Coming Clean At Siemens

Spiegel’s December 12, 2007 online edition has a fascinating interview with Peter Löscher (left), who became ceo of Siemens AG in July 2007. There’s lots for him to talk about. In October 2007, the German engineering and industrial giant settled global corruption charges with Munich prosecutors for €201 million, based on questionable payments of €420 million — an amount the company later revised upward to €1.3 billion. In the United States, the Securities and Exchange Commission and the Department of Justice are investigating whether Siemens violated the Foreign Corrupt Practices Act. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia and Norway.

In the interview, Mr. Löscher slams Siemens’ former culture. He also provides a neat preview of arguments the company will marshal in talks with U.S. prosecutors early next year. It’s always a good idea when facing FCPA charges to stress corrective measures already taken — such as aggressive house cleaning among management and real efforts to create a new culture of compliance. Mr. Löscher apparently will be doing just that.

Here are excerpts from the interview:

SPIEGEL: Siemens has been shaken by what has probably been the biggest corruption scandal ever made public. Were you truly aware of what you were getting yourself into?

Löscher: To be honest, I underestimated the scope of the problem. The sum of questionable payments has now increased to €1.3 billion ($1.9 billion). In the summer, the charges centered on the Com division, that is, the communications business. But it’s now clear that other parts of the company were clearly infected, as well.

SPIEGEL: The company has already incurred costs of €1.5 billion in penalties, back taxes and legal and consultants’ fees.

Löscher: And the investigation is still underway.

* * *

SPIEGEL: So it was a system based on a shadow economy. How could something like this have developed in the first place?

Löscher: It’s completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rules. Siemens had and still has an outstanding set of rules. The only problem is that they were apparently being violated on an ongoing basis. The management culture was simply not practiced consistently and uniformly. This is why my job now is to install a new culture. And I can guarantee you that senior management will practice what it preaches — to a T.

* * *

SPIEGEL: Why did corruption at Siemens continue for so many years, even after the laws had been toughened in Germany, and after Siemens had been listed on US stock exchange, thereby subjecting itself to tighter American controls?

Löscher: Once again, our management culture failed. And that’s something we will address — all of it. Four-hundred-seventy executives have already been sanctioned, and we have parted ways with 130. It is important that every Siemens employee knows that rules and laws must be observed. Anyone who fails to comply can expect the most serious of consequences.

SPIEGEL: What if someone confesses to old sins and asks for a second chance?

Löscher: We have implemented an internal amnesty program that runs until the end of January. In addition, any employee can anonymously report confidential information. This could raise new suspicions that haven’t even been part of the discussion until now. I want a comprehensive inquiry and the complete truth.

* * *

SPIEGEL: Siemens is a company with global operations. What will you do in the future in regions or in situations where landing a contract may depend on paying bribes?

Löscher: Siemens endorses clean business. Period. I am not interested in deals that can only be had through corruption. This doesn’t necessarily mean that we have to stop doing business in an entire country, but perhaps it does mean turning down specific projects or customers.

SPIEGEL: You would turn down the prospect of sales voluntarily?

Löscher: Do I even have to? Our orders were up by 19 percent last quarter. Infrastructure projects worth €500 billion will be awarded in the coming years in India alone. Business is booming. Our worldwide opportunities are promising and by no means exhausted.

SPIEGEL: The Nigerian government has imposed a moratorium on doing business with Siemens. Do you expect other countries to follow its lead?

Löscher: I would rather not speculate about that.

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View prior posts about Siemens Here.

View Spiegel’s Interview with Siemens’ CEO Peter Löscher Here.