Scandal puts Siemens to the test
By Richard Milne
Published: January 21 2008 02:00 | Last updated: January 21 2008 02:00
Is Siemens' reaction to its bribery scandal making the company stronger than ever or killing it off?
As the German industrial conglomerate prepares for what could be a stormy annual meeting on Thursday, a debate is raging both inside and outside the company on what kind of Siemens will emerge from perhaps the world's biggest corporate bribery scandal.
Few question that serious action was, and is, needed after the company found €1.3bn ($1.9bn) in suspicious payments. But some people close to Siemens are wondering whether its latest moves risk alienating huge swathes of senior managers.
The spark for the debate was last week's decision to postpone a vote by shareholders on approving the actions of the management board after Debevoise & Plimpton, a law firm Siemens hired to investigate the scandal, received new information and leads that implicated several members - both current and former - of the board. That information came from an amnesty programme offered to Siemens' employees - but not several hundred of its most senior managers - who would not be sacked or sued in return for speaking out.
"A lot of people are unhappy," says the head of an investment bank in Frankfurt close to Siemens. Another senior banker who knows the company and its manager well says: "I know six or seven senior guys who are scared out of their wits. Depending on how you define the matter, an awful lot of people could be implicated and the ranks of senior management could be decimated. What do you think this is doing to the morale of the company? There is a risk Siemens could implode."
Directors responsible for rooting out corruption at Siemens - led by the new chief executive, Peter Löscher - dismiss the complaints and say concerted action is necessary to change the company's culture and make it stronger. "We are using the crisis and the positive elements to create something better," Mr Löscher told the Financial Times last month. "One thing is clear: this company failed based on leadership responsibility and culture."
A senior director involved in the amnesty programme lauds its results: "It was a very good day for Siemens. We will rigorously and vigorously go after this. Of course, that means there will be lots of uncertainty. But there is now a clarity of action and no doubt on the consequences."
One case that has particularly concerned Siemens managers is the withdrawal of the nomination of Hannes Apitzsch as finance director of its €40bn industry sector only a week after his appointment. Mr Löscher justified the move on a precautionary basis after a company lawyer was allowed to see prosecutors' files into allegations Siemens had helped fund a rival to its main trade union. Mr Apitzsch, who Siemens has declined to make available for comment, also withdrew his candidacy for the post, the company said.
The senior director says: "This will not be the only one. But this action is about changing the culture and showing we will act immediately and have no sacred cows."
The senior banker disagrees: "What message does this send to managers? You could all be guilty. Löscher now has as many enemies as he can imagine and I am told he is starting to refuse to delegate to certain people. What they need to do is draw a line and stop looking at the past and start looking forwards. I recognise that any strategy to deal with corruption has very serious risks but I am convinced this one will kill Siemens."
Others see the matter in less strong terms, noting that Mr Löscher - the first outsider to run Siemens in its 160-year history - has also built up a hard core of supporters after promoting dozens of young managers. "Sure, a lot of the older guard are irritated and some have become enemies but he has a lot of loyalists now too. There will be some pain but I think it will turn out OK in the end," says one of its top 200 managers.
A top-five investor in the company praises Mr Löscher's start and his determination in tackling the corruption scandal. But he says the real test will come if the global economy starts to slow down and threaten the one undoubted success Siemens has at the moment: record results. "What this company needs more than anything," he says, "is peace and quiet so that Löscher can focus on the important thing - the business - rather than infighting."
Siemens meeting
Published: January 20 2008 18:24 | Last updated: January 21 2008 08:48
Should investors take rotten fruit and eggs with them to Siemens’ annual general meeting on Thursday? The company is proposing to postpone the traditional opportunity this provides to express frustration, the Entlastung – a symbolic vote to approve the management board’s actions during the past year.
And an air of pantomime villainy surrounds the German conglomerate’s executives. An internal investigation into €1.3bn worth of suspicious payments has recently uncovered information potentially implicating unidentified management board members, hence the delay in the vote. Before that, several small German shareholder groups had objected to the re-election of the supervisory board chairman, Gerhard Cromme, even though he was cleared by investigators.
Mr
Cromme is a company veteran who survived the coup that ousted former
chief executive Klaus Kleinfeld last April. Replacement Peter Löscher
is the first outsider in the top Siemens job. Arriving just as his
predecessor’s two years of restructuring had begun to bear fruit, Mr
Löscher spent €7bn on an expensive acquisition within weeks of
starting, further irking investors.
Still, most of this is a sideshow. The real event on Thursday will be the announcement of new margin targets for the industry and energy divisions, and more details on the plan to cut sales and administrative costs by 15 to 20 per cent. Much of this depends on changes to the organisational structure and removal of management layers.
Mr Löscher has already made sensible changes – for instance by starting to dismantle geographic segments in favour of operating units. Meanwhile a €10bn buy-back and the improvement of financial disclosure almost to the point of excess – sufficient data will be provided to allow forecasts for 22 separate revenue lines – paints a more shareholder-friendly picture.
So with both chief executive and chairman actually pulling in the same direction for the first time in years, Siemens’ deserves some leeway before the fruit starts to fly.
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