final presentation of siemens scandal

7/31/2019 Final Presentation of Siemens Scandal

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Final Presentation

Corporate Finance

Submitted By:

Danish Nisar

Rahil Shah

Submitted to:

Mr. Mohsin Adhi


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ACKNOWLEDGMENT

Allpraise forALMIGHTY ALLAH whose uniqueness, oneness, and wholeness is

unchallengeable, guided us in difficult circumstances. All respects are for His Holy Prophet HazratMuhammad Peace Be upon Him, who enabled us to recognize the oneness of my creator.

We are greatly indebted to our respected teacher SirMOHSIN EDHI who gave us the opportunityto express our talent in this report regarding corporate finance aspects about Corporate

Scandals/Activities (Fraudulent) on Siemens AG.

At Siemens, Bribery Was Just a Line Item

Company Profile

Siemens AG is engaged in electronics and electrical engineering. The Company is an integrated

technology company with activities in the fields of industry, energy and healthcare. Siemens operates in

six segments: Industry, Energy, Healthcare, Equity Investments, Siemens IT Solutions and Services and

Siemens Financial Services (SFS). Industry, Energy and Healthcare are reported along with 14 divisions,

which comprise the divisions, Industry Automation, Drive Technologies, Building Technologies,

OSRAM, Industry Solutions and Mobility, belonging to the Industry Sector, the Divisions, Fossil Power

Generation, Renewable Energy, Oil and Gas, Power Transmission and Power Distribution, belonging to

the Energy Sector and the Divisions, Imaging and Information Technology (IT), Workflow and Solutions

and Diagnostics, belonging to the Healthcare Sector. In November 2009, Siemens acquired a controlling

interest of 100 % in Solel Solar Systems Ltd., Beit Shemesh/Israel (Solel).


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Siemens A.G.

Wittelsbacherplatz 2 Munich 80333 Germany

Phone: +49 8963600

Fax: +49 (896) 365-2000

Key Fundamentals:

P/E ratio 9.4x

Earnings per share $10.12

Revenue $96.0B

Profit margin 9.54%

Return on equity 22.83%

Introduction:The 2008 Siemens scandal in Greece was a corruption and bribery scandal that hit Greece over dealsbetween Siemens AG and Greek government officials during the 2004 Summer OlympicGames in Athens regarding security systems and purchases by OTE in the 1990s.

Charges have, as of 27 August 2008, not been bought against any specific individual, as under Greek lawcharges can be filled against "any responsible person".

So far, no wrongdoing has been proved, either by Siemens, by Greek government officials, or anyoneelse.

The German based company Siemens AG bribery scandal rocked the business world. They were caughtin corruption scandal for bribing employees of other companies for contracts. Siemens agreed to pay 1billion towards settlement of corruption charges $800 million of which was a fine imposed by the U.S. inaddition to the billions of euro paid in fines, back taxes and late interest.

Officials in Germany convicted two former managers of the company of bribing employees at an Italianenergy firm. The mangers admitted the bribery but defended themselves on the basis that it was not forpersonal gain and could be considered standard business practice in some countries where they didbusiness. Siemens former managers believed not only had they done nothing wrong because they did notdo it for personal reasons it was standard practice for some companies abroad to require such bribes as apart of doing business. Siemens was also accused of bribery in 2006 involving foreign officials. Theywere accused by IG Metall of bribing a union. Several other countries accused Siemens of misconduct

including Switzerland and Greece. Volkswagen AG, Duetusche Telecom AG, Duetsche Bahn AG, andDeutche Post AG unethical business practices in Germany were exposed during the same time frame.Several of the corruption scandals involved bribing labor representatives on German companies boardsso it was wondered if the German Co-determination law or Mitbestimmug was flawed.

Analysis:


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In examining the scandal, Bharath Krishna under Rajjiv Fernandos direction at ICMR Center forManagement Research used over 50 widely known and highly credible sources. He explains how courtcases were brought against numerous people and companies involved in the different scandals and theywere either convicted or admitted their guilt. In May of 2007 two former managers at Siemens AG wereconvicted by German courts for diverting the companys money to bribe employees of Enel SpA, anItalian company. These two admitted their guilt but claimed they did nothing wrong because they didnot take the money for themselves and it was considered standard business practice in the countriesabroad where they routinely practiced these types of techniques in contract negotiation.

The company admitted certain company employees were engaged in fraudulent behavior and beganestimating damages. A former board member was arrested.

IG Metall also accused them of attempted bribery of a small union to get support for their policies inFebruary of 2007.

According to the state department,

The U.S. has undertaken a multifaceted effort to combat bribery in international business transactionsbecause it distorts national economies, particularly those of developing countries, by diverting scarceresources; undermines the creation and legitimacy of democratically accountable institutions; and unfairlydisadvantages companies which, because of legal constraints or corporate practice, refuse to pay bribes.While anti-bribery initiatives are underway in the Organization for Economic Co-operation andDevelopment (OECD), the Organizations of American States (OAS) and international financialinstitutions, the challenge is to secure full implementation of these core initiatives and devise an actionplace for expanding these initiatives.

The U.S. State Department is playing a leading role in a broad inter-agency effort to eliminate bribery ininternational business transactions. Most countries have laws against bribery of their own officials, butonly a few, including the U.S., have laws prohibiting its nationals and corporations from bribing foreignofficials.

Conclusion:

It has been claimed that the bribes may have been up to 100 million Euros. These bribes were allegedlygiven in order to win state contracts.

Contrary to the scandal, Siemens continues to enjoy the confidence of the Greek consumers to itsproducts and there are no data that indicate any shift in the consuming preferences of the Greek customersregarding Siemens and its competitors.

Given the scandals of the time it is no wonder that analysts were concerned. I agree with the author of the

case study when they claim This led to a suspicious alliance between the management and the labor

representatives, who could never set a stage for proper discussions during the board meetings. They

state that The presence of workers on the boards sometimes forced a situation where in the main issueswere discussed and agreed upon even before the meeting. I can see not only how this could happen but

why it almost had to.

Many companies must deal with the pressures of doing business in a legal environment unfamiliar to their

representatives when they do business internationally which is what I think is at the heart of this case.

This is because they do not know the laws in the country they are establishing the abroad base in or

slipped back into the business practices they are more familiar with and have assumed will continue to be


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ok. They could be unfamiliar with the culture of the new environment or unable to adapt. It could be very

difficult to make someone who has a different culture behave the way you think they should and vice

versus.

References:

http://en.wikipedia.org/wiki/2008_Siemens_alleged_scandal_in_Greece

Federal Ministry for Employment & Social Order: Mitbestimmung.Unternehmensmitbestimmung& Betriebsmitbestimmung, Jan 1995. Pages 5 8. Translationhttp://library.findlaw.com/1997/Mar/6/131394.html
http://en.wikipedia.org/wiki/2008_Siemens_alleged_scandal_in_Greecehttp://library.findlaw.com/1997/Mar/6/131394.htmlhttp://en.wikipedia.org/wiki/2008_Siemens_alleged_scandal_in_Greecehttp://library.findlaw.com/1997/Mar/6/131394.html

final presentation of siemens scandal

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