Siemens Bribery - Case Study Example

and Section # of Siemens bribery case QUESTION Business cultures around the globe have been accused time and again of resorting to unethical practices in order to attain corporate goals, therefore raising a question as to whether the globally known saying ‘honesty is the best policy’ still applicable in the business world. In literal terminology bribery stands for the offers made to another party, such as promises, payments or goods, with the objective of receiving special treatment than others involved in the process, it is likely to be considered unethical and raises concerns pertaining to business ethics of a corporation (Your Dictionary, 2010). However, with the level of competition constantly hiking in the international market, the issue of ethics has gone under massive changes, with companies ignoring glitches in their corporate governance system, and providing a leeway to employees within the company to initiate wrong practices if they serve the aims of the company, and lead to increased profitability. The style and name of this practice varies with geographical differences, at some places it is referred to as ‘baksheesh’ and is considered completely ethical and an essential act to do business, these variations in ethics on the global level leave people in a dilemma and hence in such areas the giving and receiving of bribe is justified (Montaque, 2006). This however makes competing on a global scale difficult and complicated, for companies such as Siemens AG (Siemens), who compete on an international level, resulting in the submission to the practice of bribery to achieve company goals and secure contracts in the foreign market. Siemens is an example of a global company that was charged for undertaking unethical practices, of bribery, internally and externally. Despite the law courts verdict against the company, the personnel convicted of being responsible for the act denied the charges, and claimed their innocence by declaring that in order to secure foreign deals, bribery is a must, otherwise the company may lose major contracts even extending into a complete exit from a specific international market. Such as the charge against two Siemens managers for bribing the employees of Enel SpA (Enel) which was an Italian energy corporation, and when these managers spoke in their defense, they stated that they had no choice but to agree to the terms of Enel’s employees, or else not only lose the contract but also lose entry into the Italian market, hence claiming that their actions were for the sole benefit of the company and no personal benefits were involved in the act (Krishna, 2010, 2). Furthermore, in 2006, IG Metall- which was a renowned and dominant trade union in Germany, accused Siemens of bribing another labor union known as the AUB with the intention of amassing support for the policies of the company which were against employee’s welfare, as according to the German law of Codetermination or Mitbestimmung, the companies had to have a two-tier sort of management system, in which a supervisory board of labor representatives was responsible for cross-checking managerial actions, this provided both Aug and IG Metall the platform to question policies, and the charges claimed that Siemens was overriding the right of workers by bribing the officials of AUG. A board member of Siemens was also arrested, Thomas Ganswindt, who was aware of the embezzlements occurring, and yet remained silent, for company’s concern, hence portraying the acceptance of bribery in the top management as well (Krishna, 2010, 5). The company started correcting matters once they were exposed to the public and not when significant warnings and symptoms of illegal practices under effect became known to the management: early mitigation efforts could have saved it from the blow to internal reputation, but Siemens resorted to continue its work, depicting their acceptability of bribery as long as it remains concealed within the confinements of the company, but is considered illegal and unethical otherwise. In the foreign market, companies face executives from different backgrounds, and molded in distinct cultures, and they have their specific indigenous method of asking for bribes, thus leaving the company three options, a display of shock, offering the bribe or walking away, and with loads of efforts at risk, the latter is the most viable option for most companies (Wrage, 2008). Siemens was charged for bribing foreign officials in USA, Greece, Puerto Rico, Italy etc., the exact accurate amount of money that was embezzled requires further investigation (Krishna, 2010, 5). The laws against bribery in the mentioned countries are not lenient, and thus do not accept unfair competitive practices, this is obvious in the bribery cases which convicted major companies for unethical business dealings, such as Daimler AG, the German car manufacturing company which was charged for bribery against the USA laws, which does not allow for giving excessive payments or goods (which in this case were luxurious cars) to the officials to secure a business deal, they were convicted under the Foreign and Corrupt Practices Act, which prohibits companies from conducting or obtaining business in foreign countries through bribery (Pelofsky and Margolies, 2010), the USA also started investigations into Siemens case in 2007 to check if the company had breached any laws (Krishna, 2010, 5). Numerous countries around the globe, including Greece and Italy have implemented the legislations of the OECD Convention on ‘Combating Bribery of Foreign Public Officials in International Business Transactions’ (OECD, 2010). Other German companies such as Volkswagen AG, Deutsche Telekom AG and Deutsche Post AG were also accused of bribing foreign officials, and were all charged in accordance with the extent of their crime (Krishna, 2010, 10), therefore showing that once exposed, unethical practices are unacceptable, but companies around the globe undertake these