The Siemens Executives - Assignment Example

Question 10 marks) Discuss the use of bribes in securing contracts in international markets. What defenses were cited by the Siemens executives (5 marks)? Were these valid (5 marks)? Discuss with reference to definitions, Ch.14 Textbook, and ethical theories. The international market operates on the principles of free trade, a mechanism through which price determines the process of buying and selling. The highest quality at the lowest price attracts the greatest consumer audience. This basic principle of competition is what ensures efficiency in the markets. It is the commitment of companies, especially those that have a significant influence on the international market that ensures that efficiency is maintained. Efficiency is integral not only when it comes to using minimum resources to fulfill maximum needs, but is also pivotal when it comes to allocation of resources and their eventual distribution. In other words, the basic economic problem is seen to have its solutions within the confines of efficiency, and it is advantageous for the members of the world of commerce to ensure that the equilibrium of efficiency is maintained, both locally and internationally. Multinationals companies are seen as increasingly responsible for maintaining the equilibrium that would benefit all since their increased market share gives them greater influence in the arena of buying and selling. This is one reason why the use of bribes is heavily frowned upon by the international markets, especially when large multinational firms are involved. The use of bribes is an act that disturbs the equilibrium of free trade, since they influence the decision power of individuals, prejudicing it to fall in the favor of the one offering bribes. Siemens, being one such multinational firm that possessed significant share of the global market was caught in the hurricane of media attention, international scrutiny and internal ratification policies when fraudulent actions were seen to be prevalent within the company. The Siemens executives were accused of paying six million Euros to another company in order to achieve the gas turbine contract in Italy. The accusation involved that the executives used the company funds to influence the decision of others. This accusation attracted the attention of the international media since it involved the transaction of such a large amount of money. Moreover, the reputation of one of the world’s largest companies was at stake. As a company that complies and abides by the restrictions and regulations of the free market, the bribe was seen as an act that harms the spirit of competition and free trade in the global market. Thus, Siemens was seen as the perpetual deviant of the global market. Subsequently, the fact that a multinational company such as Siemens is involved in financial embezzling had a negative impact on the brand. The executives accused of the embezzling were Andreas Kley and Horst Vigener. While they agreed that the transfer of six million Euros from Siemens to Enel did occur under their authorization, they defended their actions. These former managers said that their actions cannot be classified as an act of fraud since the financial transaction between Siemens and Enel was made solely and purely for the benefit of Siemens the company. They claimed that a bribe is an act that ensures personal gain, and signifies corruption that is intended to harm the company. However, their decision to transfer the amount to Enel was not for their own gain. Siemens would have gained immensely if the contract for the gas turbine had been awarded to them, and the managers were aware of this. The company hoped to earn 90 million Euros in addition to a firm footage in the Italian market. Thus, Siemens’ funds were not used to benefit anyone else, except Siemens the entity itself. Since neither employee benefitted personally from the funds transferred, both Kley and Vigener testified that they were innocent. The defenses they presented were to an extent valid since the nature of the financial transaction did not prove any intention of receiving a personal gain. Using the utilitarian theory, any action that maximizes the overall happiness for everyone is one that is justified. The transfer of six million Euros from Siemens to Enel created a situation where not only Siemens the company benefitted, but every employee of the company as well as its shareholders would benefit from the company’s increasing profits. On the other hand, the fact that the managers ensured that quality services would be provided to the region if the secure the contract successfully means that the Italian market would benefit as a result of the transaction. Thus, John Mill’s theory of utilitarianism justifies the managers’ actions as ethical and legal. However, the validity of the managers’ claims cannot be given credit in its entirety. While it is true that personal gains were not extracted from the financial transaction, however, the transaction violated the rules and regulations of the free market. By presenting the company Enel with an amount significant enough to influence their decision, Siemens in effect reduced the chance of other companies who may have offered the same services at a higher quality and at a lower price. The law of efficiency requires that minimum resources are used, and this efficiency is not only crucial for the financial market, but also for the sustainability of the environment. By supporting and propagating means of inefficiency, one is supporting and propagating the potential harm it would cause to global markets. Thus, the utilitarian theory collapses when one sees that it is only Siemens and Enel that may have benefitted in the short run from the financial transaction. The happiness of all may have been greatly compromised in the long run. Looking at the broader picture, more harm has been done to the global market that may have lasting impact on the environment as well as society. Question 2: (10 marks) Was the Board right in not extending Kleinfeld’s term even though he had performed