There is a state of ambivalence over bribery in organizations. Some people regard bribery as a type of pecuniary corruption since it involves the transfer of money or any form of gift aimed at altering the behaviour of the recipient (Dowling 2008). In deed the Black’s law Dictionary defines bribery as a form of crime that involves giving, offering, soliciting for or receiving any item that has value in order to manipulate the actions of a person or official performing a certain duty (Dowling 2008).
In this case, what makes bribery bad is the fact that the person receiving the bribe may act in a manner that would be detrimental to other operations in an organizations or related organizations. Such operations may include substandard services in which the bribery is used to protect the parties involved (Dowling 2008). On the other hand, some people view bribery as an act that is part of development ambitions in organizations. For instance, Lemieux (2005) argues that many countries whose underground economies have grown could not be where they are today were it not for bribery.
And this seems to be the secret behind many organizations such as Siemens AG, which have to deal with authorities in terms of taxation and other legal requirements. Along this line, Lemieux (2005) opines that it is often not possible, or it is very costly, for a company or an individual to escape the restrictions and other prohibitions that are prerequisites to operation of business. Lemieux (2005) also notes that bribery in organizations is a phenomenon that cannot be easily gotten rid of because it is perfectly impossible to enforce the measures required to maintain a bribery-free business environment.
Instead, the stricter measures to stop bribery in many organizations only serve to amplify the phenomenon (Lemieux 2005). Cash bribes are often used as donations to many political parties, and non-cash bribes may also be used to seek support in certain business ventures. Thus, according to Lemieux (2005), there is a common dictum among organizations: bribe them (the authorities) if you want to do peaceful business. Siemens AG was a company of high repute as the largest engineering firm in Europe, but its image was clouded when it ventured into bribery in order to expand its operations (OECD 2005).
As discussed in this paper, Siemens AG was involved in massive bribery deals both locally and internationally in a bid to maintain a good image of the corporation as a global leader in engineering (Economist. com). But as further discussed, bribery is not only expensive but also a phenomenon that can tarnish the name of a company given the fines that Siemens AG had to pay and the numerous apologies it had to make ( Economist. com). The company also had to suspend many of its staff who were allegedly involve in the bribery claims, thus slowing down its vigour in the market (Economist.
com). This makes bribery a topic that is amenable to further discussion as to whether it is a mechanism to advance the operations of a business or it is a vice that should be abhorred by organizations if they want to be successful. The Siemens AG Bribery Scandals Siemens AG’s slogan “Be Inspired” of the mid-1990s was perhaps of the most inspiring slogans to have been used by leading organizations in the world (Economist. com). However, the inspiration later turned out to involve murky deals aimed at promoting the company globally.
So did the managers of the company lack the inspiration to build the company or they were just inspired to build it using alternative means? Siemens AG’s managers were involved in mischievous ways of funnelling huge sums of money to corrupt leaders of many authorities and politician the world over (OECD 2005). The methods used in the bribery cases were just astounding. According to Economist. com, the company bribed its subjects with a lot of trust and candour that no one could figure out the vice in many business transactions.
To facilitate the bribery operations, the company set up three “cash desks” in its offices from which the bribery operations were performed (OECD 2005). Company employees would bring empty suitcases to the desks, which would be filled with cash in a manner that could raise no suspicion. As a result of such deals, as much as €1 million or $1. 4 million was withdrawn at different times to facilitate securing of contracts for Siemens AG’s telecoms equipment division (OECD 2005).
The cash desks for bribery deals operated on honour mechanisms and not many questions were asked about the operations, nor was proof documentation required (Economist. com). In addition, managers who made application for money from the company were allowed to approve their requests without following due procedures (Economist. com). In fact, by the year 1999 Siemens AG was openly claiming tax deductions to cater for bribes, and the dealings were recorded in accounts books as useful expenditure (Economist. com).