illegal practices in order to gain benefits for their own company, and there is no option for companies to opt out of this situation other than losing the deal, unless the State of countries become more strong and investigate consistently regarding the activities of companies. QUESTION 2 Klaus Kleinfeld was the CEO of Siemens at the time the convictions were imposed, therefore raising considerable concerns regarding the efficiency and reliability of the top management at the company, hence fast action needed to be taken immediately. Kleinfeld was known throughout the business world as the person who steered the company towards progress and profitability, thus he was associated with the success of Siemens during his tenure as the CEO. However, he was simultaneously despised by the senior officials who were conservative and did not approve of Kleinfeld’s aggressive policies in business, hence his dismissal was questioned (Krishna, 2010, 3). Kleinfeld was not directly involved in the embezzlement of funds going on in the company, and was not implicated as well, however the authority and control of the seat was questioned since it was unable to notice and demolish the illegal practices under effect. However, it was duly recognized that the bribery payments were made in the time von Pierer and not Kleinfeld, thus raising issues over his dismissal. The authorities justified there stance by stating that Siemens needed a fresh chapter, by deposing the senior officers, but they failed to realize the threat their new CEO would face as an outsider from the numerous number of employees who had worked under Kleinfeld and venerated him for his business qualities and the success they delivered to the company. Under his tenure, the stock price of shares of Siemens raised by 26% in a short span of only 2 years, and he also extended the service range of Siemens to include medical diagnostics and wind power, these major achievements in so less a time were a concern to the conservatives, and the analysts argue that the bribery case was a mere excuse of these officials to depose Kleinfeld (Krishna, 2010, 9). The company should have let Kleinfeld complete his term, since after the acute escape from deposition, he would have managed the company more effectively, and taken due consideration of any embezzlement related issues, and would have focused more on success of the company and restoration of international reputation in a short duration since he was an aggressive businessman. The departure of Kleinfeld from Siemens could have both positive and negative implications, and it is entirely dependant on the perceptions of the people, therefore these effects are subject to changes. The most prominent affect would have been the lack of job security that would prevail in the institution due to the dismissal of the highest office holder, and as the employees would not have the feeling of job security, they are likely to jump jobs, and look for better alternatives, their productivity could reduce since job security is a recognized motivational factor. In addition, some employees may also revolt against the deposition of Kleinfeld, if they feel that the authorities did the CEO major injustice, and as a reciprocal act, they might not adhere to the policies of the newly appointed CEO- Loescher, this would lead to internal conflicts between the head and the lower levels. Furthermore, the companies which had agreed to contracts with Siemens on the basis of their terms with Kleinfeld might not be interested to continue business with Siemens anymore, as the ex-CEO was an internationally accredited businessman, and therefore respected for his American style of management, and since clients and trading partners are associated with the representative of the company, they are likely to disappear once the representative is fired, shaking their trust in the company, and leading to withdrawal of agreements, this could hamper the already fragile condition of Siemens. As previously mentioned, many major companies like Daimler AG, Volkswagen, Deutsche Post Ag etc., had been involved in bribery cases, thus involvement of bribery and unethical practices are not uncommon in the business sector, therefore it is a matter of who comes into the limelight and gets exposed, while others get a chance to rectify their shortcomings due to the lesson learnt from the company that has been convicted. Siemens Inc. would not have been noticed or suffered the implications if it had remained careful and not made the entire process much obvious. Such as bribing AUG labor union to concede to harsh policies of the company is an obvious step that would make the opposing party (IG Metall in this case) extremely suspicious about the fairness of practices. Similarly, the astronomically large amounts of money being transferred to consultancy services is bound to raise suspicions, followed by huge amounts of money being transferred from former employees’ accounts to current trading partners (Krishna, 2010, 7). Thus only if the practices were undertaken more carefully, then Siemens might have escaped from being caught, for it is a usual practice for companies of such magnitude to undertake unethical practices to secure profitability. Works Cited Krishna. B. The Bribery Scandal at Siemens AG. 2010. ICMR Centre for Management Research Montaque. A. Bribery: The Acceptable Crime. 2006. July 7th 2010 http://crime.suite101.com/article.cfm/bribery_the_acceptable_crime OECD. OECD Anti-Bribery Convention: National Implementing Legislation. 2010. July 7th 2010 http://www.oecd.org/document/30/0,3343,en_2649_34859_2027102_1_1_1_1,00.html Pelofsky. J and Margolies. D. U.S. charges Daimler with violating bribery laws. 2010. July 7th 2010 http://www.reuters.com/article/idUSTRE62M3TK20100323 Wrage. A. Business Ethics gone without TRACE. 2008. July 7th 2010 http://www.policyinnovations.org/ideas/innovations/data/000034 Your Dictionary. Bribe. 2010. July 7th 2010 http://www.yourdictionary.com/business/bribe Read More