The Bribery Scandal at Siemens Ag

1. • In your opinion, is “bribing” unethical & illegal or just a cost of doing business? Discuss this in light of Siemens’ bribery scandal. We believe that bribing is unethical because it takes away the fairness of a business transaction between bidders of a contract. Bribing also has a negative impact on competition because it allows for oligopolies and monopolies to emerge in an industry due to smaller competitors being unable to financially compete with the amount of the bribes. This in turn  creates a barrier for entry for prospective companies and promotes the oligopoly or monopoly in place.

The lack of competition affects consumer choice by reducing their options which then stifles innovation within the industry as there is no need to generate a competitive advantage to attain customers. The legality of bribing depends on the laws of the home country that the business is based from. For example, Siemens is a German based business and German law states that bribing officials of another country to win business contracts is illegal. So, under German law, Siemens was guilty of bribing an official when it bribed employees of the Italian company Enel to gain a contract as Enel was 68% owned by the Italian government.

The counter-argument is that bribing is the cost of doing business. We disagree with this because the economic benefits gained from bribing are not outweighing the cost to a company’s reputation. As we see in this case, Siemens paid a 6 million euro bribe to secure a contract valued at 450 million euros which would seem like a cost of doing business for Andreas Kley and Horst Vigener but the legal and political cost almost triple the value of the contract in euros and a loss of reputation.

These executives were fortunate to escape imprisonment for the illegal actions that were committed. A company must avoid bribing government officials to win business contracts however they can ask their own government for some type of aid in the situation. We believe that having your home government involved in fostering or mediating the trade relationship with another company can potentially give better results than bribing. Siemens should have gone on a business trade mission with German officials to another country because trade missions can help form a relationship and are sources f contacts which are valuable tools to win business contracts. • What options do companies have to win business contracts without bribing, especially in foreign countries? Companies can use a combination of a number of alternatives to gain a business contract without violating the law. Internally, the organization can build a better product through investing money into research and development which would then provide them with a competitive advantage to entice other businesses to choose them over a competitor.

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Externally, the organization can (1) contribute to the host country, (2) use complementary relations, (3) establish the status as a market leader, (4) provide attractive business trade agreements, (5) offer outstanding business intelligence, and/or (6) differentiate service with quality contractors. Contributing to a host country would include assistance in a country’s development in terms of infrastructure, job generation, investments, and through imports. The use of complementary relations is a common practice in the business world.

An example would be the relationship between car manufacturers and host countries. For a foreign company to enter the Chinese auto market, they need to establish a joint venture agreement with a local car manufacturer. It is a policy that the Chinese government imposed to protect the local auto business from strong foreign competitors. (source cited http://factsanddetails. com/china. php? itemid=349&catid=9&subcatid=62 ) Establishing the status of a market leader is less risky for a company with strong sales and a promising market for its products.

This can be an advantage in securing a deal with a strong company status in the industry. Providing attractive business trade agreements by making bigger concessions when negotiating a deal can be a great way to win a business contract. By offering a larger bulk order discount or other forms of compensation such as a royalty after a set number of units sold. This shifts the bribe from an illegal under the table pocketed amount of cash to an above the board legal bonus contingent on performance.

Offering outstanding business intelligence skills is the ability to transfer organizational skills to better manage costs, strategies, and tactics in developing quality products and services in the foreign country. The transfer of these skills will most likely develop a long term relationship between the company and the foreign nation it operates in. In addition, companies value intelligent partners. With this in place, companies can stand out with this knowledge or expertise. 2. • Was the board right in not extending Kleinfeld’s term, especially in view of his over performance as a CEO?

The decision to refrain from extending Kleinfeld’s term was undoubtedly a difficult one for a number of reasons, however it was the right decision given the awkward circumstances surrounding his term  as CEO. The primary concern with this decision was that Kleinfeld had brought many benefits to Siemens in a short time. In just two years under his direction Siemens’ stock price shot up and there was a shift in the way the company did business as the importance of Siemens’ customers was stressed as equally important to their technology.

Kleinfeld’s drastic reform of the corporation, although disliked by some of the older fashioned managers, was visibly effective. This previous concern also sprouts another, by not extending Kleinfeld, Siemens would now have to find a replacement CEO; a task that would surely be difficult after the public backlash resulting from the scandal. However, despite both of those concerns the decision to neglect to extend him was made. One of the reasons is that although he was impressive in his short tenure, all of the successes of the corporation under his guidance are now questionable.

In other words, how much did the corrupt practices of bribery that Siemens was accused of impact the increased success of the company in that same time. This thought alone tainted the view of Kleinfeld’s time as the CEO. Even if Kleinfeld was truly fully ignorant to these corrupt practices, it does not absolve him because as the CEO it is his duty to be in full control of Siemens. He failed at clearly explaining to the entire corporation their code of conduct with regards to bribery and the consequences, therefore he is personally to be held responsible for the actions of his employees. It is for these easons that Siemens needed a clean slate if they were to reform their public image. If Kleinfeld had been retained then much of these beliefs would continue and it would have been harder still for Siemens to recover from such a devastating scandal. A new leader was needed to represent an ethical overhaul of the corporations code of conduct in order to effectively rebound from the backlash of the events. • What is likely to be the impact of his departure on the company? Kleinfield’s departure as a CEO from Siemens had an impact on the employees, the board of directors, the company’s revenues, and the intellectual property.

Kleinfied was very popular in the company and a charismatic leader to a number of young and proactive employees, there is a possibility that these employees to follow his departure. Also, because of the employees’ admiration of Kleinfield’s management style there is a possibility that these workers might regress to the old fashioned ways of doing things in the company. Another element in the company that was affected by Kleinfield’s departure was the board of directors. We know that Kleinfield did a major restructuring in Siemens, but didn’t create a good relationship with the supervisory board.

This potentially made him expendable when the corruption scandal hit, and opened the eyes of everyone on the board of directors to a new change in conduct and social responsibility. Moreover, as mentioned earlier, another way where Kleinfield’s departure might affect the revenues of the company would be in the future election of a new CEO. Given the bad reputation Siemens acquired, it stands to reason that they will have to overpay a new qualified person to become the CEO because that person will have to deal with resucing the company in the wake of this scandal.

Nevertheless, one of the biggest impacts of Kleinfield’s departure from the company is the loss of intellectual property. By losing a very efficient CEO, who transformed the company in a short period of time, Siemens lost a great asset that can also become a threat to the company if hired by a competitor. • Was Siemens really at fault or was it just unfortunate to have got caught given the perception that many companies have to resort to bribing to win contracts?

We believe Siemens was unfortunate to get caught but that it is also their fault. Firstly, we think it is unfortunate because there are many other companies that bribe in the world. Being one of the few companies caught bribing made Siemens’ situation unfortunate, but it didn’t exempt it from being the company’s fault. Since the company decided to bribe, they fully understood the consequences of getting caught. Compare this with a thief: just because all the other thieves are stealing, it does not mean robbing someone is without recourse.

In the end, because Siemens acted illegally by choosing to ignore its corporate social responsibility and by abiding the rules of the country, it is reasonable to recognize the company made a mistake by taking a poor risk and having it backfire. Work Cited Helen Deresky, International Management: Managing Across Borders and Cultures, 7th ed. (New Jersey: Prentice Hall, 2011), 61-71. Facts and Details. “Foreign Companies & Foreign Investment in China”. Last modified April, 2012. http://factsanddetails. com/china. php? itemid=349=9=62

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