Learning from past mistakes

Sometimes a shake-up is just what a company needs to shape up. Take Siemens, the Munich-based global electronics company that was charged with 40 counts of Foreign Corrupt Practices Act (FCPA) violations for paying $1.4 billion in bribes to government officials and third parties from 2001 to 2007. As penalty, the company paid a total of $1.6 billion to US and German regulators, including $569 million to the Office of the Prosecutor General in Munich, to whom the company previously paid an approximately $285 million fine in October 2007, and $450 million to the Department of Justice. The company’s $350 million settlement with the SEC made the commission’s previous top FCPA fine of $33 million look like peanuts.

But Siemens scores points for bouncing back, commended for its quick response and its open cooperation with Debevoise & Plimpton, the law firm conducting the internal investigations. Upon uncovering the fraud, Siemens fired and replaced much of its staff, including bribery-accused ex-CEO Klaus Kleinfeld.

Getting the company back on the right track depended on a compliance program overhaul. Andreas Pohlmann was put in charge, hired as Siemens’ chief compliance officer in 2006. Not only has he succeeded in his endeavors, he’s open about the process, which he recently discussed on a panel at the Global Ethics Summit held by Dow Jones and the Ethisphere Institute in New York last month. Alongside colleagues embroiled in redefining compliance programs at their formerly corrupt companies, Chiquita Brands International and Pride International, Pohlmann offered insight from the eye of the storm, captivating the audience interested in how the company elevated its Dow Jones Sustainability metric from 0 to 93 in two years.

Arriving at that point took a lot of effort. A big hurdle lay just in disseminating the message among the company’s far-flung offices. Although Siemens did not have troubles in Canada specifically, the new general counsel of Siemens Canada, Richard Brait, attests to the truly global compliance program: ‘We’ve put in place a global compliance program and Canada is just as fully into that program as everybody else is. And that’s been going on for a couple of years now. Even though the major settlement was very recent, the focus on compliance has been going on for quite some time.’

It takes a village
Recognizing Siemens’ distinctive struggles, Pohlmann also thinks the problem of fraud is a systemic one. By way of a solution, he is proposing the creation of a ‘cartel of the good’ with a ‘collective action approach.’ Siemens’ past could proffer useful tips. ‘I wouldn’t call Siemens a benchmark in compliance but I would call it a company which has determined its destination and went on its path to become very soon a leading company in terms of compliance,’ he says. ‘It took a while to get there. What we’re doing now is to spread the word and to invite others to follow us because we think that corruption is not an issue we are facing alone or separately or independently. This is an issue that is faced by many, other corporations in global business.’

One of Siemens’ more remarkable achievements is its anti-corruption toolkit, established over 2007 and 2008 and which incorporates over 100 controls. ‘We are not only relying on policies and guidelines,’ explains Pohlmann. ‘We are relying on policies and guidelines, yes, but we also make sure that those regulations are being implemented; we have established multiple controls in all our entities worldwide, and are now reviewing and testing them.’

Righting wrongs
Deeply ingrained in Pohlmann’s compliance approach is the idea that a strong leadership culture is key to improving any organization. ‘We expect our leaders to be the role models in terms of compliance and to establish and maintain a culture of values and integrity. Communications and training are key components. In order to change the culture we have intensified an active dialogue with our employees and have trained some 200,000 employees,’ he says. ‘This is something that takes a little bit more time compared to the development and implementation of regulations and guidelines and of an anti-corruption toolkit. But that altogether makes compliance successful, and we cannot separate regulations and controls. We must also focus attention on the corporate culture and finally we need to get to the hearts and minds of our employees.’

Given that the organization has over 400,000 employees, this is no small feat. But in many ways it was the scale and breadth of the fraud that helped spread awareness, and even expedite the integration of the compliance program, explains Pohlmann. ‘I think we had the advantage after having faced the corruption scandal which came to the surface at the end of 2006, in that the vast majority of our employees and leadership team did actively accept that we had to change and there was no major [court] conviction necessary.’ 

The right tone from the top is imperative to keeping that sense of conviction alive. Pohlmann considers it to be ‘the essential component within the compliance program,’ a fact supported by a 2008 employee perception survey revealing Siemens had accepted the compliance program largely due to the clearly communicated expectations of the CEO and other senior management.

Upper management must continue to emphasize the need to communicate with local employees, especially in cases like Siemens, in which regional difficulties were a major source of fraud. ‘That’s the basic component of our compliance program, because in the past the lack of a clear tone from the top was one of the key deficiencies we had faced,’ says Pohlmann. To ensure active communication, Siemens dramatically increased its compliance staff. Before 2007, there were 60 to 80 part-time employees, while now there are about 600 full-time staff.

An increase in compliance resources is reflected by the numerous controls, of which the company previously had a mere few. ‘Top performance with highest ethics – this is our path forward,’ says Pohlmann. ‘But we need to understand that compliance cannot only be based on regulations and controls. Strengthening our employees’ awareness and sensitivity for compliance requires intense communication and dialogue.’