theories applied on how to act in business ethics, Essays (university) of Business Ethics

Download theories applied on how to act in business ethics and more Essays (university) Business Ethics in PDF only on Docsity!

Accounting 301 Group Project

Ethics Paper- Unify

December 7, 2018

By: Lauren McKinnon, Tara Blair, Hyemin Park

Background Siemens & Halske is an international conglomerate company, founded in 1847 by Werner Siemens and J.G Halske in Berlin, Germany. There are two headquarters two different locations, Berlin and Munich, under the current supervision of CEO Joe Kaeser. The purpose of this company is to manufacture and install telegraphic systems worldwide. In 1848, Siemens & Halske created a contract to build a telegraph link between Berlin and Frankfurt which established their first a major commission. In the mid-1850’s the company changed their name from Siemens & Halske to Siemens Brothers. A few years prior, in 1867, Siemens Brothers signed a contract that included an 11,000-kilometer telegraph line from London to Calcutta. Eventually, Siemens expanded their company into more than 190 countries; Colombia, Dominican Republic, India, Philippines, Australia, etc. During the 1950’s, Siemens underwent many extensive expansions and constructions to expand its company. Resulting from construction and expansion, Siemens went through more renaming processes; in 1903 it was known as Siemens- Scheuckertwerke, in 1932 it was known as Siemens-Reiniger-Werke AG, and then finally in 1966 they rebranded to their last and current name Siemens AG. 1

Siemens’ primary business operations mainly include; information and communications networks, power generation and transmission, medical solutions, industrial automation and control, and lighting. Analysts suggests that, at one time, Siemens was considered a corporate dinosaur and encouraged to separate its corporation structure into a more tightly focused enterprise. Under new leadership, Heinrich von Pierer, in the 1990s the company had to undergo major restructuring in order to minimize costs and maximize the companies efficiencies.

1 “Siemens AG - Company Profile, Information, Business Description, History, Background Information on Siemens AG.”

payments were specifically vital in maintaining Siemens competition overseas, which sold telecommunications equipment. German prosecutors opened a case against Siemens in 2005. Americans became involved soon after that, 2006, due to the company’s shares being traded on the New York Stock Exchange.

Siemens had a unique situation as to where they had cross-border cooperation among law enforcement officials. Siemens created a settlement with the Justice Department and the Securities and Exchange Commission that resulted in Siemens pleading guilty to violating accounting provisions of the Foreign Corrupt Practices Act- the act of outlawing bribery abroad. The only reason why the Justice Department allowed Siemens to plead to accounting violations was because Siemens cooperated well with the investigation and if Siemen were to plead guilty to bribery it would have barred Siemens for bidding on government contacts in the U.S.

Bribery Transactions In Bangladesh, the prime minister’s son signed a mobile phone contract with Mr. Siekaczek in exchange for $5 million. Senior officials in Nigeria also accepted a bribe of $12.7, from Mr. Siekaczek, for government contracts. There was at least $40 million in bribes in Argentina, in order to win a $1 billion contract to produce national identity cards. Siemens provided Israel with $20 million to senior government officials, in order build power plants. It was $16 million given to Venezuela for urban rail lines. In China, $14 million for medical equipment. Lastly, $1.7 million was given to Iraq to Saddam Hussein. Competitors were angry they were shut out of contracts and forced to pay higher costs for roads, power plants and hospitals. In regards to clearing Siemens name, they will pay more than $2. billion; $1.6 in fines and fees and more than $1 billion for internal investigations and reforms. 42

4 2 “At Siemens, Bribery Was Just a Line Item.”

Timeline 2006 November 15 - Prosecutors raided the offices and homes of Siemens staff due to an investigation of suspected embezzlement. Siemens claims the probe only concerns six individuals and a sum of money was in the low double-digit millions of euros. November 22 - Munich prosecutors were looking into the disappearance of 200 euros ($269.3 million) from Siemens’ accounts. December 11 - The scandal required Siemens to cut its reported (2005/06) net profit by 73 million euros. Siemens also hired outsiders to overlook its compliance system and regulations. December 12 - Ganswindt, who was in charge of Siemens’ at this time, is arrested. Siemens believe there were more than 420 million euros worth of dubious payments. December 15 - Transparency International, an anti-corruption watchdog, asks Siemens to leave the organization. 53 2007 January 3 - Siemens is also being investigated, for possible abuse of the United Nations oil-for-food program in Iraq, by a German prosecutor. January 12 - Heinz-Joachim Neubuerger, the ex-CFO of Siemens, has been questioned as a suspect in the bribery investigation held by Munich prosecutors.

5 3 “TIMELINE: Siemens Battles Corruption Scandal.”

January 24 - Siemens starts talks with U.S markets watchdog SEC April 23 - The resignation of Erich Reinhardt, head of medical technology, was a result of suspect activity emerging throughout his business. April 30 - Siemens puts the dubious payments at 1.3 billion euros. May 9 - Munich prosecutors reveal they have found no incriminating evidence that would cause criminal charges against von Pierer, however other former company officials, including von Pierer, are being investigated for the administrative offence of breaching their corporate supervision duties. July 28 - In correlation with the bribery investigation, the German court granted former Siemens executive a fine and two-year suspended sentence for his participation in creating slush funds to win contracts. July 29 - Siemens is pursuing a claim of damages caused by eleven former top managers for failing to stop illegal practices.^73 November 5 - Siemens will have to take a charge of about 1 billion euros in order to cover a deal it is seeking to settle the bribery allegations. December 15 - A U.S federal court accepts the proposed settlement. 83 Major Competitors General Electric

7 3 “TIMELINE: Siemens Battles Corruption Scandal.” 8 3 “TIMELINE: Siemens Battles Corruption Scandal.”