In the context of the bribery deals, it is worthwhile to note that Siemens AG considered bribery as a business venture aimed at widening its scope of operations. As a matter of fact, Siemens AG spent about $67 million in “suitcases” between 2001 and 2004 (OECD 2005). Nevertheless, according to OECD (2005), the people involved in the bribery transactions felt confident about what they were doing and knew that there was nothing wrong. The point here is that bribery was considered as a normal activity that required no questioning.
The seemingly conducive culture of bribery continued with illicit payments even after Germany had banned bribing of foreign officials in the year 1999 (Balzli, Deckstein & Schmitt 2007). Thus, when Siemens AG listed its shares on United States’ New York Stock Exchange (NYSE) in 2001 and it was subjected to stringent American anti-bribery measures, the managers desisted from counting cash in office (Balzli, Deckstein & Schmitt 2007). Instead, they turned to the use of cash cheques to perform the same operations.
The cheques were deposited in various accounts but the company did not keep records in its own books so that it could make more nefarious payments (Balzli, Deckstein & Schmitt 2007). In order to disguise the underhand operations, Siemens AG managers outsourced most of its accounts works to “business consultants” so that no it would not be culpable in any secret operation would be unearthed (Economist. com). In bid to cover their operations further, the managers of the company used more eccentric mean to avoid being found (Balzli, Deckstein & Schmitt 2007).
When they authorised the bribery payments, they used removable sticky notes, which would be easily destroyed to conceal all evidence of any transaction (Fernando & Bellamkonda 2007). The sums of money transferred by the managers of Siemens AG were staggering. According to Balzli, Deckstein and Schmitt (2007), a total of $805 million was handed over by the company to foreign officials in bribes. The money handed out was aimed at ensuring that Siemens won as many contracts as it could in many foreign markets (Economist. com).
In other instances, the bribes were meant to woo labour representatives in supervisory areas to support Siemens AG policies when they would obviously need to rejected (Fernando & Bellamkonda 2007). Along this line, Fernando and Bellamkonda (2007) note that the German government’s stance on bribery was perhaps a contributing factor in Siemens AG’s underhand operations. This is because many companies understood that the German law and even the law in many other OECD countries permitted bribery and even offered subsidies to companies in order to enhance their operations in spite of the huge sums of money given out in form of bribes.
Implications of the bribery cases When the Siemens AG bribe scandals were unearthed between 2006 and 2007, it was dubbed the “$2 billion bribes-for-business scandal” (Bushan 2008). When the details of scandal spilled out, German authorities raised siemens AG’ s offices in Germany an further investigations were initiated in countries such as the United States, Italy, Greece, and Switzerland where the company hand major investments (Bushan 2008). What followed were court suits, apologies, and a general decline in the company’s performance.
The first reaction by the company managers was a fallout in which the CEO, Heinrich von Pierer and head of the company’s supervisory board, known as Klaus Kleinfeld, resigned in spite of the fact that they were not directly implicated (Bushan 2008). On December 15 2008, Siemens AG agreed with its host country Germany and the United States to pay them $1. 34 billion in response to bribe charges (Dowling et al 2008). This ended a two-year inquiry that had been made by the German Government to Siemens AG officials all over the world.
In the agreement, Siemens AG paid €395 million to settle to the German Government’s inquiry expenses and a further $800 million as the charges raised by the United States Security Exchange Commission (Dowling et al 2008). In addition, Siemens AG pleaded guilty to flouting the United States anti-bribery laws, which resulted into a penalty of a further $1. 36 billion (Dowling et al 2008). In an attempt to recover the massive losses, Siemens AG sued eleven of its former board executives led by Heinrich von Pierer and Klaus Kleinfeld (Dowling et al 2008).
