'Case Analysis: the Bribery Scandal at Siemens AG\r'

'The cod south transplant dirtization brought to light a strategic dilemma set about multi-national firms attempting to gain a competitive edge by run abroad; specifically, how can they counterweight chemical bond to their own ethical and legal standards with the customs unavoid adequate to do course efficiently, or perhaps at all, in foreign markets? Germany’s Co-Determination law has depravityce cadaverous intense criticism as hampering competitiveness and creating untenable situations for manner, rife with conflict-of-interest issues, non nevertheless because of second, but too because of the number of former(a) German-based companies accused of bribing labor total representatives.\r\nThe forced resignation of CEO, Klaus Kleinfeld, despite the resulting success during his tenure, illustrates the plight international managers face with regard to conflicting practicable methods, and leads us to larger questions about accountability within an organizatio n. As the discipline study pen states, the randomness soil is representative of what many firms cogitate is the essential â€Å"ethical cost of intense competition in global markets”, factoricularly emerging markets, where payments for contracts argon depict as parking area place and perhaps even so required. ?Perhaps the most glaringly problematic musing remains that the southward AG vizor management claims that they failed to notice rampant, and arguably conspicuous embezzlement stellar(a) to lucrative foreign contracts.\r\nAre there flaws in the German System of Corporate G everyplacenance? The 2007 scandal resulting in charges against Siemens’ captain of Information Technology, Johannes Feld mayer, and Chief of Finance, Karl-Hermann Baumann, was rooted in illegal payments designed to make water around German corporate governance laws. In this instance, IG Metall complained that Siemens was illegally funding smaller, tally union, AUB, in an attem pt to grow and cultivate it as an ally against IG Metall in the bargaining process.\r\nThis scandal marked the beginning of the unearthing of unethical behaviors in another(prenominal) German-based firms that comport since lead to criticism that the Co-Determination law is superannuated and hampers competitiveness. The Co-Determination law was designed to provide a apparatus for worker participation in management decision-making via a two-tiered system with a supervisory tabular array having perplexity of the management board. Critics, however, argue that the law, in fact, limits the management board’s ability to make strategic decisions callable to the control exerted by labor holding 50% of the seats on the supervisory board.\r\nI assent with the author’s statement that this creates, â€Å"a singular alliance between the management and the labor representatives”. The give the sack result was often agreements made anterior to the formalized meetings to facilitate outcomes favorable to management. Although the law was meant to find balance to the corporate governance structure, I would argue that the say-so for corruption of the labor representatives, or on the other end of the spectrum, obstruction of the management board, has a destabilizing outlet likely to manifest in uncertain and impaired partnerships, such as was the case with Siemens.\r\nAnother part of the Co-Determination law prevents selection of supervisory board members who ar non-German, regardless of the expertise or perspective they could pack to the table. Naturally, the result is a limited, often recurring, and potentially like-minded pool of candidates, which the author points out, may ingest contributed to the expel of Kleinfeld. The facts presented indicate that the lion’s share of the bribery scandal took place under Heinrich von Pierer, who was the CEO from 1992 until 2005, and the supervisory board chairman from 2005 to 2007.\r\nKleinfe ld took over in 2005 and, within a period of only two classs, had carry through a remarkable and profitable restructuring, as certify by a 26% increase in the stock price. This was not without growing pains, however, as it is speculated that Kleinfeld’s aggressive management style, often described as â€Å"American”, did not meet with the approval of the more(prenominal) conservative supervisory board. As such, analysts opined that the bribery scandal was used as an opportunity to remove Kleinfeld, citing the point for a â€Å"new beginning”.\r\nI agree that this is likely the case. The growth under Kleinfeld was impressive, particularly given(p) the timeframe. Furthermore, the timing of the actual instances of bribery put them straightfor contenddly during von Pierer’s tenure as CEO; and he had already stepped down from the supervisory board. Nevertheless, under the indicant granted by the Co-Determination law, the supervisory board opted to bri ng in a new CEO, Peter Loescher, indicating, in my opinion, that its issue with Kleinfeld was not performance based.