Change At Siemens After Corruption Scandal

This change management report is intended to present the boundary condition of culture change efforts at Siemens after corruption scandal came to light on November 2006. Even prior to corruption scandal, Siemens had a system of rules, policies and procedures; however it had not done enough to entrench its values, policies and procedures into company practice. They lacked in subsequent leadership and culture, inconsistent communication, training and company did not take adequate measures to punish conduct in breach. Siemens understood that they have to make some changes to its business to bridge the gap between theory and practice. This report will discuss about

Siemens AG (Berlin and Munich) is a one of Germany’s largest publicly held corporations and Europe’s largest engineering conglomerate by sales. Siemens is a global powerhouse in electronics and electrical engineering, operating in the industry, energy and healthcare sectors. It activities include cross sector businesses and services, equity investments. The company has around 405,000 employees working to develop, design and install complex project and tailor a wide range of solutions for individual requirements. Siemens has built his reputation and world class with its technical achievements, innovations and internationality over 160 years, generating a sales volume in excess of €75 billion with communication division at the heart of business (Siemens, 2010).

Up until 1999 bribing foreign officials to secure contracts was not only authorized but tax deductable in Germany. Siemens were allowed to pay legal fees for employees who got arrested or prosecuted abroad for bribery. Corruption is a part of a country’s culture, so is Siemens. It maintained a culture in which corruption was “a likely business strategy” to enter into emerging markets. In addition Siemens had grown closer to government (Rawi Abdelal et al., 2008). A culture of corruption in a dominant organisation does not occur accidently. Why would workers willingly commit an offence? The only likely explanation is if the organisation rewarded such behaviour. Siemens is not the kind of organisation where tens of thousands of slush funds gets unobserved. It is conceivable, certainly plausible, that Siemens’ top management knew anything about the bribes and corruption scandal. But as top officials they share responsibility for the widespread see-no-evil-hear-no-evil corporate culture in their organisation, which suggest that Siemens lacked a corresponding leadership and culture. So it is evident that culture at Siemens was illegal and unethical.

Klaus Kleinfeld appointed as CEO of Siemens in January 2005-a conglomerate with 75 billion euro’s. He was called as wunderkind among shareholders of Siemens after turning the operation of communication division and making profits of 569 million euro’s or (3.2%) increase in sales. Later on November 2006, Klaus Kleinfeld announced that Siemens net income went up by 38% and sales growth were up by 16% from previous fiscal year (Rawi Abdelal et al., 2008). Leader will go wrong, if they jammed in single metaphor (Esther Cameron & Mike Green, 2009) and this is what Siemens witnessed. Despite knowing the corporate culture of the organisation, he broke accustomed consensual management style, instead he threatened to sell or restructure if they didn’t hit targets. Kleinfeld focused only on the colossal task of strategically restructuring the division and ways to improve the company growth. According to business daily Suddeutsche “Kleinfeld gave lot of attention about the financial markets demand and restructuring the company”. Spiegel particularly concentrated more on Klaus Kleinfeld’s tactical errors: Possibly his biggest failure was to underestimate the impact of bribery scandal (Rawi Abdelal et al., 2008). He seemed to not fully take control as bribery scandal kept whirling around the company. This shows that Kleinfeld’s recklessness and negligence.

This body of work presents the boundary conditions of the Siemens change effort. It has been believed that organisational leadership and culture, with in the present organisation’s business environment, are the most critical aspects that determine the dynamics of organisational change. Siemens had policies in place, but they were not lived up to the expectation, the corporate values were not incorporated and leadership has failed miserably, resulting cost of € 660 MM fines and € 650 MM attorney and consultant fees (Frank Schmidt & Kenny Mok, 2008). Reputation and trust were battered due to the series of corruption scandals which rocked Siemens. Siemens was blacklisted in Nigeria by Federal Government of Nigeria (Felix Onuah, 2007). As a result reputation and trust were battered due to the series of corruption scandals which rocked Siemens. So to keep hold of business, Siemens were in the position to change their culture and leadership style in order to get rid of corruption.

Corruption Scandal:

But one of the major concerns with Siemens was corruption kept escalating. Siemens has been at the middle of a very serious corruption scandal, since November 2006. Siemens officials have been investigated and scrutinized in a bid to clarify uncertain payments totalling some €1.3 billion ($2.07 billion). In 2006 Siemens was at the middle of one of the Germany’s biggest corporate corruption scandal. In November 2006 around 270 police and other German officials ransacked Siemens offices. Six executives were arrested, including CFO of telecommunications division. German officials alleged that the suspects had diverted some 200 million euro’s through secret bank accounts in Liechtenstein, Switzerland and through shell companies, paying bribes for winning contracts in Iraq, Venezuela, Bangladesh, Italy, Israel, Russia, China, Argentina and Greece (Rawi Abdelal et al., 2008).

