The Bribery Scandal at Siemens AG

Updated: September 07, 2010

In examining the scandal, Bharath Krishna under Rajjiv Fernando's direction at ICMR Center for Management Research used over 50 widely known and highly credible sources. He explains how court cases were brought against numerous people and companies involved in the different scandals and they were either convicted or admitted their guilt. In May of 2007 two former managers at Siemens AG were convicted by German courts for "diverting the company's money to bribe employees of Enel SpA, an Italian company". These two admitted their guilt but claimed they did nothing wrong because they did not take the money for themselves and it was considered standard business practice in the countries abroad where they routinely practiced these types of techniques in contract negotiation.

The company admitted certain company employees were engaged in fraudulent behavior and began estimating damages. A former board member was arrested.

IG Metall also accused them of attempted bribery of a small union to get support for their policies in February of 2007.

According to the state department,

"The U.S. has undertaken a multifaceted effort to combat bribery in international business transactions because it distorts national economies, particularly those of developing countries, by diverting scarce resources; undermines the creation and legitimacy of democratically accountable institutions; and unfairly disadvantages companies which, because of legal constraints or corporate practice, refuse to pay bribes. While anti-bribery initiatives are underway in the Organization for Economic Co-operation and Development (OECD), the Organizations of American States (OAS) and international financial institutions, the challenge is to secure full implementation of these core initiatives and devise an action place for expanding these initiatives.

The U.S. State Department is playing a leading role in a broad inter-agency effort to eliminate bribery in international business transactions. Most countries have laws against bribery of their own officials, but only a few, including the U.S., have laws prohibiting its nationals and corporations from bribing foreign officials."

During the same time frame numerous other German companies like Deutsche Telekom AG, Deutsche Bahn AG, Deutsche Post AG were also being accused of bribery. A senior executive at Volkswagen AG was convicted and fined €576,000 for bribing labor representatives with foreign trips, money and prostitutes. He also received a suspended jail term. This concerned analysts as they were beginning to believe that the co-determination laws were flawed.

According to Rebecca Page at Hans Bockler Shifttung, "The word "co-determination", or "Mitbestimmung" in German, is commonly heard outside of Germany but it's actual meaning is often unclear. What it actually refers to, is a concept for employee consultation and participation (in certain cases) in company decisions at both establishment and company/group level within private sector companies in Germany. This co-determination concept has a long history - dating back originally to the 1920s - and is today regulated by a number of detailed laws."

She quotes the Federal Ministry for Employment & Social Order: listing the Objectives of Co-Determination as:

1) Equality of Capital and Work

Behind this objective lies the legal claim to co-determination at establishment level (§ 2 Works Constitution Act), which, as opposed to the occasional obligingness of the employer, is inalienable and requires companies not only to consider the interests of the shareholders but also those of the employees.

2) Democracy in the Economy

It is not just about transferring parliamentary forms of democracy but more importantly it's about the principle of democracy and the resolving of conflicts not by force but through dialogue and co-decision.

3) Social Development

Through a better consideration of employees‘ interests when making establishment and company decisions,co-determination contributes to the improvement of working people's living and working conditions.

4) Control of Economic Power

Where economic power masses together, control is an important instrument in avoiding its misuse. Whether participating in company decisions or contributing on company matters, the principle is the same in every case: co-determination means co-responsibility. In works councils and supervisory boards the employees, just like the employer, need to keep an eye on the long term development of the company. This is why all of the laws on co-determination are directed towards enabling fruitful co-operation between both sides and creating a productive balance of interests. When seen this way, co-determination is an important factor in the stabilisation of our economic and social order.

(Source: Federal Ministry for Employment & Social Order: "Mitbestimmung. Unternehmensmitbestimmung & Betriebsmitbestimmung", Jan 1995. Pages 5 - 8. Translation)

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