Siemens Company - the Affected Shareholders - Essay Example

Siemens Siemens Case Study Case Summary Siemens Company is located in Munich, Germany. The company concentrates on developing goods for electronic engineering and electronic based industries. Like the other big worldwide manufacturing companies, customers handled by Siemens Company are different governments and companies all over the world. In these industries, it is likely to have long term contracts with the customers that can be worth billions of dollars. It is precarious that Siemens Company and their challengers persuade a comparatively small group of individuals that their products offered by them give the best complete value to the customer. Henceforth, Siemens Company and its challengers may at times have the temptation of using any possible means in persuading decision makers in signing contracts with their companies. Due to this persuasion, the company gets tempted to offer financial incentives that are not legal in closing the signed contracts (Stanwick, 2014). The illegal method used by Siemens Company to obtain orders from their customers was revealed when it was stated that six executives in Siemens Company had been detained for the actions they did. These actions related to offering bribes to German and different customers in the telecommunication industry. The Affected Shareholders Additionally, these executives were blamed of stealing money from Siemens Company to pay for the offered bribes. Thomson Ganswindt was among the arrested executives. He was heading the telecommunications equipment unit in the company. The assessed bribes amounted to 200 million euros and supposedly incorporated using bribes to get the security systems contract. This was at the 2004 Olympic Games held in Greece (Stanwick, 2014). The concerns began after Michael Kutschenreuter, a senior executive in Siemens Company, stated that he received a very worrying phone call in the beginning of 2004 from Beit Al Etisalat. Al Etisalat was an employee of a consulting firm in Saudi that was Siemens business partner. Al Etisalat claimed that he be compensated 910 million dollars as commission payments by Siemens Company for the role he played in obtaining telecommunication contracts in Saudi Arabia. He went on to threaten the company that he would go to the United States Securities and Exchange with proof of bribes Siemens offered connected to the contracts if Siemens Company did not compensate him the commission payments (Stanwick, 2014). Due to this threat, Michael informed the company’s superiors, including the then present CEO Heinrich von Pierer and future CEO of the company Klaus Kleinfeld, that Al Etisalat was blackmailing the company. Michael went on to state that in January 2005; the Siemens management board gave him an approval of paying Al Etisalat 50 million dollars. Out of that whole amount, 17 million dollars was for previosu obligations and 33 million dollars for making Al Etisalat not to send the information to the Securities and Exchange Commission. Michael was among the six executives who were detained in November 2006. It was stated that Siemens Company used bogus consulting contracts to send funds as bribe to customers (Stanwick, 2014). Incase the company is found guilty of fraud, Siemens would not go on to place their bids on public sector contracts offered by governments all over the world. According to the prosecutors, these bribes offered by Siemens were not isolated to a specific group of employees or to a single business unit, but were prevalent in Siemens (Stanwick, 2014). On the other hand, offering of these bribes was organized properly. These allegations arose when Siemens Company was ready to combine its business of telecommunications equipment with Nokia. The anticipated merger came to a hold until the investigations were complete and the results revealed. In Germany, offering of bribes was a common act. Both Heinrich and Michael denied any awareness of the bribes and asserted that they did not give any payments to stop the disclosures of Al Etisalat. Michael asserted that the bribes were widely spread that the company had a coding system for the employees using the term make profit. The sequence of the coding system used was 1-2-3-4-5-6-7-8-9-0 (Stanwick, 2014). 1 represented M, 2 represented A, 3 represented K and followed in that order. The code was used by the executives in Siemens to tell their juniors the amount to be bribed. Moreover, Michael asserted that in the mid-90s, he saw bribes being remunerated for power project contracts in Slovakia and Russia. Additionally, he had knowledge that the bribes were being remunerated to the Argentine government for a deal to improve passports that were electronically scannable in 1999. Michael went on to assert that in 2001, the bribes stopped due to some changes in the Argentine government. On the other hand, Michael also asserted that the bribes were wide spread partially as they were not a big sin in exchange for the bigger benefit to Siemens Company getting the contracts. Reinhardt Siekaczek was another executive in the company who was there for 40 years (Stanwick, 2014). He asserted that he was told to set up bank accounts to start slush money to be used for bribes in 1999 or 2000. One bank account opened in Salzburg, Austria, was used in transferring more than 75 million euros as bribes yearly. These bribes were used in getting contracts in nations like Egypt, Indonesia, Cameroon, Greece, Nigeria, Vietnam, Saudi Arabia, Kuwait and Kazakhstan (Stanwick, 2014). The transferring of funds (bribes) was seen to be hard after the laws of money laundering were implemented and