1. Cases
Strategy Documents
C11/2012
Reputation
Restoring reputation in the
wake of internal corruption:
Siemens and the
management of transparency
It takes a long time to build up a good reputation but only an instant to destroy
it. This may be because it is based on trust, which is very fragile and ephemeral,
requiring care and attention. Integrity and compliance, regarding both pledges
and standards, play an increasingly greater part in its appraisal and perception
In November 2006, the lid was lifted on arguably
the biggest scandal involving a multinational corporation prior to the financial crisis and the Lehman
Brothers case. An investigation that month
revealed that a significant number of senior executives working for the German technology firm
Siemens in several countries throughout the world
had for years been paying illegal commissions to
public servants in exchange for their support in the
negotiation of multimillion-dollar contracts.
Indeed, mention was even made of an indiscriminate
and organised system of bribery and corruption
approved by the firm’s top management in an
implicit or explicit manner that seriously damaged
Siemens’ reputation –both externally and,
especially, internally for its half a million employees
all over the world– whereby it was on the verge of
disappearing altogether, in what would have been
a second “Enron/Arthur Andersen” scenario in less
than five years.
Officials ranging from the U.S. federal authorities
(including the SEC, the body regulating the stock
markets) through to the OECD and the World
Bank, and obviously the German authorities,
as well as international institutions across
the board, threw themselves into the task of
analysing and identifying precisely the countries
targeted and the mechanisms used by Siemens’
executives to commit unlawful acts and breach
the firm’s pledge to conduct itself ethically in the
different markets.
Siemens’ global leadership was forced to resign
en masse, including its president and CEO; five
executives were arrested; over 1.5 billion dollars
had been spent on illegal payments between 2001
and 2006, often accounting for half a contract’s total
value, and former executives of the German firm
were even identified in other companies “exporting”
a model that received the damning epithet “Bribery
was Siemens Business Model”.
This document has been prepared by Corporate Excellence – Centre for Reputation Leadership. It has cited, from among other sources,
­
the speech by José Aurelio Pérez, Head of Compliance at Siemens in Spain, delivered at the symposium organised by Dircomen Madrid
on 19 June 2012.

2. Restoring reputation
in the wake of
internal corruption:
Siemens and the
management of
transparency
Graph 1: Bribery Without Borders
Bribery schemes were entrenched in many áreas of Siemens´s operations, according to Securities and Exchange
Commission documents describing these and other projects.
Country
Project
Years
Contract
($MIL.)
Bribe
($MIL.)
Russia
Hospital equipment
2000-2007
Unknown
$55.0
Argentina
National Identity Card
1998-2004
$1,000
40.0
China
High-voltage lines
2002-2003
838
25.0
China
Metro trains and signal
2002-2007
1,000
22.0
Israel
Power Plants
2002-2005
786
20.0
Venezuela
Metro rail lines
2001-2007
642
16.7
China
Medical equipment
2003-2007
295
14.4
Bangladesh
Mobile phone
2004-2006
41
5.3
Nigeria
Telecommunications
2000-2001
130
4.5
Mexico
Refinery modernization
2004
Unknown
2.6
Iraq
Oil-for-food program
2000-2003
124
1.7
Russia
Traffic control system
2004-2006
27
0.7
China
Hospital equipment
1998-2004
Unknown
0.7
Vietnam
Hospital equipment
2005-2006
6
0.4
Source: S.E.C.: ProPublica
The need for radical change
Suddenly, in no more than the flicker of an eye,
corporate statements on values (responsibility,
innovation and excellence), the compliance systems
implemented up to that point and the words of its
executives were all rendered worthless, and devalued
just as much as the firm’s own reputation.
It was essential to conduct a thorough overhaul of
Siemens’ direction, as well as of its internal control
measures, if the firm was to continue being a market
leader in innovation and efficient solutions in the
fields of health, mobility and energy as required by
the globalisation process.
“In no more than the
flicker of an eye, corporate
statements on values,
compliance systems and
the words of its executives
were all rendered as
worthless as its own
reputation.”
The firm therefore commissioned various U.S.
auditors and consultancies to undertake an in-depth
analysis of the situation and conduct a painstaking
internal investigation –at an approximate cost of
one billion dollars and encompassing 34 markets.
This led Peter Löscher, the new chairman and CEO
of Austrian nationality, who had been drafted in
from the pharmaceutical multinational corporation
Merck and had executive experience in the U.S.,
to announce a one-month amnesty for all those
employees who blew the whistle on similar practices
during their professional experience up to that
moment in the firm.
A policy was called for of “zero tolerance” with
widespread corruption –a circumstance that had on
this occasion affected Siemens because it had been
discovered, but which, as several German experts
affirmed, was common practice among German
multinationals and which, furthermore, involved
Federal tax incentives. This was illustrated by the
increase in human resources –rising from 6 to 600
people responsible for compliance throughout the
world, with 15% in the corporate area, 30% in
the divisions and sectors and 55% in countries–,
a new corporate governance structure, an internal
survey involving a quarter of the workforce, and
the implementation of a far-reaching programme of
action: Siemens Integrity Initiative.
