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Copy of Case Study 1 - Siemens Bribery Scandal
Transcript of Copy of Case Study 1 - Siemens Bribery Scandal
Bribery as a business strategy
Established in 1853 by Werner Von Siemens and Johann Georg Halske
Expanded quickly and was faced with the rebuild of the entire company at the end of WWII
Established itself in the American economy, by acquiring Westinghouse's Fossil power plant and in 2001 established a name in the NY stock exchange
Was represented in 190 countries and reached 400,000 employees
Slush Funds Leave A Mess
Busted on November 15th, 2002 and 5 Siemens employees were taken into custody
Bribes were reported in Italy, Puerto Rico, Greece and several other countries
Bribes were paid out to labor union representatives
German court ordered Siemens to pay 38 million Euros
The Problems/ Issues
Corruption in corruption
Before 1999, bribery of foreign officials was not illegal in Germany and bribes could be deducted as business expense under the German tax code.
When the german law changed in 1999, Siemens carried on as before, placed mechanisms to hide what it was doing.
Bangladesh(2004):$5 million to the son of prime minister to win a mobile phone contract.
Nigeria(2001-05):$12.7 million to various officials to win government telecommunications contracts.
China(2002-09):$14 million to government officials to win a contract to supply medical equipments.
Impact of corruption on competition, society and Siemens financial position
Frustrated competitors who were shut out of contracts and had to exit the market.
Series of lawsuits against Siemens.
Total cost of settling corruption scandal lawsuits as of December 2008:Euro 2.5 bn, including Euro 850 mn in lawyers' and accountants' fees.
The Possible Solution
Internal Control Procedures
- Analyzing communication throughout the company network
- Creating a system that allows full visibility through the company
- Causing a feeling of "being watched" among employees
- Implementing an internal (anonymous) whistle blowing system
- Conducting internal audits focusing on ethical practices
Media Management Techniques
- placing the company in positive media coverage
- communicate open and transparently to the public
- publish detailed financial reports
- sponsoring events
- facilitate global ethical business partnerships
Business Continuity Procedures
- strict enforcement of the
Code of Conduct
- raise awareness among employees regarding unethical behavior and legal consequences
- build on lessons learned from past events
Independent external audits
conducting independent external audits for reliable results and high transparency
- external audit reports increase trust among shareholders
Corporate governance system in Siemens is now a two-tier board structure; Managing board and Supervisory board.
The company cleared house, replacing 80% of its top-tier executives, 70% of the 2nd tier and 40% of its 3rd tier. It always had a strategy of megatrends, in which Siemens organized its business to take advantage of broad changes occurring in the world;globalization,for one, and the aging population, which calls for a focus on healthcare and diagnostics. Adding Environmental portfolio in 2008.
Siemens is #1 in Dow Jones sustainability index, Awards from RobecoSAM as the most sustainable company within its sector 'diversified industrials' and for the 1st time 'supersector leader'.
In fiscal 2012 Siemens environmental portfolio generated Euro 33.2 bn in revenue-42% of company's TR and then helped customers save energy cost and 332 mn tons of CO2 emissions.
Siemens is one of the worlds largest supplier of eco-friendly technology.
Post scandal scenario
Why is Ethics so important?
Keeping up the reputation of the company.
Maintaining relationships with businesses and customers.
Maintaining standards and employee morale.
Staying away from legal problems and battles.
In concept, business ethics is the
applied ethics discipline that addresses the moral features of commercial activity.
The corporate governance represents the value
framework, the ethical framework and the moral framework under which business decisions are taken.
A corporate stakeholder can affect or be
affected by the actions of a business as a whole.
Comparison of business ethical traditions
Issues arising out of international business transactions
Varying global standards
Advantage of international differences
International commerce with parish states