well and was not personally implicated and explain (5 marks)? What virtuous and/or vicious behaviors did he show with observable facts (5 marks)? The decision of the board to relieve Kleinfeld of his duties is mostly justified due to the fact that some of the transactions did take place in his tenure for which he was responsible and the company was facing heavy criticism from many quarters so it was a good decision to start afresh completely. The reasoning behind this decision portrays the determination of Siemens to convince the international market that it has a zero tolerance policy towards money laundering, fraud and the giving and taking of bribes. Yes, it is true that most of the damage had been done in the tenure of his predecessor, but by letting Kleinfeld continue it would give the impression to outsiders that the company was not really changing anything significantly, a point which had to be prioritized in the face of such a media disaster. This is a crucial step Siemens undertook to establish a precedent that turning a blind eye towards any unlawful acts within the company is as punishable a crime as committing the unlawful act. There was also the case that though Kleinfeld’s method were effective they were causing disharmony among senior members of the company so though the short term benefits of his tenure were great, they could have easily caused problems in the company had he continued in his post. He also sold the BenQ mobile division of the company which was the wise decision for the company but was criticized in the public because many Siemens employees lost their jobs as a result. As stated before, Kleinfeld’s tenure did have many positives with perhaps the greatest change being that he encouraged faster decision making and this aggressive style resulted in a quick restructuring of the company as well as the stock rising significantly (almost by 30%) during his 2 years incharge. He also channeled the company resources to focus on customer needs and drove the company forward with this strategy with key acquisitions such as those in medical diagnostics and wind power and a joint venture with Nokia to create one of the world’s biggest network firms. However, having said that it still seems like a logical decision to replace Kleinfeld because though he brought many benefits to the company, it is very much possible that he already did what he could and the rest of his tenure would not be as successful as he could potentially have caused disharmony within the company in his later years. Question 3: (10 marks) Critique the governance issues that arise from the German Co-Determination Law or Mitbestimmung (2 marks). Which ethical theories do apply the best to justify this code of conduct (3 marks)? Where has the problem raised in term of ethical theories (3 marks)? What are your recommendations to reform (2 marks)? The German Co-determination Law gives the employees of a certain company the right to make decisions on behalf of the company. The law is an example of extending management rights to the individuals who deal closely with the matters and affairs of the company, and ar aware of the operations of the firm. Not only does this give them a sense of belonging to the organization as a whole, but also dispels the Marxist notion that that there is a difference between the owners of a company and the ones who are responsible for the day to day operations. In spirit, the law aims to make the employees feel powerful within the context of the company, who do not see themselves as cogs of a machine. Despite the good intentions fo the German Co-determination Law, there are serious short comings that the Law fails to address or accommodate effectively. The two major problems that arise from the German Co-determination Law are that it can cause a conflict of interest due to its two tier nature and companies are increasingly finding loopholes in the law by getting incorporated in foreign countries. Both findings are very relevant in the current industry since this law was created a long time ago and has since become increasingly outdated with the dismissal of Kleinfeld and the shifting of other companies to countries where this law does not apply serving the as the perfect examples as to the problems arising due to the nature of this law. Utilitarianism and relative ethical theory are two theories that support this code of conduct as both theories encourage a more rigid structure and strategy as to how the company should be run which can be very clearly seen in the German Co-Determination Law or as it is known Mitbestimmung. The problem with ethical theories has arisen mostly due to changing times and increased competition. Due to increased competition, companies always have to find new ways of maximizing their profits and sometimes to achieve that, bypass some of the assumptions and responsibilities that are entrusted upon companies by these theories. Globalization has also had a massive hand with problems relating to ethical theories as it has become easier for companies to find loopholes. A few years ago it was unimaginable that companies would get themselves incorporated into other countries to bypass laws but with the concept of free trade numerous examples can now be seen and these are only the ones that have been confirmed to be conforming with malpractices. To reduce such events from occurring in the future, one of two steps should be taken; either the laws should be internationalized as much as possible with collaborations by different governments, meaning that regardless of what country a company is based in the same laws would apply so it would become harder for them to try to take advantage of situations, or to revise the current laws in a much increased frequency so as to keep up with the current industry. This step would cause inconveniences for both governments and companies alike, but with ever changing scenarios unveiling themselves on a constant basis, both parties should perhaps take more responsibility to avoid future malpractices as that is a scenario that is harmful for all involved. Read More