The German based company Siemens AG bribery scandal rocked the business world. They were caught in corruption scandal for bribing employees of other companies for contracts. Siemens agreed to pay €1 billion towards settlement of corruption charges $800 million of which was a fine imposed by the U.S. in addition… Read More
The German based company Siemens AG bribery scandal rocked the business world. They were caught in corruption scandal for bribing employees of other companies for contracts. Siemens agreed to pay €1 billion towards settlement of corruption charges $800 million of which was a fine imposed by the U.S. in addition to the billions of euro paid in fines, back taxes and late interest.
Officials in Germany convicted two former managers of the company of bribing employees at an Italian energy firm. The mangers admitted the bribery but defended themselves on the basis that it was not for personal gain and could be considered standard business practice in some countries where they did business. Siemens former managers believed not only had they done nothing wrong because they did not do it for personal reasons it was standard practice for some companies abroad to require such bribes as a part of doing business. Siemens was also accused of bribery in 2006 involving foreign officials. They were accused by IG Metall of bribing a union. Several other countries accused Siemens of misconduct including Switzerland and Greece. Volkswagen AG, Duetusche Telecom AG, Duetsche Bahn AG, and Deutche Post AG unethical business practices in Germany were exposed during the same time frame. Several of the corruption scandals involved bribing labor representatives on German companies boards so it was wondered if the German Co-determination law or Mitbestimmug was flawed.
In examining the scandal, Bharath Krishna under Rajjiv Fernando’s direction at ICMR Center for Management Research used over 50 widely known and highly credible sources. He explains how court cases were brought against numerous people and companies involved in the different scandals and they were either convicted or admitted their guilt. In May of 2007 two former managers at Siemens AG were convicted by German courts for “diverting the company’s money to bribe employees of Enel SpA, an Italian company”. These two admitted their guilt but claimed they did nothing wrong because they did not take the money for themselves and it was considered standard business practice in the countries abroad where they routinely practiced these types of techniques in contract negotiation.
Siemens was also accused of the bribery of foreign officials in 2006 involving slush funds. In November, offices of Siemens and private homes were raided by German officials looking for evidence of bribery, embezzlement, and tax evasion. Five employees were arrested. The company admitted certain company employees were engaged in fraudulent behavior and began estimating damages. A former board member was arrested.
IG Metall also accused them of attempted bribery of a small union to get support for their policies in February of 2007.
According to the state department,
“The U.S. has undertaken a multifaceted effort to combat bribery in international business transactions because it distorts national economies, particularly those of developing countries, by diverting scarce resources; undermines the creation and legitimacy of democratically accountable institutions; and unfairly disadvantages companies which, because of legal constraints or corporate practice, refuse to pay bribes. While anti-bribery initiatives are underway in the Organization for Economic Co-operation and Development (OECD), the Organizations of American States (OAS) and international financial institutions, the challenge is to secure full implementation of these core initiatives and devise an action place for expanding these initiatives.
The U.S. State Department is playing a leading role in a broad interagency effort to eliminate bribery in international business transactions. Most countries have laws against bribery of their own officials, but only a few, including the U.S., have laws prohibiting its nationals and corporations from bribing foreign officials.” http://library.findlaw.com/1997/Mar/6/131394.html
With the lack of laws preventing the practice in the country I think can be very difficult for the company to justify refusing to participate if it is standard practice for the business being conducted in the country in which they are conducting operations. In my opinion it could effect the competitiveness of the home company while increasing advantage for other firms who do participate in the practice. I also think the legal department would be unable to justify suggesting refusing to participate in the palm greasing since it is a practice not beyond the law where they were doing business.
During the same time frame numerous other German companies like Deutsche Telekom AG, Deutsche Bahn AG, Deutsche Post AG were also being accused of bribery. A senior executive at Volkswagen AG was convicted and fined €576,000 for bribing labor representatives with foreign trips, money and prostitutes. He also received a suspended jail term. This concerned analysts as they were beginning to believe that the co-determination laws were flawed.
