Corporate Approaches - Daimler and Siemens AG - Case Study Example

Managing Ethics: Daimler and Siemens AG Introduction Experts believe that the managing of employees in different geographies are becoming increasingly difficult due to various ethical issues such as unfair employment practices, child labour, corruption, ethical trade etc. (Tulder & Kolk 2001; Bansai & Sama 2000; Enderle 1999). Business ethics in general concerns with the requirements that companies need to fulfill to conduct their businesses in an ethical manner by abiding the law of the state (Kaptein & Wempe 2002). In order to maintain its image and reputation in the market it is imperative for companies to focus on avoiding ethical issues. It has been found that these issues are very sensitive and may result in damaging the reputation and thereby, the revenue of the company as well (Bowie & Vaaler 1999; Buller & McEvoy 1999). Corruption and bribery have been major public concern in around many countries. This is also because of the result of press coverage of the corruption charges being levied on the public officials. Iterations in the foreign bribery laws and with the recent trend that was found very vigorous failed to keep a scanner on the issue bribery. One of the most topical issues of business ethics is covered over the world in today’s time in the global market. It can be defined as study of situation in a business, decisions and activities that had to be addressed as an issue which may be right or wrong. Thus, focused on morality or giving gifts or even bribing has become one of the common business ethical problems which has been raised huge debates and even disagreements with regards to domestic companies and most foreign companies that have various cultures. That said, bribery is also fact of life in some of the countries. In these countries, when an international company does business they are found offering bribes to be in business (Florini 2003; Mauro 1995). The importance of considering ethical issue of bribery is understood through the discussion of the two case studies of Daimler and Siemens AG in this paper. Case study 1: Daimler Daimler has been accused of paying money as bribe to foreign officials for over 10 years i.e. 1998-2008. They have been accused of securing government contracts in any state they wanted to do business in. On 1st April 2010, Russian and the German Daimler subsidiaries were confirmed the accusations, through which they were fined a sum of $185 million for getting into illegal actions. Also, this would bring one of the biggest corporation would come surveillance. They would also face harsher penalties in case they do not comply with the two year agreement as per the Court ruling (Kollewe 2010). At the start of the month, April 2010, Daimler was brought to court by US prosecutors. This was done as they were accused of paying millions of dollars in the form of bribery to approximately 22 governments around the globe. The subsidiaries also admitted they paid large sum of money, and have come under monitoring trial for a period of two years. And in case they do not comply; they will be subject to facing harsher penalties (Kollewe 2010). The inquiry into corruption and bribery made Daimler case one of the extensive cases that was carried against any of the multinationals. With the organization admitting the fault, the high-ranking officials came under scanner and had to admit their actions as well. Bribery was of diverse "incentives" that varied from giving overloaded payment in the bank accounts for some of the government officials in China, Greece, Russia or Thailand to giving some luxurious cars and sponsoring some extravagant vacations as per France 24. Also, another detail was around the discovery by the investigators that the company was not only bribing but was also violating UN's Oil for Food Programme. In this, they were found paying nearly 10% kickbacks to the officials in Iraq in order to sell vehicles (Kollewe 2010). Corporate approach to the issue In order to rectify some of the issues, the company tried cutting net income by $84.5 million; operating profit was brought down by $21 million in the financial year 2005. With this, they also released executives as they discovered some "'improper payments' were done in Africa, Asia and Eastern Europe. In the year 2006, DaimlerChrysler had fired employees after an internal investigation found evidence of executives paying money as bribe in Africa, Asia and also in Eastern Europe. As per the U.S. Securities and Exchange Commission, they stated that the company was paying improper payments in various jurisdictions. These payments were violation of the U.S. and German Foreign Corrupt Practices Act (Kollewe 2010). The Securities and Exchange Commission along with the Justice Department was investigating these allegations at DaimlerChrysler from 2005. They cooperated with these investigations and later disclosures also brought to fore some of the corrupt cases. DaimlerChrysler had mentioned that it was company that complied to all the compliance globally. The company has now vouched to initiate more improvements in the business processes and comply and control along with looking at training activities so that it could foster culture that defined honesty and openness (Szczesny 2010). The company was penalized $185 million as fine which was a part of violating U.S. anti-corruption laws as they were involved with global bribery scandal. As per Daimler AG, they were moving or creating new position in the company board for managing and overseeing “Integrity and Legal” processes. New position was being created the supervisory board that stated that Chief Integrity Officer would be hired into the position by an executive-level employee who would be bought outside of the company. The responsibilities would include managing Daimler’s global Compliance and legal Organization along with the related processes. Also, overseeing that ethics are being followed in the business across the globe. Management board decided to extend the compliance activities by including relations with the business partners. The Group operates in 200 countries nearly, as its own companies or with partners. Although, Daimler as a company is not noted for being transparent, now plans to have more resources for meeting these requirements (Szczesny 2010). Daimler also plans at establishing itself as a global Compliance Organization. It plans to have compliance managers in its subsidiary around the world for developing an international training program for explaining the importance of regulations and the procedures that each employee would have to go through mandatorily. Additionally, Compliance Consultation Desk was established that offered Daimler employees advice on the queries that was related to the area of compliance at the company. Also, whistleblower station was established for offering each employee as well as external personnel for giving assistance to non-compliance or compliance issues (Szczesny 2010). Case study 2: Siemens AG The case is a discussion on the bribery episode that were bought to fore in Siemens AG (Siemens) during 2006 and 2007. The series of scandals which involved employees offering money or bribing the foreign officials