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Siemens the quest for a turnaround

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Siemens the quest for a turnaround

  1. 1. a v e n g e r s
  2. 2. Company Information  Siemens AG is a German multinational conglomerate company headquartered in Munich, Germany. It is the largest Europe-based electronics and electrical engineering company.  Founders: Werner von Siemens & Johann George Halske (1847)  Organized into 19 Divisions & five main Sectors: Industry, Energy, Healthcare, Infrastructure & Cities, & Siemens Financial Services.  Siemens and its subsidiaries employee approximately 4,00,000 people across nearly 190 countries and reported global revenue of approx € 73.5 billion for the year of 2011 of which more than half were found corrupt.  Listing: Frankfurt Stock Exchange (Primary) New York stock Exchange (Secondary)
  3. 3. Klaus Kleinfeld  Alcoa Inc & Citi Inc  Restructuring and Modernization.  Kleinfeld, along with other former Siemens executives and board members, were accused of failing to prevent corruption.  In September 2009, Siemens extended an offer to Keinfeld and other former members of "its Managing Board against whom damages are being claimed to declare their willingness to reach a settlement.”  He agreed to pay an undisclosed sum to settle the matter. Failure of Management Culture - Managers broke the law. Siemens always had a set of rules that were being violated. The management culture was simply not practiced consistently and uniformly.
  4. 4. Controversies X 2007 Price Fixing Fine:  In January 2007 Siemens was fined €396 million by the European Commission for price fixing in EU electricity markets through a cartel involving 11 companies, among which Fuji, Hitachi Japan etc. were included.  According to the Commission, "between 1988 and 2004, the companies rigged bids for procurement contracts, fixed prices, allocated projects to each other, shared markets and exchanged commercially important and confidential information.“  Siemens was given the highest fine of €396 million, more than half of the total, for its alleged leadership role in the incident.
  5. 5. X Bribery Case:  Siemens agreed to pay a record $1.34 billion in fines in December 2008after being investigated for serious bribery.  The investigation found questionable payments of roughly €1.3 billion, from 2002 to 2006 that triggered a broad range of inquiries in Germany, the United States and many other countries.  In May 2007 a German court convicted two former executives of paying about €6 million in bribes from 1999 to 2002 to help Siemens win natural gas, turbine supply contracts with Enel, an Italian energy company.  The contracts were valued at about €450 million.  Siemens was fined €38 million.
  6. 6. X Iran Telecoms Controversy  Nokia Siemens supplied telecommunications equipment to the Iranian telecom company that included the ability to intercept and monitor telecommunications, a facility known as "lawful intercept".  The equipment was believed to have been used in the suppression of the 2009– 2010 Iranian election protests, leading to criticism of the company, including by the European Parliament.  Nokia-Siemens later divested its call monitoring business, and reduced its activities in Iran.
  7. 7. X Greek Bribes, Greek Metro & Traffic Lights:  In 2008, it was revealed that Siemens had bribed the two main political parties of Greece for approximately 10 years to be the sole provider of mechanical and electrical equipment of the Greek state.  After the exposure the German authorities moved to arrest the representatives of Siemens in Greece, who had managed to escape from the Greek authorities  The German judicial system didn't allow the Greek authorities to cross-question the representatives. As a result, there wasn't any solid evidence against the corrupt politicians, who weren't arrested and continue to be active in the Greek political system.  Meanwhile, the Greek state cancelled the planned business deals since all spares were provided by Siemens, the equipment, like traffic lights eventually broke down, and projects like the metro expansion were abandoned.
  8. 8. Diagnosis  Internal inquiry by New York law firm Debevoise & Plimpton.  Around 40 whistleblowers gave incriminating evidence, which extended the scandal's reach into the previous board.  Several systemic elements have been cited as contributing to the scandal, including: an aggressive growth strategy that, arguably, compelled managers to see bribes as a tempting short-cut to hitting tough performance targets; a complex, matrix-like structure that allowed divisions to effectively run themselves, and poor accounting processes.  Perhaps above all, Siemens' then-corporate culture seemed openly tolerant of bribes, helping staff to feel they were "not only acceptable but implicitly encouraged".
  9. 9. Important Statements  Based on our investigation so far, we have reason to suspect that Siemens ran 'black accounts ... that allowed it to open new markets through secret payments to potential and existing business partners.“ - Jeanette Balmer, a spokeswoman for the office of the Swiss federal prosecutor, in 2006.  "Many people within Siemens knew about the method of payment. Getting a contract isn't easy.“ - Horst Vigener, former Siemens employee convicted in a bribery case, in 2007.  "What hopefully will come out of the Siemens affair is that senior business leaders, when they see what happens to Siemens in terms of fines and the lost reputation of individuals like von Pierer or Kleinfeld, is that they will say 'OK, we need to start taking this seriously'.“ - Jermyn Brooks, director of private sector programs at Transparency International, in 2007.
  10. 10. Stake Holders Employees Society/ Public at large SuppliersCustomers Board of Directors
