 In this topic, we are going to discuss a case study on what we are already discussing in the previous topics. We are talking about the issue of ethics in human resource management and we have talked about the issues of bribery and corruption and how various bodies like United Nations, the OECD, the Transparency International have made laws and regulations to control these problems of bribery and corruption in management in organizations and overall in the international environment. This topic pertains to a particular case of how ethical issues can develop in an organization and the repercussions and then the results that the organization has to face from such kind of issues that is going to be discussed in this particular case. This case is about an international organization. You must have heard the name of that company that is Siemens. Siemens is a German conglomerate. At the time of this incident which happened from 2004 to 2010, the incident that was caught in 2004, it took about five, six years to actually achieve and to come to a decision about that case. It was about problems, transactions, incidences of bribery and corruption over past two decades and at that time when this case was caught, the company operated in about 190 countries of the world. That case was first made public in 2006 and allegations were that the company had siphoned more than 200 million euros out of secret bank accounts in Lichtenstein, Austria and Switzerland. So you know that Switzerland is known for having high privacy bank accounts in which the information about the account holders and about the transactions taking place in the account, they are not given to anybody and they have a high level of privacy about banking. And so Swiss accounts are known for such kind of dealings in which the money comes from unknown sources and then it goes from out to unknown sources as well. So siphon means that something comes and then it is siphoned and then it goes out so what happens in the siphon nobody knows. So the money was siphoned, it came into Swiss account and then it went somewhere and I found out that the money came from Siemens company and from there some people have been transferred which are unknown payments and these transactions were not available in their accounts. So although Swiss accounts do not give information but companies are supposed to disclose information about their all types of transactions, where they are going, where the money is coming from and where it is going. So that was something which was unclear. So the purpose of these murky dealings was, it is still unclear that why these dealings were taking place, why this money was being paid from one company to different people in Austria, Switzerland, through Austria, Switzerland and Lichtenstein. Either it was self-enrichment by crookered employees, employees who wanted to enrich themselves and there was a conspiracy in it that Siemens, who are different countries, used to bribe people to buy contracts there. So this was also their allegation. So it was carefree laundered rights to win business in countries that Siemens operated. So it was not clear how and why these payments were made and the case was caught in 2004 and then made public in 2006. There were a lot of then, when this case was caught, then the German authorities and American authorities in Washington DC and in Germany, they raided their offices and a number of people were arrested. Six of its present and former employees, including one former board member, were taken in custody and about 30 offices, they were raided by the authorities in America and Germany. The dealings of Siemens was getting already under suspicion because Transparency International, which is, you know, I had introduced in the last topic, that it is an independent firm which analyzes the transparency of various countries as well as different organizations. So Transparency International has suspended membership of their German chapter in 2004 because they had made a transaction in Italy and it was a bribery case which they were not ready to disclose and they did not take quick action about explaining what happened in that transaction. So Transparency International had cancelled their membership of the German chapter and they had also given them a notice that if they do not give a prompt reaction, Transparency International will terminate the membership if they did not pursue the case actively. Siemens, because after this case was caught and then it was made public, then Siemens, they came into action and they took some steps to show that they are ready to take some measures regarding the issues of bribery and corruption. So what they did was that they immediately formed a task force to clarify and standardize its employees' business practices. They appointed an ombudsman to encourage internal whistleblowing. So they formed an ombudsman office called MOTSEB and they formed MOTSEB's office in their company because of which they thought that internal whistleblowing, that is, internally people do not tell that it has done corruption or it has taken bribery or it has done some unethical practice unethical practices do not have any responsibility to tell that it is doing corruption or bribery. It is just an ethically correct and incorrect behavior that you should tell. So to encourage this, they established MOTSEB's office in their company. Then they appointed a law firm to investigate the company's compliance and control system, so an external firm. It also appointed Michael Hirschman, which was one of the former founder members of Transparency International and they tried to give it a nice look that they have appointed somebody from Transparency International to look into their issues. So to review anti-corruption controls and training at Siemens, they appointed Michael Hirschman. This was again something which was looked at and eyed as a suspicious act that somebody who is evaluating their transparency is actually hired in the company to develop. So that means they were trying to develop some kind of underground relationship with Transparency International, so this was again eyed as a probably not very ethical act to do. Siemens therefore defended that most of their cases were before 1999 when the OACD convention passed the law about bribery. So they said to defend themselves that most of their cases were before 1999 when the OACD convention passed the law about bribery and anti-corruption guidelines and rules. Apart from that, the case of 2004 was after 1999 which was the case of bribery in Italy and another case in 2004 was the case of bribery in Greece. So these two cases were after 1999. So the issue that was created by Siemens' reputation was very big. Its repercussions were that even if it was not connivance or bribery even then having poor supervision and control was bad enough. So if you are managing an organization, you have an international organization which is operating in more than 190 countries and you have a bad management and control system. Even if you are not involved in bribery and connivance, even then if your control mechanisms are not in place, they are not proper, even that is bad enough. So you are not a good company. That is what the kind of impression which was created. So that was the repercussion. Then it was noted that Henrik von Pere, which was the CEO in 1990s and he still heads the supervisory board. He was supposed to steer the company through its transition to OACD, anti-bribery rules and compliance. So the CEO who was heading the company in 1990s, he was supposed to take the action. He was supposed to be proactive because in 1999, laws and guidelines passed in the convention. But even before that, there was a development going on. So the CEO's job was to do strategic planning. The upcoming issues, emerging laws and practices of the organization were to be taken from the transition phase. So it was said that the CEO of the company did not do it. He should have done it so that he would establish such systems and controls which would successfully take the company out of this transitional phase. Instead of saying that it passed in 1999 and it passed in 2004 and their cases are being held in 2005. It means that they were not taking the due action which was required regarding ethical practices in international arena. And so the financial repercussion that ended up, that the company ended in was that in December 2008, US authorities, they find a record $800 million to the company and the German authorities issued a fine of 395 million euros over the failure of its former board to fulfill its supervisory duty. So the overall estimated total cost of this case that was estimated to be 2.5 billion euros. So you can well imagine that this is something when the issue of ethics comes up of this corruption and these problems they come up, they have huge repercussions for organizations and they can take them to bankruptcy, they can be an issue for their existence. So you know that what Siemens is one case then you would have heard about Enron and Xerox and if you have not heard about those cases you should go and read about them. What happened in Enron, they were similar issues about disclosure of money and payments and similarly Xerox. So these were international level cases in which ethics is the issue that the people of your country are corrupt and corruption is a kind of company practice that you are operating in 199 countries and it is a kind of practice that you bribe people and take contracts from there. And you think that this is a work that you will have to do but when it comes in front of you, it becomes such a big issue for you. And apart from this, actions were taken against individuals when German authorities in 2010, they were given suspended prison sentence and large fines for their roles in the corruption standards scandal. So individual persons they were also they had to bear the brunt of this case. So this means that although it appears to be even if something appears to be a practice, even if it appears that it is something which everybody does, but these unethical practices, bribery and corruption, they when that is something which will keep going but when a problem comes up, the lives of the individuals that also comes at stake and the life of the organization that also comes at stake. So the organizations as well as individuals and the managers, they must take into account that whether they have to submit to practices of of inethical behaviors or they have to remain upright and protect their existence. Even if it is at the cost of some reduced profits or profitability or effectiveness, even if that happens, the managers they have to take into account this fact that any unethical practice when it comes up, it becomes a huge issue for individuals as well as organizations.