Accountability and its Limits: The Story of Siemens

After yesterday where the conference focused on corporate governance, today we turned to the topic of leadership. To kick off the session on Accountability and its Limits, Professor Pino Audia of Tuck, noted that leadership is an important substitute as well as enforcer of governance. I thought this was a great connection – and a engaging way to begin our session which focused very much on the experiences of Siemens. Peter Solmssen, the General Council of Siemens shared with the group more details behind the Siemens corruption scandal – and the steps the firm has taken to prevent future similar situations.

In 2006, over 200 German investigators showed up at Siemen’s door to follow up on corruption charges. The potential impact on the firm was immense – while potential fines of up to €10 billion was significant – the possible debarment from competition for public contracts could be disastrous. Particularly since so much of Siemens revenue comes from public contracts. When Peter joined Siemens as General Counsel after the scandal broke, he looked closely at what were the root causes of the endemic corruption in the organization. He narrowed down on three key causes (1) pressure to make problems go away (2) complex company structures and (3) a belief in myths. I found Peter’s description of “belief in myths” to be  particularly interesting. He zeroed in on falsehoods such as “everyone does it” and “you have to pay to play” as key to driving a belief that Siemens couldn’t be competitive in some markets without bribes. However, since Siemens has cleaned house, and closed the door on the scandal, their revenue growth has been strong  and in-fact better than the past. Peter also noted that good corporate citizenship is critical –  and the effect on employees when you’re not is corrosive.

Peter gave the group significant detail on the process Siemens went through to identify the extent of the corruption, make amends, and put in place structures to prevent similar situations in the future. Siemens reviewed 40M bank accounts, 100M documents, 127M transactions, and 1 in 5 employees helped do research on the corruption situation at some point. Siemens granted amnesty to employees below a certain level, and immediately after 125 employees with roles in the scandal came forward voluntarily. Peter noted that most wanted to discuss the corruption, they didn’t feel comfortable with it, and we’re empowered by the opportunity to clean house. Siemens was able to finish the investigation in 18 months, much faster than the average, and put into place a new management board, senior managers, and structures to ensure prevention.  Ultimately though, Peter noted it was an issue of culture and that Siemens  had to set the tone from the top of zero tolerance, a clean business, and a message that every person in Siemens was responsible for ensuring  integrity and ethical behavior.

One of the first questions the audience asked Peter was about Siemens current performance and how the firm now approaches situations where other competitors are clearly not playing clean. Peter reiterated that revenue growth since the scandal has been stronger and that now the firm works closely with other like minded firms to set the tone in the industry. In addition, when a competition isn’t clean, Siemens withdraws from the business opportunity and moves on because the downside of acting unethically is significantly worse in the long-term than the short-term upside. The rich conversation continued intensively – ending with a final insight by Pino Audia – integrity is key and how we select CEOs and senior executives who champion this quality is a critical piece of corporate governance. #councilbusinessandsociety

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