WASHINGTON—With its 2008 directive, German conglomerate Siemens AG is leaving behind its troubled past and positioning itself as an engineering innovator along three industry lines.
"Consider that 90 percent of the innovative agenda is happening outside of any organization. So you have to make sure that your business is truly connected," said Peter Loescher, Siemens CEO, in a March Knowledge @Wharton (KW) report.
The focus is to corner major markets, such as Russia, China, India, Brazil and the United States, according to a company presentation titled "Siemens 2008" published on the Siemens Web site.
As a conglomerate operating in many sectors, Siemens has seen its customer base shrink and its competitors gearing up on all sides.
Siemens plans to restructure the company into three main sectors—Industry, Energy and Healthcare. It began dismantling the old structure a few months ago.
"This new and more focused company structure will further increase our profitability and transparency. Clear responsibilities ensure that we are faster in the market and closer to our customers," announced Loescher in a press release.
Nokia Siemens Networks, a telecommunications subsidiary, is linking up with Tata Consultancy Services Limited (TCS), a member of the Indian conglomerate Tata Group, according to a March press release. Nokia Siemens is outsourcing its Düsseldorf, Germany-based product engineering and Research and Development services sections to Tata.
Tata hopes that this arrangement will allow it to integrate better its European market. "The integration of Nokia Siemens Networks presence would establish TCS' local presence and strengthen its position as a global player. This is especially important in Germany where band recognition is key," suggested Graham Pascoe, Partner at PriceWaterhouseCoopers in the Siemens press release.
Brazil has become Nokia Siemens' major 3G (third generation wireless technology) hub for its thrust into Latin America. By the end of 2008, there will be 10,000 3G wireless towers in Brazil. "The 3G race in the region has just started, and our customers know Nokia Siemens Networks' portfolio of solutions will help them stand out in this new competitive landscape," announced Christoph Caselitz, Nokia Siemens Chief Market Operations Officer of the Latin American Region
The latest reorganization press release was from the Siemens Enterprise Communications GmbH, which is disposing of its manufacturing operations and focusing on software and solutions development. This move would lay off around 3,000 employees, of which 1,200 are from Germany. Countries affected by the decision include Germany, Greece, Argentina, Chile, Colombia, Ecuador and Peru.
Paying the Price
Corporate scandals shook German companies in 2006, with Siemens, Volkswagen AG and Deutsche Bank AG at the center of the controversy. Reports claimed that these companies used massive funds to bribe foreign officials or anyone else that would get them ahead of their competitors.
The indiscretions cost Siemens a bundle. Prosecutors uncovered illegal dealings from 2000 to 2006. During 2007, Siemens was fined $314 million by the Munich public prosecutors. By the end of 2007, Siemens paid out $1.7 billion in fines, $2 billion in back taxes for illegal deductions and $44 million in late interest charges. Siemens still must face the U.S. Securities and Exchange Commission and prosecutors in a number of countries.
However, shareholders who held on was rewarded with a dividend of $2.5 per share at the end of 2007.
Siemens appointed a managing board responsible for legal and compliance matters in September of 2007. Debevoise & Plimpton LLP, a global law firm based in New York, was hired by Siemens to bring to light every illegal actions committed by Siemens employees. The Debevoise team includes Mary Jo White, former U.S. district attorney for the Southern District of New York and another 11 former U.S. federal prosecutors, according to a recent Wall Street Journal article.
So far, five hundred employees where charged with compliance violations and 150 employees were fired, and 310 were reprimanded in one form or another. The remainder lost various kinds of benefits.
"With our compliance program, we intend to be a model of compliance and integrity. We consider compliance to be a key part of our company culture. The focus is on preventing misconduct. Clean business—at all times and everywhere," announced Siemens on its Website.
Cleaning Up
Siemens hired Austrian-born Peter Loescher to be CEO on July 1, 2007, after having served in management positions at Aventis Pharma Ltd., Amersham PLC and Merck & Co., all leading global pharmaceutical firms.
"Loescher said he has moved aggressively to change the firm's culture and standards," according to KW. A "zero tolerance policy" was implemented that covered everyone from top to bottom.
The bribery scandal was not a matter of missing guidelines and rules, but a pure lack of ethics and a case of management transgressions. The rules were in place, but were conveniently pushed aside.
Loescher said in a recent interview with the German magazine Spiegel, "It's completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rule. Siemens had and still has an outstanding set of rule."
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