made strict after the terrorist attacks in September 11, 2001. At the yearly stakeholder’s meeting that took place in January 2007, Siemens Company CEO Kleinfeld asserted the allegations shocked him and that Siemens Company did anything possible in clearing the allegations. At the similar meeting, the previous CEO von Pierer asserted that during his time as the CEO, he took major steps in controlling corruption and bribery. He went on to proclaim that when the efforts of controlling corruption and bribery were not fruitful, he was distressed. The decentralized organizational structure of Siemens Company enabled bribes in taking place with no need of using real balances and checks. Siemen’s operations vastness needed that unit business managers be offered enough autonomy in making their own choices. Even though this is an efficient decision making tool, it also deteriorates the prospective accountability of the manager’s actions if there is not a monitoring or a control system in place in making sure the decisions conform with foreign and German laws. Siemens Company had regional managers and business unit managers for the operations did in 190 nations (Stanwick, 2014). Optimal Solution Both the regional and unit managers had the authority of creating and implementing contracts with consultants who assisted Siemens in obtaining new customer contracts. A standardized template needed by the managers in Siemens in drawing the contracts was not available (Stanwick, 2014). Due to this, the compensation and responsibilities to be provided to the consultants in obtaining more business for Siemens Company were left to every manager’s discretion. When the bribery claims began, a requirement was established by Siemens Company that any kind of consulting agreement needs to be approved by the chief compliance officer and senior managers. Former top executives in Siemen Company were trialed in March 2007 for paying nearly 6 million euros as bribes so that the company could get a contract in power generation equipment with the Italian utility Enel. Andreas Kley, a past chief of finance and Horst Vigener, a manager in Siemens Company power generation unit, acknowledged the bribes but contended they were innocent (Stanwick, 2014). They stated that the bribes made Siemens Company to benefit greatly. Also, they were indicted with bribing public officials while Enel is a mixture private/public owned company.68% of stock in Enel was controlled by the Italian government when the bribes were paid. Germany passed another law in 2002 that stated that bribery was not legal irrespective of whether the company’s official was with a private or public entity (Stanwick, 2014). Managers in Siemens also asserted that managers in Enel making the last decision on the contract requested for bribes when the bidding procedure took place. The charges against these managers in Siemens were a breach of contract as these managers had been accused of inappropriate stewardship of funds in Siemens Company. The managers from these companies were found guilty for offering bribes in May 2007. In addition, Siemens Company was forced to pay a fine. The response from Siemens Company was that the ruling made was not legal as the decision from the court was not based on fact or law. How the Various Shareholders were effected Due to this, in April 2007, von Pierer asserted that he was re-assigning as Siemens Company supervisory board. He went on to assert that bribery investigation did not make him to leave the company. On the other hand, after von Pierer resigned, Kleinfeld stated that he would reassign also as CEO when his contract was over. In addition, Daniel Noa, Siemens Company chief compliance officer stepped down. There were speculations that his departure was due to Siemens not supporting him in carrying out his duty (Stanwick, 2014). Another speculation asserted that Daniel Noa was not offered enough power and responsibility by Siemens Company in conducting his duties correctly in examining illegal activities at Siemens Company. Siemens named a new CEO in July 2007 (Stanwick, 2014). Peter Loscher was the new CEO and promised in streamlining Siemens Company operations in making sure bribery would not go on. On the other hand, he was the first CEO hired for the senior position out of Siemens. The vision of this new CEO is for Siemens Company to have a high transparency level, a clear responsibility line and the capability of making changes at an increased speed. He also added that the strategic focus of Siemens would be centered on performance with moral principles. Steps Siemens would take in avoiding bribery issues Corruption had increased in the company in a certain level that was hard to define the full impact of the bribes effects. Due to this, an amnesty was declared by Siemens Company in November 2007 to every employee excluding the senior 300 executives in disclosing the kind of illegal actions that took place in different Siemens businesses all over the world (Stanwick, 2014). The outcome of the remission was that 110 employees presented themselves and gave information on activities that were not legal and took place at Siemens Company. Through the gathered information from the junior employees, the officials in Siemens Company could find the senior managers who knew and involved themselves with the bribes that took place all over the world. The corruption level of Siemens Company was systematic in the past and it is needed to be changed. The corruption level enabled crimes to go on making it to be a form of abetting and aiding. Reference Stanwick, P. (2014). Understanding Business Ethics. New York: Sage Publications. Read More