Siemens AG is a 160-year-old German engineering and electronics giant. It is one of Europe’s largest conglomerates, with profits in 2007 of €3.9 billion on revenue of

€72.4 billion, up €6 billion from its 2006 revenue. It has over 475,000 employees and operations worldwide. It had also developed a corrupt organizational culture in which hundreds of millions of euros were put into slush funds that were then used to pay bribes in order to obtain lucrative contracts. The following details have come to light:

• In November 2006 Siemens’ auditors, KPMG, completed a confidential report that detailed a number of payments that were impossible to verify. They could not identify who received the money or what services were provided. The suspicious payments, made from 2000 to 2006, totaled €1.3 billion (U.S.\($1.88\) billion).

At the time, the company said that senior executives were unaware of these payments.

• In January 2007, the company paid a

€418 million fine to the European Commission because the company was accused of heading a cartel that was dividing up the market for power station equipment. Siemens is challenging the fine.

• In October 2007, the company paid a

€201 million fine related to bribery in its communication equipment business.

A number of senior executives were also accused and subsequently convicted of making bribery payments, including the following:

• Andreas Kley, CFO of the powergenerating unit, was convicted (in May 2007) of channeling €6 million, from 1999 to 2002, to an Italian energy company to win gas turbine contracts. The judge also fined Siemens €38 million and required the company to forfeit the profit it made on the contract.

• Johannes Feldmayer, an executive board member, was convicted (in July 2008) of authorizing bribes to a labor union, the Association of Independent Employees, that was considered friendly to Siemens’

management. The payments, made between 2001 and 2005, were intended to offset the power of IG Metall, the German union that controls almost half of the seats on Siemens’ board of directors.

• Reinhard Siekaczek, a sales manager in the telecom division, was convicted (in July 2008) of building a slush fund system designed to make bribery payments.

The judge said that Siekaczek acted at the behest of his superiors and that he “was part of a system of organized irresponsibility that was implicitly condoned.”

Although they were never accused of any wrongdoing, in April 2007, both Klaus Kleinfeld, CEO, and Heinrich von Pierer, supervisory board chairman, resigned.

They were replaced, in July 2007, by an outsider, Peter Löscher, who came from drugmaker Merck & Company. As the new CEO, Löscher began to change the organizational structure and culture. Formerly, each line of business had a managing director and a separate managing board. This structure inhibited accountability and allowed corruption to spread. Löscher reorganized the company into three sectors—industry, energy, and health care—with each of these three managers sitting on the central managing board in Munich. He also adopted a zero-tolerance policy, delivering a message that corruption must end.

Questions:-

1. The senior executives at Siemens spent most of their working life in an environment that condoned bribery outside of Germany but not inside. However, they failed to take notice of the changes that Transparency International—
championed by a German who was embarrassed by the double standard of his countrymen—was proposing, and that ultimately resulted in a new worldwide antibribery regime.Why did they ignore the change?
2. If you were Löscher, the new CEO, how would you show the employees and external stakeholders that you actually have a zero-tolerance policy concerning corruption?