for gaining contracts or creating funds for the same purpose. Also in another incident, the firm was accused of offering labor representatives on supervisory board for gaining the support policies. After the Germans conducted raids at the Siemens' offices which were located in Germany, this was followed by investigations which were initiated in other geographies such as Greece, US, Italy as well as Switzerland for the misconduct (Marquart 2008). Around thirty offices and some private homes that were related to Siemens and the employees were exposed or raided on November 15, 2006 by around 200 tax inspectors, police officers, and prosecutors. This was conducted in many cities in Germany and Munich. This was conducted to probe the suspicions of around bribery, tax evasion and embezzlement of company funds. These allegations came up as a fall out of Siemens' sale of mobile handset in the year 2005. The company was sold to Taiwan based company BenQ (Marquart 2008; Pohl 2006). In the aftermath of the incident, Klaus Kleinfeld who was the CEO of the company and the chairman of the supervisory board Heinrich von Pierer were asked to resign. These kinds of bribery scandals coming to light in Siemens, other German firms for instance Volkswagen raised questions about effectiveness of the Co-determination law in Germany. They only advocated system by which supervisory board which governed management board and the supervisory board seats were filled by labor representatives (Malhotra 2008; The Associated Press 2007). In system like this, critics opined that management needed labor representatives' for supporting jobs and also for gaining support to meet company policy. This led to suspicion amongst them. It also highlighted that opinion of several analysts in the issues that related to bribing episodes conducted by German companies and particularly Siemens (Millman 2002). Corporate approaches to the issue The scandal on bribery which rocked Siemens during 2006-2008 was something that other companies learnt what they should not do and got the stage set for increased enforcement for violation of anti-bribery. Before the bribery scandal, Siemens followed a compliance and ethics program in the firm. Further, there were missing links between the enforcement of the program and leadership. The company's coordination with the SEC investigation helped the company for getting lessened penalty. In spite of that, the company had to completely re-design its internal ethics as well as its compliance controls. Many lessons were learned from Siemens charges with the reaction to the investigation and also with the actions taken by the position to position themselves in the scandal time was observed keenly (Rich 2006). Amnesty plans were worked out by the firm as employees were willing to step forward for giving information that were pertaining to bribery scandal and also identified some players who could be set free from the law or prosecution. In one of the report in the Wall Street Journal, amnesty programs were offered to employees in Siemens, nearly 110 came forward with the data or information. But nearly 300 employees were exception from the top executive team. One such employee who provided information was indicted Reinhard Siekaczek. It was reported that he was managing an annual budget which was worth $40-50 million. This was considered to be "bribery budget". As per the report published in The New York Times, Bribery was considered to be a line item. They added that salesperson and also the managers were used to money which was "slush fund", for maintaining relationship with the corrupt officials in government (Malhotra 2008). The cooperation with the investigation significantly reduced the cost and fine that was levied with the SEC. Siemens was able to respond to the measures and also detect and also prevent future gap with regards to bribery. An investigation was underway in the year 2006 and got completed in 2008. The collaboration or cooperation rendered by Siemens employees allowed investigation to run smoothly and less timely than it was actually predicted. Instead of replacing executives from the company, Siemens appointed people from outside, which were thought to be the best. By 2007, Peter Solmssen was asked clean compliance and ethics at Siemens.  In 2007, Peter Löscher was named the CEO of the company (Rich 2006). In the meantime, Siemens improved the reputation by ensuring compliance and it was seamlessly integrated into the systems and each part of the business. Michael Hershman was hired from Transparency International for helping in building anti-corruption policy, compliance and incorporating training program. After the settlement, the firm divided company into three divisions for clarifying reporting lines and increasing responsibilities. They developed training programs for employees at various levels. The training was scheduled at various time or period depending within the levels in the company. The Siemens website also proclaims about training such as foreign laws or even corruption risks. Since the bribery scandals in Siemens, the firm started initiatives for strengthening the corporate governance as well as compliance controls. The firm appointed law firm Debevoise & Plimpton LLP for conducting an independent and robust investigation in the compliance as well as control system along with the independent auditor KPMG (Rich 2006). Conclusion Ethical issues such as child labour, unfair employment practices, bribery, corruption etc. are increasingly becoming the major concern areas for companies due to their impact on the image and reputation of the companies. The issue of bribery and corruption are some of the most damaging ethical concerns as it dents not only the reputation of the company but also causes major financial losses as well. The above case examples of Siemens AG and Daimler focused on this ethical issue and how the companies tackled the situations. Both Daimler and Siemens AG were accused of corruption and bribery cases and were made to pay huge damages by the court. Due to the breach of ethical issues, both the companies faced considerable resistance from their target audiences, media and various rights groups. Daimler tried to salvage its image by firing executives involved in the case. Further, the company created a new position in the board of management for monitoring various integrity and legal issues within the organization. Siemens AG tackled the issue of bribery scandal by strengthening its compliance and ethics program. It coordinated with the SEC investigators, which helped the company in reducing its penalty. It also re-designed its internal ethics and compliance controls to reduce the occurrence of such cases in the future. Thus, breach of ethical issues can lead to not only loss of reputation and market share, but it is also a costly procedure to control the damage and ensure that such incidents do not take place in the future. Reference Bowie, N. E., & Vaaler, P. 1999, “Some arguments for universal moral standards”, In G. Enderle (Ed.), International business ethics, Challenges and approaches (pp. 160–173), Notre Dame, London: University of Notre Dame Press. Buller, P. F. & McEvoy, G. 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