According to Rebecca Page at Hans Bockler Shifttung, “The word “co-determination”, or “Mitbestimmung” in German, is commonly heard outside of Germany but it’s actual meaning is often unclear. What it actually refers to, is a concept for employee consultation and participation (in certain cases) in company decisions at both establishment and company/group level within private sector companies in Germany. This co-determination concept has a long history – dating back originally to the 1920s – and is today regulated by a number of detailed laws.”
She quotes the Federal Ministry for Employment & Social Order: listing the Objectives of Co-Determination as
1) Equality of Capital and Work
Behind this objective lies the legal claim to co-determination at establishment level (§ 2 Works ConstitutionAct), which, as opposed to the occasional obligingness of the employer, is inalienable and requires companies
not only to consider the interests of the shareholders but also those of the employees.
2) Democracy in the Economy
It is not just about transferring parliamentary forms of democracy but more importantly it’s about theprinciple of democracy and the resolving of conflicts not by force but through dialogue and co-decision.
3) Social Development
Through a better consideration of employees‘ interests when making establishment and company decisions, co-determination contributes to the improvement of working people’s living and working conditions.
4) Control of Economic Power
Where economic power masses together, control is an important instrument in avoiding its misuse. Whether participating in company decisions or contributing on company matters, the principle is the same in every case: co-determination means co-responsibility. In works councils and supervisory boards the employees, just like the employer, need to keep an eye on the long term development of the company. This is why all of the laws on co-determination are directed towards enabling fruitful co-operation between both sides and creating a productive balance of interests. When seen this way, co-determination is an important factor in the stabilization of our economic and social order.
(Source: Federal Ministry for Employment & Social Order: “Mitbestimmung. Unternehmensmitbestimmung
& Betriebsmitbestimmung”, Jan 1995. Pages 5 – 8. Translation)
Given the scandals of the time it is no wonder that analysts were concerned. I agree with the author of our case study when they claim “This led to a suspicious alliance between the management and the labor representatives, which could never set a stage for proper discussions during the board meetings.” They state that “The presence of workers on the boards sometimes forced a situation wherein the main issues were discussed and agreed upon even before the meeting.” I can see not only how this could happen but why it almost had to. After all, can you imagine here in the US trying to run any type of meeting with all three parties and coming to any kind of consensus.
Many companies must deal with the pressures of doing business in a legal environment unfamiliar to their representatives when they do business internationally which is what I think is at the heart of this case. This is because they do not know the laws in the country they are establishing the abroad base in or slipped back into the business practices they are more familiar with and have assumed will continue to be ok. They could be unfamiliar with the culture of the new environment or unable to adapt. It could be very difficult to make someone who has a different culture behave the way you think they should and vice versus. How do you handle the differences in ethics, values and legalities of the different countries you operate in? Do you remain with the laws you are sure about or try to operate under the more unfamiliar law of the country you are doing business in and what if it is more than one country? It be difficult to determine the best course for the company to take when dealing with a difference of culture and ethics abroad. Should you operate within the confines of the ethics, values and laws of the country you are in or the country you are from? What if those values are significantly different and the bottom line shows that it is better for the shareholders to do business at a legal level in the country you are in? Is it then ethical to do business in that manner? Is it ethical not to? Should their be some type of overall governing agency that legislates all international business. It could be best to remain on familiar ground and continue to operate within the culture and legalities that your firm is familiar with and argue that you were doing business in the manner that was legal in the country you were based in and should only be held to those standards but I don’t see that going over too well with the officials in the country whose borders you are you are operating within that expect their laws and customs be obeyed. The firm could operate within the confines of the country they are doing business in and expect that as long as they hold to the standards of the country the are operating in there will be no violations. In my opinion the best solution would be to set up some kind of international governing body and require that all business operate within those basic international standards so that all parties involved know what is allowed and expected and what is not thereby taking the unknowns out of the equation and equalizing the playing field for all concerned. Read Less
