Being a good business is also good for business
SOUTH Africa faces daily allegations of political and corporate corruption. This is something which global engineering firm Siemens had to confront 10 years ago. In 2007 the company hit the worst crisis in its 170-year history.
Siemens was found to have systematically violated anti-corruption laws and accounting regulations in one of the biggest-ever business corruption scandals, spanning markets internationally.
What followed was a turning point for a firm with turnover now close to €80 billion (R1.25 trillion), operations in more than 200 countries and about 351 000 employees.
The company co-operated with investigators and launched its own probe into every part of the business. It paid $1.6bn in fines in Germany and the US, and launched a massive cull of management. The chief executive and chairperson were forced out.
Around 80 percent of top executives were replaced, 70 percent of the next level, and 40 percent of the level below that. This was the point at which Siemens committed itself to 100 percent ethical practices. And it discovered that it did not need to bribe. Its products would stand on their merit.
Crisis becomes opportunity Over the next two years, the company developed and implemented the world’s most rigorous compliance management system.
Today, its anti-corruption policy governs operations in almost every country in the world.
Siemens had turned the crisis into an opportunity. The sense of urgency created by scandal inspired changes which may not otherwise have been possible.
Its anti-corruption and compliance culture now permeates every corner of a global organisation delivering infrastructure, automation, electrification and digitalisation in energy, transport, health care, manufacturing and mining.
Any party wishing to contract with Siemens is sent a letter outlining the company’s ethical commitments.
It will not bribe, and it undertakes to report corruption anywhere it is found.
The company makes sure staff, contractors and customers understand the impact of corruption, as a destructive practice which enriches a few, but impoverishes many.
Siemens’s arguments against corruption are ethical, economic, social and political. Corruption damages societies, communities and economies. It forces taxpayers to pay more for less. Corrupt deals lead to inferior infrastructure, and undermine the business principle of a level playing field.
In Africa, corruption cheats governments of $50bn a year, according to the Institute for Security Studies (ISS), which has described corruption as a neglected human rights violation and a major catalyst for migration and terrorism.
Corruption robs nations of resources and potential, and stands in the way of successful cities, sustainable economies and safe societies. It discourages donors and destroys investor confidence, strangling development, progress and prosperity.
Transparency International has shown that levels of corruption in a country have a direct correlation with its development.
Corruption is by no means only an African problem. A report by the African Development Bank and Global Financial Integrity found that up to 65 percent of the $60bn revenue lost to Africa in 2010 through illicit financial flows in fact disappeared in commercial transactions involving multinational companies.
. Past role Siemens today recognises its past role in corruption and will have no further part in it. It is proud to be part of a growing corporate and state ecosystem working against the scourge of corruption nationally and internationally.
In 2016, Siemens was again recognised by the Dow Jones Sustainability Index as one of the most sustainable industrial companies, with 89 out of 100 points overall and top marks in nine of the 20 categories, including corporate citizenship.
Since the 2007 scandal, German and US prosecutors have recognised Siemens’s extraordinary co-operation and extensive remediation and compliance programme.
Contracting authorities worldwide have shown that they consider Siemens to be a reliable and responsible contractor by consistently awarding it large projects.
The World Bank has explicitly acknowledged the “robust” and “comprehensive” self-cleansing measures taken by Siemens.
The company now collaborates with the World Bank to fight fraud and corruption, and it has invested more than R200 million to initiatives that promote good corporate governance.
Dangerous gap The UN Convention Against Corruption is a global agreement adopted in 2003 with 140 signatory countries. The African Union Convention on Preventing and Combating Corruption was adopted in 2003 with 34 signatories. Most countries also have their own policies, laws and dedicated agencies for investigating and prosecuting corruption. South Africa has at least 11 agencies with a role in addressing corruption.
Yet South Africans are assailed by daily media allegations of state capture, tender collusion and brazen theft of billions from state enterprises and the national fiscus. As is often the case in corporate or political systems, there is a substantial gap between policy and implementation.
The ISS points out that many countries lack the capacity to police their own anti-corruption architecture.
This creates space for corrupt officials and business people to continue their nefarious activities without fear of pursuit or prosecution.
Siemens actively manages its own compliance. It recognises the cultural conditions and economic environments in which corruption happens. But it is not tolerated. Corruption can’t happen in isolation. It takes two parties and Siemens will not be one of them. This approach covers every form of corruption, from officials seeking payment for a favourable tender award, to regulators turning a blind eye to safety risks, and journalists seeking payment in return for favourable coverage.
Better bottom line Siemens’s financial results have improved every year in the 10 years since its new compliance regime took effect. It’s also good for staff safety, morale and performance.
Siemens wants a reputation, not just as a global leader in engineering, but also in ethics. It wants to be associated with ingenuity in infrastructure, as well as reliability, fairness and integrity in business.
All managers at Siemens must take direct responsibility for preventing, detecting and responding to corruption. This goes right to the top, with the global legal and compliance team reporting directly to the international chief executive Joe Kaeser.
Siemens acts swiftly against any contravention with rigorous punitive action. Compliance forms the basis for all the company’s decisions and activities.
Siemens is also active in international organisations that strengthen responsible business practices. Since late 2013, Siemens’s chief compliance officer has chaired the Anti-Bribery and Corruption Policy Group of the OECD’s Business and Industry Advisory Committee.
Compliance is embedded throughout the company through communication and training that strengthen the culture of integrity among Siemens employees.
Management is trained to build compliance risk into every business decision, and compliance is guided and enforced by powerful senior compliance officers working closely with management and staff.
Siemens today has precise guidelines for managers to observe competition and anti-corruption law, the correct handling of donations, the avoidance of conflicts of interest, the prohibition of insider trading, and the protection of company assets. New staff at Siemens are even screened for integrity during the recruitment process.
Ethical advantage Siemens’s commitment to clean business is a competitive advantage, even if it sometimes fails to secure contracts because of its ethical approach. It doesn’t want business that’s awarded corruptly.
Bribery means that customers pay more and get an inferior product, which is a huge problem when the product is a railway line, a power station or a hospital which must deliver safely-critical services to millions of people for decades.
At the time of its scandal, Siemens thought it was compliant with all relevant financial and legal standards. But it hadn’t invested in compliance as an independent function. This has since been one of the company’s biggest single human resource investments.
Compliance is now a function with hundreds of senior people globally. Siemens has today recovered from the scandal. And it has made it a better business.
Corporates to come clean The OECD’s 2014 Foreign Bribery Report gave a detailed analysis of transnational corruption based on data from 427 foreign bribery incidents, showing that 53 percent of cases involved corporate management or chief executives; 57 percent involved bribes to obtain public procurement contracts, and 75 percent of cases involved payments through intermediaries.
Much of the corruption in Africa happens in large infrastructure projects, according to Eric Pelser, head of a pan-African organised crime monitoring network called Enact. This typically involves government agencies and big business.
“The corporates hold the power,” Pelser says. “If they rejected corruption and enforced compliance we’d see a massive decrease in African corruption overall.”
Siemens is proud to be part of that solution.
Rainer Buehrer is Siemens’s regional compliance head for Africa.
Over the next two years, the German company developed and implemented the world’s most rigorous compliance management system.