Corporate Social Responsibility Issues – A Case Study Of Siemens

Introduction of the Chosen Media Report

Corporate social responsibility is an approach to business whereby organizations are urged to make a contribution in achieving sustainable development through the deliverance of social, environmental and economic gains to all stakeholders. CSR is a broad field that covers a variety of aspects such as corporate governance, environmental effects, human rights, contribution to economic development, working conditions, as well as health and safety. Different companies around the globe implement different CSR initiatives and thus the reason why the levels of social responsibility achievements vary in various companies. It can, therefore, be conclusively said that Corporate Social Responsibility is some form of drive that steers organizations towards being aware of how their undertakings will affect the rest of the society, inclusive of all stakeholders and the environment. This essay will base its arguments on a post from The Guardian dated Monday 26^th, 2012. The post is titled “Rebuilding trust: How Siemens atoned for its sins” and explains how Siemens, a German conglomerate was caught up in a series of CSR crisis and how it responded to the same (Dietz & Gillespie, 2012).

It was not until November 2006 when investigations by the regulators of Siemens, a German engineering giant, made revelations about the about the millions of Euros being siphoned by hundreds of employees. But how and on what basis? The employees would disguise the disbursements as false bills, shell firms, and ‘phony consultants’ contracts whereas in the real sense they were bribes being paid to various contract awardees. The main intentions were to increase their chances of winning contracts. It is a legal offense to give and receive bribes for whatever reasons. It is also ethically and morally wrong because bribes reduce the chances of winning a contract for the legally qualified party and the contract goes to the party that has given bribes. The acts were, therefore, a total violation of the legal, cultural, and ethical corporate social responsibilities that the companies owe all its stakeholders as discussed henceforth in details.

A description of the act by a trial judge was “a system of organized irresponsibility that was implicitly condoned.” The judge made these sentiments because investigations revealed that managers were the key masterminds behind these shameful acts (Dietz & Gillespie, 2012). Removable sticky notes were used by senior managers to authorize documents of potential incrimination. This scandal was a shame not only to Siemens but also to various stakeholders and investors who were raging with furiousness. The act also brought with it an enormous humiliation to the organization’s employees, even to those who were innocent and had played no part in the wicked act. The integrity of the firm became questionable henceforth with intense scrutiny being imparted on its trustworthiness. The leadership more so became of great interest to various ethics and anti-corruption bodies. Siemen, however, responded fully to the issue and the approach that it adopted became acceptable by a majority of ethics and anti-corruption bodies. The US Federal Authorities and the Organization for Economic Co-operation and Development were among the bodies that praised Siemens for its approach to the issue.

Identification of CSR Issues

Initially, Siemens claimed that the issue involved only a few million. In a month’s time, however, the company had calculated an estimate of 350 million Euros as the involved amount. The executives had all this time denied their involvement and awareness of the issue. With, however, transparency prevailed. In addition to four international investigations that were conducted, a New York law firm, Debevoise & Plimpton, was hired by Siemens to conduct an internal inquiry into the issue. Clear revelations came into the limelight the following year after the departure of Klaus Kleinfeld, the then CEO and Heinrich Von Pierer- chairman. Peter Loscher, Kleinfield’s successor announced an amnesty valid for one month for employees. Incriminating evidence was then received from about 40 whistleblowers, all which extended participation to the previous board.

There are various reasons that could have probably resulted in the emergence of the crisis. The most significant one is the existence of aggressive growth strategies (Loughman & Sibery, 2011). It is the desire of many managers to see their assigned units growing and acquiring the maximum market share and value. Subsequently, Siemens managers could have been compelled to giving bribes as a short-cut of achieving tough performance targets (Wells & Hymes, 2012). Also, a complex structure of a matrix-like form that made it possible for divisions to run themselves independently could be another contributor (Søreide, 2014). Poor accounting management is also to blame for they would have identified incorrect recordings and expenditures. Above all, perhaps employees had developed a feeling that bribes were acceptable and encouraged due to the open tolerance of bribes by the then Siemens’ corporate culture as explained by (Manacorda, Centonze, & Forti, 2014).

To show its seriousness on the issue, and the desire to affiliate itself with an anti-corruption expert, Siemens appointed Transparency International’s co-founder, Michael Hershman as its adviser. The conglomerate further made bold steps forward and developed new Corporate Social Responsibility policies as supported by (Carr & Outhwaite, 2015). Amongst them, anti-corruption and compliant processes, as well as new and strict rules, were coined. The number of compliance officers was adjusted from 86 to 500 through new full-time hiring. A former International Police (Interpol) official was also hired as the head of the newly formed unit of investigation. Compliance hotlines, as well as an external online worldwide ombudsman, were established. All these steps undertaken by the firm to fight the crisis conforms to the theory of legal responsibility which states that all corporations are to be responsible for all actions undertaken in their premises (Kelsen, 2009). It further states that it is upon a corporation to ensure that its employees perform their duties in legally acceptable ways.