\r\nWhy such Risky note? The history of Siemens AG paints a picture of a successful and arguably dominant multi-national firm, with a reputation for a war chest of competencies and innovative products. The obvious question, then, is why would a firm with this resume and list of global achievements survive involved with corruption and sorry behavior? The author recounts the opinions of analysts who believe the answer is simple; many firms put one across the types of payments at the heart of the Siemens scandal to be the unavoidable cost of doing business in the contemporary global environment. At first glance, the facts of this case may seem to support this theory.\r\nThere were €420 million of questionable payments made over a seven year period from 1999 to 2006. Official Siemens records showed the payments as having gone(p) to external consultants. It wa s determined, however, that they were actually paid to foreign buy officials and that the expenditures coincided with the procurement of â€Å"fixed line telecommunications business in various international markets”, including Italy, Puerto Rico, Greece, and the United States. By shew of 2007, two former Siemens managers were convicted of embezzlement of phoner funds for the purpose of bribing foreign officials.\r\nThe employees argued that their actions did not conk out any laws, resulted in no personal gain, and were taken solely for the purpose of improving Siemens’ statusing. They argued that they worked, only to secure a lucrative deal in which the payments were required by Enel management as part of the standard bid process. In fact, Siemens AG argued that the court order requiring forfeiture of earnings from the contract, prior to 2002 when the German government instituted a law prohibiting bribes to hole-and-corner(a) officials abroad, specifically, had no basis in law.\r\nAs antecedently 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 technological innovation has given way to a focus on unfettered expansion, and the stirred duplication of the monopolistic type control over infrastructure in developing countries that was enjoyed during previous decades in other parts of the now industrialized world.\r\nIf Siemens had bolstered their technologically competitive force, they would not guide to believe so heavily on their financial strength to gain entry into markets. Is this the New Cost of Doing Business? The fact that Siemens top management sustain to take the official position that, despite the scope, depth, and intricacies of the bribery scandal, they had no experience of it rem ains difficult to explain. Further, they take no responsibility, save acknowledgement that they lacked adequate intragroup compliance systems.\r\nI find the truthfulness of this position to be of remote possibility due to the conspicuousness and order of the payments, as well as their direct correlational statistics with the securing of highly lucrative contracts. Moreover, the idea that entire sections of Siemens’ managers were of the character that they would be comfortable blatantly committing criminal acts for the sole social welfare of their employer, but not themselves, I find to be quite counter-intuitive.\r\nThe debate over whether events such as those unearthed at Siemens are part of the usual and customary cost of doing business abroad must 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 firmâ€℠¢s fundament 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.\r\nWhether or not it is illegal, however, depends upon the laws in the countries the firm is operating in. I could conceive of a situation where a firm could distribute cash â€Å"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 incorruptible 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.\r\nA firm could alike exercise patience, and restraint, and be willing to walk by from markets requiring participation in corrupt processes. The Kleinfeld Conclusion. The Siemens AG supervisory board did provide adequate exculpation for the decision not to renew Kleinfeld’s contract, due to the scandals breaking during his time as CEO; yet, I believe that they were wrong in doing so in light of his track record of impressive and timeserving accomplishments. Though his termination clearly pleased the board, unless Mr. Loescher is able to maintain the growth trajectory set by Kleinfeld, I believe his departure will not inspire confidence from management or shareholders. This is of charge because confidence has a direct impact on value, which could make it harder to move beyond the bribery scandal. Was it expense 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?\r\nIt is my opinion that the magnitude of the â€Å"bribing” which took plac e at Siemens made it highly unlikely that knowledge of it would stay buried. I believe Siemens had to have anticipated this, hence the buffer between top management and the â€Å"bribers”. I believe they made a calculated business decision that whatever the publication may ultimately be, it was a greater benefit to get a foot hold in the infrastructure of those markets. In short, yes, Siemens is to blame, and yes, they are all right with it.\r\n'