  11. 11. “An Ethical behaviour is characterized by honesty, fairness and equity in interpersonal, professional and academic relationships and in research and scholarly activities. Ethical behaviour respects the dignity, diversity and rights of individuals and groups of
  12. 12. Siemens first step towards Ethical path All of the group’s executives at the time of scandal tainted . Board was forced to look for an outsider to head the company First time in its 160 year history Mr Peter Loscher
  13. 13. Mr. Peter Löscher's Background  Native of Austria.  Studied Economics and obtained MBA from Vienna University.  Advanced Management Program at Harvard Business School.  President of Global human health at Merck & Co.  President and CEO of General Electric HealthCare Bio sciences  Many think that Löscher's international resume and personal history suggest that he is the right person to serve as a worldwide ethics ambassador for Siemens, which currently does business in 190 different countries.
  14. 14. Rebuilding trust: How Siemens atoned for its sins  German engineering giant ‘Siemens’ suffered a huge loss of trust following a bribery scandal, but a determination to face the truth led by Peter Loscher put the firm on the path to recovery. Siemens' full response to the scandal has been widely praised by many independent anti-corruption and ethics experts, including the Organisation for Economic Co-operation and Development, and US Federal authorities.
  15. 15. Steps Taken  Löscher went about clearing out more than half of the firms’ senior management team.  Siemens didn't need revolution but rather evolution, and it needed to be done with speed.  Löscher applied his own principles to clean up Siemens: Determination, passion, execution, and ‘True North’  "Make sure the company values are actually lived.”  Corrupt Siemens executives had testified that they took bribes "for the benefit of the company."
  16. 16.  "The most dangerous thing you can do is do it because everyone does. It's up to you to say no."  He hired over 500 full-time compliance officers (up from just 86 in 2006), and a former Interpol official to head its new investigation unit.  Created a leadership team of trusted executives.  Launched a 100 day tour – make himself and his values visible.  Implemented an internal amnesty.  Siemens launched a comprehensive training and education programme on anti- corruption practises for its employees.  By 2008, Siemens had trained more than half its 400,000-strong global workforce on anti-corruption issues.  Lastly as a simple gesture Siemens announced it would avoid competing in certain known hotspots for corruption or unethical practice, such as Sudan.
  17. 17. Ethics over Profits “Siemens endorses clean business. I am not interested in deals that can only be had through corruption. This doesn't necessarily mean that we have to stop doing business in an entire country, but perhaps it does mean turning down specific projects or customers.” Löscher – still Siemens' CEO – has been commended for his approach to ending corruption, but he has argued that changing the corporate culture to one driven by ethical standards "is a marathon for us, not a sprint". By June 2008, however, some executives were sufficiently confident to declare Siemens "the most squeaky clean company".
  18. 18.  Unethical behaviour can be very costly.  Premature dismissals of developing scandals can appear self-serving and incompetent, and compound the original problem. The trustworthy course of action is to acknowledge the accusations and to share any known facts, and to initiate a full, urgent and independent enquiry.  Independent, ideally external, investigations are the most credible indicator of trustworthiness. The painful rigor of such an investigation can be resented, but it must be endured, until the full extent of the failure is laid bare.
  19. 19.  Discovering the true scale and depth of a trust failure may only be possible when senior leaders leave, and an amnesty is offered to staff to encourage them to come forward.  The timescale for a major ethics overhaul is long - measured in years, not months - as it invariably involves cultural change. Has Siemens declared victory prematurely?  Structural, procedural and cultural interventions should be adopted concurrently. For example, strengthening compliance monitoring and codes of conduct must be backed up with senior leaders' exhortations and training investment.  Voluntary penance is often necessary for effectively restoring trust. It helps to demonstrate that the organisation has learned from the experience, and the willing submission to punishment implies remorse and concern for damaged relationships.
  20. 20. Thank you

Editor's Notes

  • The shock of the corruption scandal provided both the motive and the opportunity for a ethical reform of Siemens. With all of the group's executives at the time potentially tainted, in 2007 the board was forced to look for an outsider to head the company for the first time in its 160-year history. It chose Peter Löscher.
  • Löscher, 53, is a native of Austria. He studied economics at the Vienna University of Economics and Business and at the Chinese University of Hong Kong. He has an MBA from Vienna University and graduated from the Advanced Management Program at Harvard Business School. Prior to joining Siemens he was president of global human health at Merck & Co. and president and CEO of General Electric Healthcare Bio-Sciences.
  •  Löscher went about clearing out more than half of the firms’ senior management team. In an interview Peter Loscher said that four-hundred-seventy executives have already been sanctioned, and we have parted ways with 130. Resolving it in the fastest time was the highest priority. Siemens didn't need revolution but rather evolution, and it needed to be done with speed, speed, speed
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