Siemens managed to maintain a strong financial performance in the first three months of 2009, which General Electric did not accomplish- Siemens main rival. After the allegations subsided Siemens stock began to grow rapidly. Years after the scandal allegations Siemens price per share, in 2013, was $136. which surpluses General Electrics which stood at $26.97 per share. However, before the scandal became public, General Electric’s price per share was increasing at a fast rate, while, on the other hand, Siemens price per share was slowly decreasing. From 2004 to 2005, General Electric’s price per share increased from $31.00 to $36.71, in comparison, Siemens decreased from $61.53 to $60.50. After the scandal took place it seems General Electric and Siemens switched roles into how their product plays into the market. If the scandal never happened, General Electric could have eventually caught up to, or even surpass Siemens may have caused Siemens to sink regardless. 94

Stakeholders and Auditors Stakeholders were appalled when being informed about Siemens allegation of bribery. More than 10, investors showed up at the city’s Olympiahalle to verbally attack the group’s executive and supervisory boards for not taking action when issues first start to rise. Stakeholders were very upset when they found out senior managers, that were involved in the creation of secret slush funds for bribery towards overseas officials, took an agreement with the company and later resigned, and the company proceeded to go about regular business. In 2007,Debevoise & Plimpton LLP brought in independent auditors Deloitte Touche Tohmatsu for their expertise in forensic accounting, to help examine Siemens’ control systems. The Corporate Executive Committee also encouraged the Audit Committee to hire Michael J. Hershman as Siemens’ compliance advisor. Siemens’ goal was to win back their stakeholders trust. In attempt to do so, Siemens launched a comprehensive training and education program on anti-corruption

9 4 “General Electrics and Siemens- Comparison Of 2 Industrial Conglomerates.”

behaviors. Siemens began liquidating Intercom in late May, which increased suspicion. During the whole process of investigations, there were key information and updates on local news. It did not take long for the public to be notified of the wrongful practices practiced by Siemens.^115 When the scandal started to arise the company’s board discussed taking former executives to court. There was a report distributed to several employees of the company’s internal control committee stating a possible suit against the managers at Siemens. There were a few employees that had reconciliation of the company’s corruption problems that they did not admit to. Interviewers, news channels, bloggers, etc. were all an active participant in relaying the corruption behind Siemens to the public. 125

Whistleblower Securities Exchange Commission officials publicly warned all companies that punish any employee who reports company wrongdoing through internal compliance programs the SEC will go after them. During the creation of the SEC whistleblower rulemaking, the US Chamber of Commerce aggressively argued that employees should be required to report wrongdoing internally first. However, under the SEC rules it clearly states, “whistleblowers are entitled to protection regardless of whether they report wrongdoing to their employer or the Commission.” SEC retaliates for all the whistleblower employees, against the company, during the time of the case while under investigation. All whistleblowers are protected by the Dodd-Frank anti-retaliation provisions and SEC regulations even if the whistleblower failed to report the incident to the SEC. Unfortunately, a judge dismissed the whistleblower’s retaliation claim involving the Siemens corporation due to closely looking at the anti-retaliation language implemented in the Dodd Frank, which states: it only applies for employees who report fraud externally to government agencies,

11 5 “At Siemens, Bribery Was Just a Line Item.” 12

which Siemens did not do. If the employee follows the internal compliance procedures, like Siemens, placed by the company then the employee has no legal recourse against the employer, even if the employee who reports internally fits into Dodd Frank’s regulations of a whistleblower. Another factor taken into consideration during this case, was that the employee, who is the whistleblower for this case against Siemens, is a resident of Taiwan but was employed at the Siemens in China. 136 The Dodd Frank Act does not take any “extraterritorially” to protect foreign whistleblowers. SEC fought back by filing an amicus curiae brief, but the controversial ruling arguments for their justification, include the following: When creating the language of the Dodd Frank Act, Congress did not intend to only protect those who chose to report externally; SEC interpreted Dodd Frank to help protect employees from retaliation by companies and is entitled to deference weather reported externally or internally; Only interpreting the whistleblower ‘protections’ towards only external reporters indirectly harms investors. 146

Works Cited

Forbes. “Siemens on the Forbes World's Best Employers List.” Forbes , Forbes Magazine, 6 Jan. 2018, www.forbes.com/companies/siemens/#6dc684d71f65. “General Electrics and Siemens- Comparison Of 2 Industrial Conglomerates.” Seeking Alpha , Seeking Alpha, 22 June 2014, seekingalpha.com/. Kelton, Erika. “SEC Ready To Rumble In Siemens Whistleblower Case.” Forbes , Forbes Magazine, 4 13 6 “The SEC Files Brief in Support of Whistleblower in Case Against Siemens.” 14 6 “The SEC Files Brief in Support of Whistleblower in Case Against Siemens.”

2018, bergermontague.com/the-sec-files-brief-in-support-of-whistleblower-in-case-against- siemens/.