Contents

Siemens’ Scandal.........................................................................................................................................2
Social Impacts of Siemens Scandal..............................................................................................................2
Siemens’ Solutions.......................................................................................................................................3
Reforming Interventions..............................................................................................................................4
Conclusion and Recommendations.............................................................................................................5
 Siemens’ Scandal
In November 2006, the German authorities revealed Siemens’ massive corruption scandal. For
about 7 years, the company had used illegal funds to pay bribes of about 1.3 billion Euros in
provisions form. The bribes were paid to lower level governments’ offices, business partners and
to also to the whole governments; the bribes were paid by around 300 employees. In order to
keep things private, the people involved in these transactions were awarded generous payoffs
when leaving the firm. The Siemens bribery scandal is the greatest in German history and it
caused damages of about 1.6 billion Euros (Stephen & Greyser. 2009). The company paid some
employees to spy on the trade union representatives. Members of the AUB were also given
payoffs for about 20 years, which were in the form of luxury excursions and direct bribes among
others. AUB is an organization of employer-friendly labour representatives which are opposed to
the labour union representatives (Onkvisit & Shaw, 2009,89). In 2006, the former AUB
chairman faced allegation on tax dodging, breach of trust and influencing the elections of the
representatives of workers.

Social Impacts of Siemens Scandal

Siemens was ashamed by the scandal, not just before the angry investors and
shareholders but also the citizens of Germany. In addition, most employees felt humiliated. The
company’s’ trustworthiness was greatly scrutinized; its integrity was questioned and also the act
of the management to tolerate the said practices. The basic competence of the board was
questioned by a leading shareholders group for how it handled the affair (Bribery, Corruption,
and the Foreign Corrupt Practices Act 2011, 15).
The top managers of Siemens had their business, and personal reputation destroyed and
also their social standing due to the scandals. They all risked civil and criminal prosecution
which could lead to imprisonment or bankruptcy (Stephen & Greyser, 2009, 90). The board
members were also negligent since they failed to provide sufficient oversight, thus harming the
interests of investors and the public in general. Institutional and individual investors lost huge
amounts of their money the statements of financial performance were misleading through
inappropriate accounting practices. The government also suffered since there was a violation of
the political tradition of Germany of chartering corporations that serve the public. The managers
of Siemens abused their power to benefit some wealthy elites harming the public in a place
where there was no economic-democratic protection. In the short run, Siemens received
numerous benefits but they unfortunately lost their client base and professional credibility.
However, the company was determined to face the truth and this helped it to recover quickly.
The damage faced by the company was as the result of lack of management integrity and
responsibility. Understanding these lapses gives a structured way of addressing the moral roots
of the current remedies of stakeholders and reduces the future likelihood of such scandals
(Giroux, 2013, 100). Although Siemens delayed to respond fully, many experts in anticorruption
and ethics departments like the ‘Organization for Economic Cooperation and Development’
(OECD), and the U.S. Federal authorities, appreciated it. The response seemed to be instructive
as it was ableto analyze the effect of every intervention on the employees’ external reputation
and internal trust.

Siemens’ Solutions
Siemens started their internal inquiry when there were four international investigations, Siemens
began their internal inquiry. Their objective was to have a system that will detect and prevent
any illegal and unethical practices and be an example to other companies on how to correctly
manage a business. The company appointed Debevoise & Plimpton, a law firm based in
New York to conduct an internal investigation. Some managers were alienated from the
investigation; however, the rigorous investigations convinced most sceptics in the firm of the
reforms pressing urgency; its thoroughness was a tangible display of integrity and ability.
However, this diagnosis was restated internally until a year later when the most serious
revelations were known. The company appointed a new CEO who gave employees a one-month
amnesty to come forward, with the exception of former directors. As additional evidence was
corrected the previous management board was held responsible for the scandal. One factor that
contributed to the scandal was the company’s growth strategy which made managers pay bribes,
to reach the performance target easily. In addition, the company had a structure which was
complex and decentralized; this allowed divisions to run themselves effectively, with the
headquarter having minimal oversight. The set processes on balances, checks and accountability
made it easy for the payments to be done. Some people however argued that the corporate
culture of the firm appeared to tolerate the activities, making staff feel that bribes were both
encouraged and acceptable; this made them to be complicit in the deceit. At the time of the
scandal, giving and taking bribes was commonly practiced in Germany and could also be
deducted against tax.

Reforming Interventions
Ogunyemi, suggest that Siemens was faced with the challenge of creating a culture where
managers will not be tempted by easy and illegal behaviors. In order to set new processes and
rules on anticorruption and compliance in the global business, an advisor was appointed by the
company to help in the set up. They were designed to affirm the elements that constitute the
trustworthy of a business and put in place constraints on the operating procedures. The design
included a global compliance programme aimed at preventing, detecting and
responding. The company hired more than 500 compliance officers to control for the trustworthy
conduct. Consultants’ requirements on relationships were strict, and Siemens introduced
compliance hotlines and help desks. A web portal was created in order for every employee to
evaluate the risk while interacting with clients and suppliers (Georgiev, 2009). The objective of
these interventions was to shape the integrity of employees through their ability improvements,
with a fair treatment of any potentially compromised employee who came forward. The company
enacted new processes, procedures and people, but according to Giroux, (2013, 67), this does not
bring any difference without a change of culture. Thus, Siemens ’employees underwent a
training programme where they were educated on anti-corruption practices. In 2008, the
company had trained about half of its employees globally on anticorruption issues, through the
format of a classroom or web-based courses. Siemens also stopped doing business with countries
like Sudan which are known for unethical and corruption practice. In addition, the company
discontinued their World Bank funding application for 2years. A fifteen-year programme
agreement was created by the World Bank and Siemens which bided Siemens to pay $100
million to any NGO that was fighting corruption. The company has taken more than 900 internal
disciplinary actions, which include dismals (Ogunyemi, 2013, 108). According to Albrecht,
Thompson & Hoopes, (2011, 589), the company’s CEO ensured great performance with highest
ethical practices. He also changed the interventions that were formerly used by replacing the
complex matrix culture to a more streamlined structure which had only three divisions. In order
to ensure good communication between managers and direct reports, he called for high
transparency level, responsible management and maximum speed.

Conclusion and Recommendations

A failure of responsible management takes several years to be resolved, and can be very costly
and debilitating. It implies that it is essential to invest proactively in implementing an
organizational system that support and encourage conducts that are trustworthy. A system like
this cannot rely on structures, procedures and rules alone, but should also consider the
company’s norms and cultural values that guide the managers’ behaviors and decision making on
a daily basis. Just like dealing with procedures or structures that are deficient, removing cultural
practices and values that are deviant is important for organizational resilience against responsible
management failures. To dismiss developing scandals is considered as incompetent and self-
serving, it also tends to violate further the trust compounding the previous problem. The
best action is to acknowledge the alleged accusations and share the available facts and then the
company should then start an independent and urgent inquiry (Giroux, 2013, 46). To repair the
damages caused, Siemens required a deep overhaul of the culture of the organization, this
received resistant due to the threat coming from the trust repair response and failure. Therefore,
the objective of a company’s should be to embrace ethical values into the company’s daily
activities and also prevent management failures in the future. The case study of Siemens
demonstrates management failure and how it can strengthen the reputation of the organization
beyond its previous state of failure. An organization is often motivated by a crisis which provides
a necessary and strong impetus for major changes. It also unleashes resource sand other ways of
thinking that are considered to be difficult to leverage in normal circumstances.