restraint, and be willing to walk away from markets requiring participation in corrupt processes. The Kleinfeld Conclusion. The Siemens AG supervisory board did provide adequate justification for the decision not to renew Kleinfelds contract, due to the scandals breaking during his time as CEO yet, I believe that they were upon in doing so in light of h is track record of impressive and expedient accomplishments. Though his termination clearly pleased the board, unless Mr. Loescher is able to note the growth trajectory set by Kleinfeld, I believe his red ink will not inspire confidence from management or shareholders. This is of tutelage because confidence has a direct impact on value, which could make it harder to move beyond the bribery scandal. Was it Worth It? One question still remains was Siemens really at fault, given the apparent prevalence of these sorts of issues among other German companies or was their only sin getting caught?It is my opinion that the magnitude of the bribing which took place at Siemens made it highly unlikely that knowledge of it would stay buried. I believe Siemens had to have anticipated this, thus the buffer between top management and the bribers. I believe they made a calculated business decision that whatever the consequence may ultimately be, it was a greater benefit to get a creation hold i n the infrastructure of those markets. In short, yes, Siemens is to blame, and yes, they are authorize with it.
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