Repercussions of the Scandal:

Siemens identified the expenses of corruption as very high, through slowing down financial growth, rising levels of poverty, foreign investment misallocation, reducing tax revenues and additional government costs. Siemens concentrated on some of the key areas where they lacked quality in order to get rid of corruption. It is also very imperative to keep up their brand name and reputation to do good business and compete against their rivals. After the corruption scandals were unveiled at Siemens, the management started many initiatives to reinforce its compliance controls and corporate governance.

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New Governance Structure:

One of the most important challenges an organisation faces, apparent leadership is crucial if an organisation is to make sure that the board and employees are not engaging in bribery and corrupt practices. It is really imperative that the board members do not transmit mixed signals; urge officials and managers to follow strict codes and high standards. Siemens supervisory board members Huber, Ackerman and Cromme were against their former CEO Kleinfeld, although profits had increased by about a third and sales by about 10%. As a result Kleinfeld was asked to step down because the image of the company was in tatters. For the first time ever in the history, board members turned to an outsider as chief executive officer-the Austrian Peter Loscher (Rawi Abdelal et al., 2008). Siemens implemented new managerial board position for compliance and official matters. Peter Solmssen, Hans winters and Andreas Pohlmann were appointed as General Counsel, Chief Audit officer and Chief Compliance officer respectively (Dietrich G. Moller, 2009). Loscher was in a position to develop a power base for him and then make sure his acceptance. Unlike Kleinfeld, Loscher made sure to maintain co-operative relations with unions and employees. Understanding culture is desirable for leaders in order to lead and to make a successful change. For e.g., what the leaders pays more attention to, controls and measures on a regular basis, how do they respond to crises and critical situations, how do they assign limited resources, promotions, rewards and status, all these factors informs the culture that has been developed in an organisation.

Training:

Since Siemens’ was listed on New York Stock Exchange, it was expected that Security & Exchange Commission (SEC) would interrogate the scandal and might impose higher fines than authorities of German, whilst the U.S justice department would launch a criminal probe (Rawi Abdelal et al., 2008). To meet the challenge, Siemens had restructured the Compliance and started a comprehensive compliance program. So Siemens hired a cofounder of Transparency International to consult on compliance and hired the well-known United States law firm of Debevoise & Plimpton to investigate the bribery scandal. Top officials and divisional heads were asked to submit joint bids for projects, a measure designed to remove corruption. (Andreas Pohlmann, 2008)

Compliance program focussed on three important factors

Siemens concentrated on providing training, propagating awareness and understanding and implemented a control system in order to overcome substantial deficiencies. Training is very imperative to make sure the exact implementation of the controls. To avoid unethical business practices, the Siemens provided anti corruption programs as a part of training for more than 15,000 employees. In addition, Siemens launched a web based anti corruption training program for more than 120,000 employees (Andreas Pohlmann, 2008)

This graphs shows that training is gradually increasing from the year 2008 to 2009 and Compliance staff increasing from 86 in 2006 to 598 in 2009 (Dietrich G. Moller, 2009). Siemens thought, compliance is the common platform and the moral responsibility to sustain the mutual set of morals for which the firm stands: superiority, creativity and accountability.

Detect:

Siemens relied on the loyalty of their employees towards the company, to detect and
Identify potential problems at the early stages. They motivated and encouraged their employees to actively participate in developing a culture of reliability by not allowing anybody to violate in the organisation. They launched a helpdesk with “Tell us” and “Ask us” functions, so employees were asked to inform the helpdesk if anybody violates the rules (Dietrich G. Moller, 2009).

According to Ask me helpdesk, around 3000 questions were raised regarding particular compliance problems, and many individual violations have been reported at the helpdesk.

Respond:

Siemens has started responding to non-compliance, violation and misconduct through regular and proper sanctioning across each and every departments of the business. Siemens had enforced more than 550 penalizing measures in fiscal year 2007 (Dietrich G. Moller, 2009).

Communication

Communication is an imperative factor for Siemens to incorporate its new strategic direction of superior ethical behaviour, corporate social responsibility and transparency. Siemens has started concentrating on more direct discussion between the employees and Managing Board — in both directions. Through this way, Siemens communication of morals and values can be sustained right through the business, without being lost in transformation. Siemens has placed tactical significance on making its anti corruption strategies and compliance guide easy to read, this would help the employees to understand better (Article 123, 2008).