The new management of Siemens said that the action was meant to seek compensation from the former managers for damages that the company incurred as a result of their wanton actions (Dowling et al 2008). Some of the damages that were inflicted on Siemens and which the company would take time to recover from included a fall in the company’s share price by 23 cent to €47. 15 on the Frankfurt stock market. In addition, Siemens’s stock in the market plummeted by 56 per cent in 2008 (Dowling et al 2008). What the Bribery Scandal in Siemens AG means about Bribery in Organizations
Given that the law in Germany and other OECD countries was somehow supportive of bribery, the efforts by the German Government to investigate the bribery claims can be considered to have been aimed at dignifying international laws on trade and laws against bribery (Dowling et al 2008). This is particularly true since other countries such as the United States, Greece, Italy and Switzerland were involved. According to Lemieux (2005), countries usually support corporations that have significant influence on the magnitude of their gross national product, as was the case of Siemens in Germany.
Here, the fact that the German government provided subsidies to Siemens AG to facilitate its bribery payments cannot be gainsaid and is a clear pointer that even the though the government reacted, its officials had been well aware of the underhand operations. The Siemens AG bribery case also points out the weaknesses in governments when it comes to dealing with giant corporations. It is particularly worthy noting that Europe is still miles behind the United States when dealing with corruption cases particularly bribery (Georgiev 2008).
According to a further analysis in Economist. com, Siemens invited group of lawyers from a United States firm called Debevoise & Plimpton to represent it with the hope that doing so would make it win sympathisers and have its name cleared from the bribery scandal. Nevertheless, this move made things even worse as the lawyers carried out a private investigation that cost the company a further €204 million. Thus, according to Economist. com, an investigation by German investigators would not have unravelled as much.
Although Siemens AG paid many fines, the amount of money cannot equal the damage it did to markets both locally and at the international level. Considering the fact that Siemens AG was used to paying bribes, the fines were just meant to polish the name of the company. Nevertheless, other companies lost several contracts due to Siemens AG’s bribery (Balzli, Deckstein & Schmitt 2007). This perhaps is the worst effect of the bribery claims as companies that seemingly would have been more competent than Siemens AG were denied the chance to compete for tenders due to the bribe mask.
This shows how unpopular companies are treated unfairly at the expense of pleasing giant companies, which have the ability to finance illegal operations. Siemens AG was able to influence market policies through bribery and this therefore leaves a question of whether the giant organizations of the world actually reach the top through excellent performance or through underhand deals as portrayed by firm. According to Economist. com, the confession by Siemens AG of involvement in bribery was triggered not by the fact that bribery is a vice in the organizational environment.
Rather, it was due to the realization that the company was bound to lose a major market in the United States- which was firmly against the deals, as well as other markets in Greece, Italy, and Switzerland. A question that arises therefore is what would have happened had the bribery scandal not been raised in the public limelight. Would Siemens AG have been praised as a company that has roots all over the world and experiencing rapid growth to necessitate government subsidies, or would it have been criticised to have grown based on underhand operations?
Probably the answer lies in viewing bribery a vice and not an incentive within organizations, and realizing that fair competition should not involve bribery. Conclusion Bribery in organizations is viewed with different standpoints depending on the effect it has on the respective organizations. For large organizations such as Siemens AG, bribery is seen as a mechanism to augment expansion since restrictions such as laws are avoided. Nevertheless, the adverse effects of bribery include massive fines against the organizations involved and a significant corporate damage as was realized in the case of Siemens AG. References
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Economist. com, 17 Dec 2008, The stench of bribery at Siemens signals a wider rot in Europe, Available from http://www. economist. com/business/displaystory. cfm? story_id=12800474 (16 March 2009) Fernando, R & Bellamkonda, B 2007, The Bribery Scandal at Siemens AG, Available from http://www. caseplace. org/d. asp? d=375 (16 March 2009) Georgiev, P K 2008, Corruptive patterns of patronage in SE Europe, VS Verlag, London Lemieux, P 2006, In defense of bribery, Available from http://mises. org/story/1884 (16 March 2009) OECD 2005, Fighting corruption and promoting integrity in public procurement, OECD Publishing, London