Prevention spearheads the programme
Prevention, detection and response: these are the
three stages the firm introduced and applied as a
result of the failures detected in its in-house ethical
control system, according to José Aurelio Pérez, the
Head of Compliance at Siemens in Spain.
Yet the most important of all of these, in this
executive’s opinion, is the first one, to which the
compliance team dedicates over half its time,
focusing on relations with, training and the
supervision of employees (regarding whom any
kind of conflict of interests needs to be avoided),
business partners (who by acting as intermediaries
Cases
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3. Restoring reputation
in the wake of
internal corruption:
Siemens and the
management of
transparency
Graph 2: The Siemens Compliance Program
Prevent
> lear guidelines Siemens
C
Business
Conduct Guidelines
Training Programs
ompliance helpdesk
C
“Ask us”
Detect
Continuous
Improvement
omprehensive control
C
system
asily accesible reporE
ting channels “Tell us”
Respond
Clear consequences
Unequivocal response
Basis for sustainable business success
Source: Siemens, 2012.
require regular and ongoing audits or due diligences)
suppliers (who should be the driving force behind the
entire process and comply not only with legislation
but with the highest internal ethical standards), for
which there is a common ethical code of conduct of
mandatory observance, as well as specific standards
and specifications in each case.
Concerning training, which is a key issue for ensuring
prevention, in 80% of the cases it is organised in a faceto-face and customised manner. Completing the trio
of prevention measures, albeit first in importance, is
an internal and fully confidential system for attending
to employees and senior executives whereby they
may submit queries or resolve doubts regarding any
issue that requires clarification.
Secondly, the detection system also has an
arrangement of briefing channels – both internal
and external, such as the contracting of an employee
ombudsman – catering for the reporting of any kind
of conduct that may cause concern and may be
suspected of occurring within the firm.
Thirdly, internal disciplinary measures and the
consequences for those that commit some form
of irregularity, according to the degree of noncompliance regarding corruption and the lack
of ethics in their duties, have been significantly
hardened and publicly disclosed within the firm.
In turn, and respectively, the goal of the first and
most important step, prevention, is to provide
credible and accurate information for management
through the use of policies and procedures; regarding
the second, detection, it is to pre-empt any
contingency or event that might damage reputation
through the use of whistle-blowing channels; and in
the third case, it is to punish any conduct that has
managed to elude these prevention and detection
mechanisms, and has actually taken place, thanks
to the implementation of disciplinary measures
and the search for solutions (to date, more than a
thousand sanctions and disciplinary measures have
already been applied).
Sector collaboration and outside help
In addition to all the above, over the next 15 years
Siemens will allocate a total of 100 million dollars
through the World Bank to projects organised by
different international NGOs in the fight against
corruption in the arrangement of major contracts or
in the management of development aid, and it has
become proactively involved in a series of collective
actions with its sector to foster high ethical standards
among all the market players and the development
of anti-trust legislation.
“Corporate culture, the
specific way each company
has of conducting its
business, does not depend
on words, but instead on
deeds, as with reputation,
its outcome.”
In 2007, for example, Siemens announced it was
to cease it operations in those countries in which
the payment of illegal commissions is considered
an absolute pre-requisite, such as Sudan, as well as
suspend for two years in a row the reception of funds
for projects financed by the World Bank until the
internal issues arising from the scandal have been
fully resolved.
The overall aim is to continue fostering a culture of
integrity and a way of operating not only within the
firm itself, but also across the board in business, with
competitors and, more importantly, within society
at large.
Cases
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4. Restoring reputation
in the wake of
internal corruption:
Siemens and the
management of
transparency
Conclusion: reputation begins with
a transparent and credible culture
There is no point in proclaiming principles, values and
ethical codes if the business culture in a country and/
or company involves a business model that is based on
an approach that is tolerated or even accepted in a way
that is radically opposed to what they claim to defend
and postulate through such declarations.
In Siemens’ case, if there is a basic lesson to be
learnt by other companies, it is that corporate
culture, the specific way each company has of
conducting its business, does not depend on words,
but instead on deeds, as happens with reputation,
its logical outcome. Moreover, the example set
by the company’s senior executives and middle
management is of capital importance.
It is no longer possible today to do business throughout
the world, driving innovation and excellence, if it
is not done responsibly, transparently and credibly,
with this approach to business becoming a clear
source of competitive advantage and one that
generates a sound reputation.
Yet neither is it possible to ensure a company’s
employees will strictly adhere to its ethical standards
if their supervisors are not their main champions
and advocates. Training, collaboration and
assimilation regarding this approach on the part of
each and every one of a company’s stakeholders are
essential for this to be a success, whereby they will
represent it with integrity wherever they are, and
will therefore become the principal ambassadors for
its reputation.
Cases
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5. Leading by
reputation
©2012, Corporate Excellence - Centre for Reputation Leadership
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