Approaching Change:

Altering the culture of an organization may be the toughest job a CEO will ever take on. The culture in an organisation or department is shaped over years of relations among organization members. The change process requires statistics, cautious study and good consideration of results.

Scheins’ Organisational culture model:

Culture is the ‘pattern of basic assumptions that a given group has invented, discovered or developed in learning to cope with its problem of internal integration and external adaption’ (Schein, 1990). Culture is not only about programmes and initiatives, it is everywhere in the company (Cameron & Mike Green, 2004). Thus culture gives a sense of organizations’ norms, values, beliefs, rituals and language; the way in which things are to be done around. To understand organisational development, learning and planned change, culture is considered as primary resource (Schein, 1999). Though Schein’s model has been criticised (e.g. Collins 1998, Hatch 1993, Parker 2000), it specifies the main aspects of culture, namely its partly learned and unconscious nature. Organizational culture, consequently, is not simply a single new entity which illustrates organizations and which can be also identified from the other entities that impact an organization performance. Scheins assumes culture as a set of shared postulations, which can examined at three important levels.
The first level of Schein’s culture model consists of perceptible organizational process and various artefacts that can be heard and felt by uninitiated observer. First of all, the fact that will shape the entity of this investigation is culture itself (Schein 1992). Artefacts consist of any physical or tangible elements in a company. Dress code, furniture, history and architecture all represent organizational artefacts (cf. Reason 1997). According to Schein, it is really difficult to understand the true meaning without detailed study, since it symbolizes the most superficial cultural phenomenon i.e. only reflections of the exact business culture
The second level of Schein’s model consists of the company’s espoused values. These are very comprehensible in, for example, the company’s objectives, declared values, operating philosophy and norms. However, espoused values do not always reflect an organisation’s daily functions and businesses. Most key and imperative in terms of functions is the in-depth culture level, i.e. its principal assumptions (Schein 1985, 1992). Actions and behaviours of a successful individual employee in the organisation become benchmarks on which other employees refer to. Such historical behaviours and actions become organizational key values.
Third level of Schein’s model consists of basic assumption and underlying values. The essence of culture is characterized by the fundamental underlying values and assumption, which are difficult to distinguish as they present at an unconscious level. Underlying values is a array of decisions that form the culture further. Therefore, they are not static (Schein 1985, 1992). Basic Assumptions are considered as an ultimate source of actions and values.

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Analysing culture: Assessment (What to look for)

In order to assess the culture, Siemens has to identify their artefacts. Artefacts can be identified by conducting surveys, group meetings or personal interviews that asks the employees to list their reactions to various artefacts. A pattern for identifying artefacts include: level of formality in relations, working hours, dress codes, rituals, ceremony, myths and how decisions are made (Scheins, 1999). Secondly, espoused values should be examined. This can be obtained easily since every organisation has their written values. According to Argyris & Schon, the best word is ‘espoused’ values, since most of the organisations have written values but ‘act out’ different values (Scheins, 1992). Finally, underlying assumptions should be identified. Possibly the best way to spot basic assumptions are through progression meeting – where all the artefacts are listed, underlying values and assumptions are reviewed (Scheins, 1992).

Analysing culture: Analysis (Congruence Test)

Using the assessment Siemens can compare the cultural artefacts to the stated values to check if the stated values are congruent with physical materializations of the organisation. Second level is to compare the espoused with the actual value of the Siemens. Then, analyse the type of culture that enhances the mission of the Siemens. Find out the new value and implement it in order to accomplish the company’s mission and goal. Finally, culture can be compared to the employees. Here, the employees would be observed in terms of personal ideas, values of what is significant, and personal decision making procedures.

Analysing culture: Implementation (Finding changes

Final step is to figure out the changes in the organisation to accomplish the mission. Whilst execution of cultural changes is a colossal undertaking that ‘changes sensibly conceived, but conventionally fail’ (Bolman and Deal, 1997), the gaps between artefacts and espoused values, assumptions and espoused values, workforce and culture or culture and mission are identified in the analysis stage.

Implementing Change:

Kotter’s eight step model:

Kotter established eight steps and he believed that these 8 steps would lead to successful changes. He has developed an 8 step model where the first four levels focus on unfreezing the organisation, the next three levels focus on what needs to be changed , and the last level refreezes the company with a brand new culture. When organisations need to make huge changes effectively and significantly, these are the eight steps to be followed in sequence.

