This case discusses the bribery scandals that were unearthed at Siemens AG (Siemens) in 2006 and 2007. These scandals involved some of the company's employees bribing foreign officials to gain contracts and creating slush funds for this purpose. In another case, the company was accused of bribing labor representatives on the supervisory board in order to gain their support for its policies. After the German authorities conducted raids on Siemens' offices in Germany, investigations were initiated on Siemens in several other countries like the US, Greece, Italy and Switzerland for possible misconduct. As a fallout of this scandal, the CEO of the company and the chairman of the supervisory board had to resign, even though they were not directly implicated, as the scandals had occurred during their tenure.
With bribery scandals surfacing in Siemens and many other German companies like Volkswagen, questions were also raised about the effectiveness of the co-determination law in Germany, which advocated a system where in a supervisory board governed the management board and at least half the supervisory board seats had to be filled by labor representatives. Critics contented that in such a system, the management always needed the labor representatives' support for company policies, which could lead to a suspicious alliance between them. The case also highlights the opinions of several analysts on the issues related to bribing by the German companies and Siemens in particular and the challenges the new CEO is likely to face at Siemens.
TEACHING OBJECTIVES
This case will help the students to:
- Understand the impact of the bribery scandals unearthed at Siemens AG on the company and the economic climate in Germany.
- Analyze the steps taken by Siemens AG to prevent such incidents in future.
- Discuss the role of the co-determination law in the bribery scandals that surfaced in German companies.
The case is meant for Undergraduate International Business Students, or MBA/ MS students as a part of the Business Ethics / Corporate Governance curriculum.
TEACHING APPROACH AND STRATEGY
The case gives detailed information on the nature of the bribery scandals at Siemens, the repercussions of the scandals on the company and the steps taken by the company to come out of the crisis and prevent such incidents from occurring in the future. The students can be given a pre-classroom assignment wherein they may go through the case and list down the main points of the case that need to be discussed in the classroom. The additional readings and references given at the end of the teaching note will help the students to get a basic idea about different perspectives of the bribery scandals.
For classroom discussion, the teacher/ moderator can start by describing the background of Siemens and the bribery scandals which involved some of the company's officials. The teacher can give a brief account of the criticisms related to the co-determination law in Germany, its background and the bribery scandals that surfaced in other German companies. The teacher can also divide the class into five or six groups to ensure thorough discussion among students on the issues and the questions related to the case. The analysis of the case and questions for discussion can be presented by each of the groups, followed by an interactive session. In the end, the teacher can conclude the discussion with a summary of the highlights of the case and important points missed out by the students, if any.
QUESTIONS FOR DISCUSSION
1. Is 'bribing' unethical and illegal or just a cost of doing business as assumed by some companies? Discuss this in the light of bribery scandals at Siemens. What options do companies have to win business contracts without bribing, especially in foreign countries?
2. Was the board right in not extending Kleinfeld's term even though he had performed well as CEO and was not implicated in the scandals directly? What is the likely impact of his departure on the company? Was Siemens really at fault or was it just unfortunate to have got caught since many other companies bribed for contracts the same way it did?
Notes: Student may use the following references to get more information about the case study.
FEEDBACK
The case discussion began with the moderator giving a brief overview of the background of Siemens and the bribery scandals that were unearthed in the company. The moderator also briefly highlighted the fallout of these scandals, the corrective measures taken up by the company, and the opinions of analysts on the corporate practices of German companies and Siemens in particular.
The participants discussed the following issues:
• Most participants wondered how the top management of Siemens was unaware of the bribery payments being made over such a long time period (7 years) and how these practices had gone unnoticed by the internal auditors. Also the payments were very high and they should not have escaped their notice during the auditing process.
• Siemens was trying to attribute the bribery scandals to individual employees. However, given the realistic situation in most countries, bribery is a necessary evil of doing business.
• KPMG had been the independent auditor for the company, which failed to detect the bribery payments and slush funds for such a long time. Even then Siemens continuing with the same auditor. This raises questions about the company's business practices.
• Bribing labor representatives to get the company policies endorsed by them is something that could happen only at the top level. Hence top management's ignorance may seem unlikely.
• Participants were divided on whether the board had made a correct decision to not extend Kleinfeld's term. The company may have wanted to signal a change in leadership to break away from the past.
• Governments have the responsibility to direct companies to enforce strict compliance systems.