The Bribery Scandal at Siemens AG
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ICMR HOME | Case Studies Collection
Case Details:
Case Code : BECG076
Case Length : 16 Pages
Period : 2006-2007
Pub Date : 2007
Teaching Note : Not Available
Organization : Siemens AG
Industry : Diversified
Countries : Germany
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Introduction Contd...
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In the light of the number of scandals that rocked Siemens in a short span of
time, questions were raised as to how the top management had failed to notice
such a deep network of embezzlement involving huge amounts of money. The crisis
ultimately led to the exit of the chairman of Siemens'supervisory board,
Heinrich von Pierer (von Pierer) and it's CEO, Klaus Kleinfeld (Kleinfeld).
Though they were not directly implicated in the scandals, the new board chairman
said that the leadership change had been made to give the company a clean break
from the past.
Critics felt that Kleinfeld should not have been replaced since he had been
instrumental in bringing back Siemens into profit.
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Kleinfeld had often been dubbed as the Jack Welch of Germany, and his exit
raised questions about the role of supervisory boards in the management of
German companies.
According to the Co-determination law or Mitbestimmung in
Germany (Refer to Exhibit I for a note on Germany's Co-determination law or
Mitbestimmung), every company had to have a two-tier system of management,
in which the supervisory board consisting of labor representatives oversaw
the management board. This system often led to collusion between management
and labor representatives, and some critics felt it needed a thorough
overhauling.
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Background Note
Siemens was initially started as Telegraphen-Bauanstalt von Siemens &
Halske (Siemens & Halske) in 1847 by Werner von Siemens (Werner) and a
mechanical engineer, Johann Georg Halske (Halske). In 1853, the company
won its first international contract to build a telegraph network that
stretched around 10,000 kilometers and provide maintenance services for
it, in Russia. In 1855, Werner set up subsidiaries in Russia and Britain
to serve the growing opportunities for the company outside Germany and
entrusted their responsibility to his brothers. In 1865, the British
subsidiary was renamed Siemens Brothers. |
In 1866, Werner discovered the dynamo-electric principle and
got the necessary patents in Germany and Britain to enable the company to cash
in on the invention. In the late 1870s, power engineering began to develop
rapidly in Germany with the advent of electric railways, electric street
lighting, electric elevators, electric tramways, etc.
In order to prepare the company to meet these growing business opportunities,
Siemens & Halske concentrated on retaining qualified and reliable employees. The
company shared its profits with its employees through stock options. A pension
fund was created for the benefit of employees and their families. The company
introduced the concept of fixed working hours per day. It also started focusing
on training its employees for specific jobs and career progression...
Excerpts >>
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