ETM 7500 Module 4 Written Assignment: Bribery Abroad and the Siemens Case Example

Slush Funds and Sales Targets: What the Siemens Bribery Case Teaches About Global Ethics

Student Name

Master of Business Administration, Thomas Edison State University

ETM-7500: Ethics for Managers

Mentor Name

Month Day, Year

Slush Funds and Sales Targets: What the Siemens Bribery Case Teaches About Global Ethics

The Case

Through the late 1990s and 2000s, Siemens maintained off-book accounts and paid intermediaries to channel money to government officials in countries across Asia, Africa, Latin America and the Middle East, helping it win contracts for power plants, telecommunications networks, medical equipment and transit systems. The practice was systematic rather than the work of a few rogue employees. Siemens settled in December 2008, pleading guilty to charges brought under the Foreign Corrupt Practices Act, the U.S. anti-bribery law, and agreeing to pay $450 million in criminal fines, alongside $350 million in disgorgement to the Securities and Exchange Commission (U.S. Department of Justice, 2008). It settled with prosecutors in Munich at the same time, bringing its total penalties in the two countries to about $1.6 billion.

The "Local Custom" Defense

Employees and some managers defended the payments as necessary to compete in markets where bribery was expected. Donaldson (1996) addresses this argument directly: practices abroad should be judged by whether they violate core human values, such as respect for basic rights and good citizenship, and by whether a company could do business in that country without them. Bribery fails both tests. It is illegal in nearly every country where it occurs, which shows it is not a genuine local norm but a practice local law and ethics already reject. And many companies, including Siemens after 2008, have shown that business can be won without it.

Ethical Evaluation

Kantian reasoning. Bribery cannot be universalized: if every company bribed officials, public contracts would go to the highest briber rather than the best bidder, and the system of public procurement would collapse. It also treats the officials' citizens as mere means, since the cost of bribes is built into contract prices paid with public money.

Utilitarian reasoning. The benefits went to Siemens and the officials. The costs fell on many others: citizens who paid inflated prices for infrastructure, honest competitors who lost contracts, Siemens employees who were prosecuted and shareholders who paid billions in penalties and lost reputation. Bribery also weakens institutions in poorer countries, where corruption diverts resources from public services. In the view of Jimenez and Pulos (2016), corporate responsibility includes not undermining the institutions of the places where it operates; systematic bribery does exactly that.

The Response

After the investigation began, Siemens replaced its chief executive and much of its senior leadership, hired outside investigators, offered amnesty to employees who disclosed information and rebuilt its compliance function, eventually employing hundreds of compliance staff worldwide. It accepted an independent monitor as part of its U.S. settlement. Its later reputation as a company with a strong compliance program shows that a culture can change, though only after enormous cost.

Recommendations for a U.S. Exporter

Consider a composite Pennsylvania maker of water treatment equipment with $140 million in sales, a quarter of it from government utilities abroad.

1. Tone from the top, with teeth. The chief executive should state that the company will lose business rather than pay bribes, and the board should hold executives accountable for compliance as well as sales.

2. Control the intermediaries. Most bribery runs through agents and consultants. Require due diligence on every foreign agent, written contracts with anti-bribery clauses and payments only to accounts in the agent's own name and country.

3. Remove the incentive. Do not pay sales commissions on government contracts until compliance review is complete, and include compliance in sales managers' evaluations.

4. Make reporting safe. Provide a confidential hotline in local languages and protect employees who report concerns.

5. Train for the real situation. Train staff on facilitation payments, gifts and travel for officials using scenarios from the countries where they work.

Conclusion

The Siemens case shows that bribery is not a local custom to be respected but a practice that harms citizens, competitors and eventually the company itself. A global business needs a single standard enforced everywhere it operates, and a compliance program built around the places where bribery actually happens.

References

Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review, 74(5), 48-62.

Jimenez, G. C., & Pulos, E. (2016). Good corporation, bad corporation: Corporate social responsibility in the global economy. Open SUNY Textbooks.

U.S. Department of Justice. (2008, December 15). Siemens AG and three subsidiaries plead guilty to Foreign Corrupt Practices Act violations and agree to pay $450 million in combined criminal fines [Press release].