Establish a sense of urgency:

For change to take place, Siemens really have to develop a sense of urgency. In order to do that Peter Loscher and other board members have communicated to their employees about the need for change and significance of acting without delay. They examined the market strategies, competitive realities, reputation, how to prevent corruption and potential problem of the failure. This is not merely a matter of just telling employees about the corruption, poor sales statistics or discussing about increasing competition. Board members explained about the drawback of corruption and why corruption has to be removed. It is really imperative for Siemens to spend significant energy and time to develop the urgency in order to lead the change.

Form a powerful guiding coalition Team:

Top management of Siemens should shape powerful corporate governance with enough leadership skills, authority, credibility, communication ability and energy to lead the change. Leaders should be able to convince the employees that change is necessary. So Siemens appointed Peter Loscher as their CEO in 2007. Siemens implemented new managerial board position for compliance and official matters. After joining the company Peter Loscher communicated both his and shareholders expectations, and to set comprehensible compliance targets based on values of responsibility and integrity for all firm departments,
units and levels.

Develop a clear vision and strategy:

The mission is to create a culture of openness and honesty right through the business, evidently driven from the board. The first step will typically be for the CEO to make a presentation to the board, possibly after review by board committee or risk management function. The important lesson learnt at Siemens is that a cadre of managerial positions is necessary at organisations to make sure the reliability, operation and integrity of the organisation. The frequency and level of bribery and unprofessional behaviour had significantly increased until Peter Loscher took over; top management, board and employees realised that they wanted to change their culture when world largest corruption scandal came to light. Tone from the share holders after corruption scandal

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“The tone from the shareholders” is

  • “Only Clean Business is Siemens Business!
  • Everywhere – Everybody – Every Time!”
  • “Compliance as Part of Corporate Responsibility is 1st Priority!”
  • Peter Loscher and board restructured the corporate governance and enhanced the compliance department.

    Communicate the Vision:

    In this step the new vision and strategies should be communicated in every possible ways to employees. Make sure that everybody in the organisation understand and accept the strategy and vision. After identifying the strategies, Siemens communicated those strategies to the employees by the compliance department and anti corruption programmes. To avoid unethical business practices, the Siemens provided anti corruption programs as a part of training for more than 15,000 employees. In addition, Siemens launched a web based anti corruption training program for more than 120,000 employees. Training is very vital for altering the mindset and developing a culture of integrity and responsibility. Siemens vision is to remove the corruption and change the culture, because Siemens understood the cost and impact of corruption and were very desperate to get rid of corruption.

    Empower others to act on the vision:

    They motivated and encouraged their employees to actively participate in developing a culture of reliability by not allowing anybody to violate in the organisation. They launched a helpdesk “Tell us” function, so employees were asked to inform the helpdesk if anybody violates the rules. It is really imperative for Siemens in order to get rid of obstacles. So they enforced around 500 disciplinary measures in the year 2007, mostly the cases of violation, and corruption.

    Create Short term wins:

    Changing the culture, either good or bad, it is not going to happen overnight. Siemens achieved their short term goal when their employees began to realize that they were anticipated to do their duties in a professional and ethical manner. Siemens monitor the progress of the compliance program by conducting employee survey. Survey results include: Positive perception of compliance program, compliance communications understood and well regarded. Siemens thought that compliance issues have changed the economy and society – and it has changed Siemens.

    Consolidate improvements and producing still more change:

    Siemens engaged in variety of co-operative initiatives with international organisations committed to fight against corruption and sustaining and establishing freedom of competition. Siemens continuously improved their compliance program by co-operating with international and non government organisations, such as World Bank institute by exchanging knowledge and vice versa. By monitoring the process and receiving the feedback continuously will help Siemens to improve change.

    Institutionalise the new approaches:

    Siemens needs to believe a leading role in integrity, transparency and compliance with the clear aim of becoming a respected international organisation in the fight against bribery and corruption. They needed to move towards a value based culture and to bench mark with the best. In order to achieve these objectives they have to inst­­­itutionalise the new strategies and approaches.

    Conclusion:

    The above study has looked at the context, content and process adopted by Siemens in order the change their culture after the bribery came into light on November 2006. This study will also give an overview of how Siemens has implemented detailed anti programmes policies on bribery and corruption, altered its management structure to fit its new values and policies, developed a new compliance department and has made changes to their communication with direct conversation between workforce and management. The Scheins model analysis helps us to understand the culture of the organisation and what changes needed to be done, while Kotters model helps us to understand how the change can be implemented. Unprofessional behaviour and violation of rules and standards are something all organisations must constantly be alert of. Eventually, the changes at Siemens have allowed the management to successfully meet its mission, which is an obligation to public safety.

    References:

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