Application of Theory to Justify Various Actions.

Further on, a comprehensive anti-corruption education and training program was launched by Siemens to impart knowledge on its workforce as supported by (Idowu, 2015). It had managed to educate half of its 40000o workers by 2008. The complex matrix structure of the company was replaced by a more streamlined structure which was made up of only three divisions. The managing directors sat on the board. Bank account documents, transactions, and statements were reviewed and loopholes identified. In addition to the aforementioned steps that were taken to fight bribery by Siemens, there are a variety of theoretical frameworks that have been coined to fight bribery and corruption in general. First, it is suggested third parties should be monitored closely since they are the most common means through which bribes are obscured (Biegelman & Biegelman, 2010). Another step would be to follow money closely. For bribery to occur in a certain department, the firm’s money must be accessible to that department. Authorization for payments should, therefore, be limited to relevant officials only.

In my opinion, the departure of CEO Kleinfeld and Chairman Pierer was a much-needed step for the sake of Siemens. The steps that Loscher adopted to solve the crisis were justifiable and legally right. Coining new rules ensured that severe disciplinary measures would be taken on employees caught indulging in similar bribery situations as well as other fraudulent acts. Implementation of anti-corruption and various compliance processes ensured that employees worked in systems that had no room for corruption. I, therefore, view this as another self-justifiable measure. Hiring more compliance officers ensured that all compliance and anti-corruption processes adhered to the letter. If I would be in charge, I would have done the same. Offering education and training programs on corruption is another activity that I fully concur with. Lastly, I also agree with the steps taken to replace the complex matrix structure, and to review bank account documents, statements and transactions.

Conclusion and suggestions.

In conclusion, Siemens, an engineering giant headquartered in Germany, has been identified as a multinational company that has faced Corporate Social Responsibility crisis. The crisis affected the organization’s legal, ethical and cultural operations. On the legal side, the corporation was hit when employees participated in bribe giving so as to win various contracts. This is an illegal act against the laws of various nations. Ethically, it is wrong to give bribes in order to get privileges or opportunities that one does not deserve. On the cultural sector, the firm’s management had developed a culture where giving bribes was condoned. The managers actively and openly encouraged it. The various steps that were embarked on to solve the crisis have also been discussed in details. Development of new rules that were strict, as well as anti-corruption and compliance procedures, is one intervention that worked out perfectly for the organization. It has also been mentioned that training and educational programs were initiated to create awareness on anti-corruption policies.

When handling the issue, however, the company would have considered taking the managers of various departments and division for training and education separately (Barnes, 2008). Since they were the individuals who had built the bribe giving culture, and being the leaders in the firm, they required comprehensive education. The executive would have also considered terminating the contracts that had been won after giving bribes and had not yet been performed. This would have been an indicator of their seriousness and how much they wanted not to be associated with corruption.

References

Barnes, D. (2008). Operations Management: An International Perspective (illustrated ed.). Cengage Learning EMEA.

Biegelman, M. T., & Biegelman, D. R. (2010). Foreign Corrupt Practices Act Compliance Guidebook: Protecting Your Organization from Bribery and Corruption (illustrated ed.). John Wiley & Sons.

Carr, I., & Outhwaite, O. (2015, May 07). Controlling Corruption through Corporate Social Responsibility and Corporate Governance: Theory and Practice. Journal of Corporate Law Studies, 11(2). Retrieved October 2, 2018, from https://www.tandfonline.com/doi/abs/10.5235/147359711798110592?journalCode=rcls20

Dietz, G., & Gillespie, N. (2012, March 26). Guardian sustainable business – Rebuilding trust: How Siemens atoned for its sins. Retrieved from The Guardian: https://www.theguardian.com/sustainable-business/recovering-business-trust-siemens

Idowu, S. O. (2015). Key Initiatives in Corporate Social Responsibility: Global Dimension of CSR in Corporate Entities (illustrated ed.). Springer.

Kelsen, H. (2009). General Theory of Law and State. The Lawbook Exchange, Ltd.

Loughman, B. P., & Sibery, R. A. (2011). Bribery and Corruption: Navigating the Global Risks (illustrated ed.). John Wiley & Sons.

Manacorda, S., Centonze, F., & Forti, G. (2014). Preventing Corporate Corruption: The Anti-Bribery Compliance Model (illustrated ed.). Springer Science & Business.

Søreide, T. (2014). Drivers of Corruption: A Brief Review (reprint ed.). World Bank Publications.

Wells, J. T., & Hymes, L. (2012). Bribery and Corruption Casebook: The View from Under the Table. John Wiley & Sons.