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Summary of the Case
Siemens is a telecommunications company based in Munich, Germany but serves across the world. In 2006, the company was involved in a corruption scandal that led to approximately 2.6 billion euros in fines and penalties. There were investigations from international investigators and law firms. From the reports, it was found that 80% of senior employees serving as the chief executive officer (CEO), chief finance officer (CFO), and staff in human resource (HR) management were corrupt (CGMA, 2014). 70% of the next management level and 40% of the junior staff were also said to be corrupt (CGMA, 2014). It took the efforts of Peter Loscher 2007, who came as the CEO, to change the organizations culture.
Dozens of employees in Siemens then used bribes and embezzled millions of funds to win company contracts. From the investigations done, there was a massive corruption scandal that had altered the telecom units of the company to almost $128 million, as reported by the German Focus magazine in 2006 (Blanc et al., 2017). The reports showed more than 80 million euros in the bank accounts of executives in Greece and Austria. The money was said to be part of the slush fund used to give bribes to the contractors who placed bids on the security systems at the 2004 Olympic Games held in Athens (Blanc et al., 2017). Members of the board and other employees were nubbed and held in custody after police raided the offices in Munich, Germany.
The company faced charges from US authorities and German authorities due to bribery allegations. The giant engineering company parted with $800 million and an additional 395 million euros after pleading guilty to corruption charges. The reports indicated that the company had paid officials about 4,000 times to the extent of parting with 1.3 billion euros between 2000 and 2006, whereby the goal was to win contracts globally (Blanc et al., 2017). The US Securities and Exchange Commission (SEC) investigated the company in collaboration with the Department of Justice. According to the researchers, the record penalty levied in the US is 800 million dollars, almost 20 times more than any other foreign firm had come across in the US in corruption issues (Blanc et al., 2017). Three hundred ninety-five million euros paid to Germany was due to the lack of control in terms of business tasks (Vernand, 2018). The company faced tough as there was a fine of 201 million euros (Vernand, 2018). The money was levied against the German judges in 2007 for the misappropriation of the funds at the telecommunications group.
There were specific people mentioned as the key drivers for the corruption allegations. They include Thomas Ganswindt, the manager in charge of the telecoms division, and Johannes Feldmayer, a board member (CGMA, 2014). Heinrich von Pierer, the head of Siemens supervisions, and Klaus Kleinfield, the CEO, were also found to have grossly violated the companys monetary policies despite denying the investigators wrongdoings.
Ethical Violations Involved in the Case
The major ethical violation involved in this case was corruption. The reason is that corrupt officials showed a lack of integrity and transparency, which are requirements when holding such offices (CGMA, 2014). The issue undermined the democracy of the firm and eroded the economy in the market, as well as caused instability in terms of resources. It is against ethics to conspire to fraud a company for malicious gains, and therefore, the people involved deliberately organized to embezzle the funds contrary to the companys policies (Blanc et al., 2017). They also violated the need to have transparency and fairness in undertaking its activities while serving in their respective offices.
Siemens Response to the Recovery
The company made a raft of changes in the administration and the roles played by the key people serving in the giant engineering company. First, the companys CEO, Klaus Kleinfield, and the chairman Heinrich von Pierer resigned (CGMA, 2014). There was the appointment of Peter Loscher, who announced that employees were to come forward and testify against any charges. There were more than 40 informers who gave incriminating evidence, which led to the replacement of the previous board. Siemens appointed Michael Hershman, the co-founder of Transparency International, who came to advise hence, making a move as a leading anti-corruption expert (Blanc et al., 2017). The firm established strict regulations on anti-corruption whereby there were 500 full-time compliance officers to spearhead the recovery (Blanc et al., 2017). The new CEO led to training and education programs on anti-corruption for staff (CGMA, 2014). The company also started working with Interpol to assist in any required investigations.
Ethical Guidelines Implemented by Siemens
The company started training employees on avoiding corruption and being accountable for any resource. By 2008, Siemens had offered training to 0.4 million employees globally on anti-corruption matters (Vernand, 2018). In this case, Loscher ensured the commencement of complex matrices to streamline the companys financial divisions (CGMA, 2014). All finance officers were required to produce bank account statements and all the documents involved in transactions from that time. All employees were required to be head high in whatever departments they served to ensure no loopholes that enabled company funds loss (CGMA, 2014). Each staff was required to have a valid certificate from the ethics agencies showing that they had not participated in any fraud or misappropriation of funds.
Basic Principles of Ethics Related to the Case
- Trustworthiness- the CEO, CFO, and HR were not trustworthy since they conspired against Siemens to fraud its funds through bribery in securing lucrative foreign contracts.
- Respect- the companys officials failed to respect the terms and conditions and policies set against the misappropriation of resources.
- Responsibility- the employees lacked the responsibility to highlight corruption cases and scandals at the ground level, which led to a global escalation of the matter.
- Fairness- The company was fair in relieving duties for the members found guilty and replacing them with competent people who would recover the lost resources from the previous regime.
- Citizenship- Embezzling a multi-global company means economic and political instability ensued, thus, causing a state of scarcity and lack of developmental opportunities in countries where Siemens had reached operations.
Boundary Crossings and Violations
The boundary crossing in the case study is the deviation from normal operations that do not have embezzlement of resources, that which does not exploit the company and supports the companys objectives (Blanc et al., 2017). The boundary violation, in this case, was the bribery done to secure contracts using the companys money. The illegal exploitation of Siemens caused economic sanctions after the company was fined heavily by the US and Germany.
Recommended Model for the Ethical Dilemma
The appropriate model for solving this ethical dilemma would be the Rion model. In this model, people would ask why the situation bothers the normal working environment and whether or not the decision needs input from other parties (Robert, 2017). Through Rions framework, it is easy to know the specific problem to solve, and it calls for being true to the situation and getting options from the external parties watching from other perspectives (Robert, 2017). Therefore, the model would meticulously deal with the dilemma by making a decision that would be fair to the perpetrators of the rules as well as the company itself.
References
Blanc, R., Cho, C., Sopt, J., & Branco, M. (2017). Disclosure responses to a corruption scandal: The case of Siemens AG.Journal of Business Ethics, 156(2), 545-561. Web.
CGMA. (2014). Rethinking the value chain Ethical culture change at Siemens: a case study [PDF] (pp. 2-6). AWCPA. Web.
Robert, C. (2017). Theoretical models in identifying & resolving ethical dilemmas. Bizfluent. Web.
Vernand, B. (2018). Lessons from the Siemens corruption scandal ten years on. News24. Web.
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