The Comeback Company; Siemens tries to recover from a bribery scandal by striking integrity pacts with its rivals.
IN ATTEMPTING TO REBOUND from the biggest antibribery enforcement action in memory, Siemens AG is trying to write a redemption story on the same scale. And in doing so, it's not only trying to show that it's built a world-class compliance program, it's also testing its competitors' appetite for fighting corruption.
Since the bribery scandal erupted in 2006, the giant Munich-based electronics and industrial engineering firm has come clean and faced its regulators in both the United States and Germany. It's assembled a compliance team of 600— one of the largest anywhere—and talked it up. But now Siemens is doing more than talking; it's trying to join with competitors to create "collective actions."
The concept is defined on the World Bank Institute's Web site as a collaboration that "levels the playing field between competitors." Approaches can vary. Companies may sign an "integrity pact" when bidding for a specific contract. Or the effort may encompass an entire industry. In either case, businesses agree to compete cleanly and be accountable.
Peter Solmssen, Siemens's general counsel (and, since September, acting CEO of its U.S. division), is a big proponent of collective actions. In most markets, he notes, Siemens competes with only two or three other companies. "We're convinced that if we link arms, we can affect business practices in those markets for the better," Solmssen says.
Siemens is currently trying to negotiate a collective action with ABB Ltd, Alstom, and General Electric Company, its competitors in the global power generation industry. The talks are noteworthy because a similar effort among the same players collapsed six years ago, and Siemens's reputation was a major factor. General Electric's representative had been negotiating without the knowledge of Ben Heineman, GE's general counsel at the time, and Heineman wouldn't sign off on the deal.
"What, are you kidding me?" Heineman recalls saying when he saw the deal. "I'm not signing this. It's Siemens—their practices are crappy."
Now the four companies are back at the table. And Mark Pieth, a Swiss law professor who presided over the first effort under the auspices of the Basel Institute on Governance, is again leading the way. Pieth declined to discuss specifics, but says, "I believe we're at a different point with all these companies. They are making an effort." Of Siemens's leaders, Pieth adds: "I'm convinced they're trying to change their approach." But he isn't ready to predict success—for Siemens or the talks.
IT ISN'T UNPRECEDENTED for companies caught up in scandal to play a role in the reforms that follow. Embarrassed leaders are often eager to restore their firm's reputation. In 1986, after a blue-ribbon commission disclosed widespread waste and fraud in the defense industry, GE chief executive Jack Welch, whose own company had been tarnished, helped create the Defense Industry Initiative on Business Ethics and Conduct. Nearly three dozen companies agreed to create systems to monitor employee compliance. It was one of the first examples of an industry-wide collective action.
What distinguished the Siemens bribery scandal was the scope of both the problem and the response. According to a criminal information filed by the U.S. Department of Justice, from the mid-1990s to 2007 the company paid hundreds of millions of dollars in bribes to officials around the world, and engaged in "systematic efforts to falsify its corporate books and records and circumvent existing internal controls." The Justice document also noted that as late as 1999, German law not only failed to prohibit overseas bribery, it actually allowed companies to take tax deductions for bribes.
Siemens pled guilty in the U.S. to violations of the Foreign Corrupt Practices Act. Yet, even as the Justice Department described the culture of corruption that led to the $1.6…