- Published: October 31, 2021
- Updated: October 31, 2021
- University / College: University of Chicago
- Level: Master's
- Language: English
- Downloads: 37
Summary of the case The case highlights Siemen’s illegal method of obtaining orders from using bribes and embezzling funds from Siemens to pay for the bribes. Siemens had built a highly organized and systematic method to embezzle funds including secret codes and setting up foreign bank accounts to establish slush funds. Siemens had spent approximately 200 million euros in bribes to get government contracts ranging from telecommunication to power generation. By 2007, investigation into the corruption began and top officials at Siemens stood trial. Some high level officials also left including the Chief compliance officer and chairman of the advisory board. In October 2008, Siemens was ordered to pay a fine amounting to $284 million and convicted of funneling money. Corruption had steeped throughout the organization and the announcement of the amnesty plan led to low level employees coming forward with crucial information.
By 2008, the head of the medical equipment division went on trial and the investigation expanded to include 270 former and current employees. There were various charges including the allegation that a former Siemens board member used Siemens money to support an employer friendly union to counter the Siemens worker union. By December 2008, Siemens agreed to pay a fine of $800 million to settle the charges and in July 2008, Siemens agreed to pay the World Bank $100 million for its role in bribing Russian officials.
What is the ethical issue? Why is this an ethical issue?
The ethical issue in this regard is the fact that Siemens used bribery as a method of obtaining contracts and bypassed the selection tests using money. This is unfair to other companies who competed for the same contracts using their merit and own abilities. It is against the free market policies and this practice gives an unfair advantage to Siemens. The culture of corruption had steeped through the company, from the top level executives to the lower level employees. There was a method to the corruption and this leads to Siemens becoming a company with absolutely no moral direction.
Moreover, the sheer magnitude of the corruption suggests that all members of the company felt that the corruption wasn’t really an issue. A company blinded by profits and willing to compromise on such basic morals, would also compromise on the quality of the service they provide. Besides, since the selection is not done on the basis of merit and the best company might not have been necessarily selected, the quality of the work might be compromised as well. The safety of the people using the services provided by Siemens would be compromised as a result.
Who is effected and how?
The segments which were affected include the competitors and the end users/general population. The unfair advantage that Siemens attains using these bribes leaves no room for healthy competition and growth. The competitors feel that their merit stands for nothing and hence they also resort to such underhanded techniques thereby perpetuating a culture of corruption. This affects the quality of the service they offer, the general competitive landscape becomes more hostile and not conducive to healthy business activities (As seen by the Siemens and Al Etisalat dealings).
The dealings of Siemens with the government officials also injected corruption on a governmental level. This corruption in the government itself has a direct impact on the general population and tax payers. If the government deals with such companies, they would also look the other way if substandard services were provided to them. At the end of the day, the general population or the users of those services would not get the best that they deserve after all the taxes they pay.
What leadership issues need to be addressed?
The organizational structure of the company means that at the end of the day, there is a high degree of autonomy in matters which should be standardized and thoroughly checked by multiple officials. When these loop holes were addressed, there was reluctance and resistance. The chief compliance officer in charge of standardizing procedures across the divisions left his job because he felt he was not given the freedom and authority he needed to fully conduct his job. So essentially, there needs to be a set hierarchy model in every division with checks and balances in place.
The top executives in Siemens were also involved in corruption which means that the leadership itself needs to change with a revamping of the company culture and values. The leadership of Siemens needs to have a greater span of control and needs to hire the right people in the crucial places which need a strong moral compass.