Scandal-hit Siemens now squeaky clean
Scandal-hit Siemens now squeaky clean"We are now the most squeaky clean company," a raft of senior Siemens executives said behind closed doors at a
global media summit held this week in London. It's a huge claim but they've all been through intensive compliance
training and exhaustive interviews to ensure that Europe's leading technology group is no longer a byword for
bribery and corruption.
Ever since the scandal broke in late 2006 the company has been confronted with mounting evidence that officials,
perhaps under the blind eye or with the covert connivance of senior managers, used bribes across the globe to win
lucrative contracts. It has identified so far €1.3bn (￡1bn) in slush funds and put the cost of cleaning out its
Augean stables at €1.8bn.
It is not out of the woods yet. There are ongoing investigations in several countries and current and pending court
cases in its home country, Germany. The board is still considering suing former colleagues for compensation. More
worryingly, talks with the powerful US financial regulator, the SEC, are still going on with the threat of a fine of
more than $1bn (￡500m) and/or the loss of potential contracts still hanging over the group.
Peter L?scher, the Austrian chief executive brought in exactly a year ago to reshape the group and restore its
reputation, can only say: "We are making good progress, working intensively with the authorities." But he can't give
any date for concluding the SEC discussions or indicate the size of the fine being talked about in plea bargaining.
An update, he adds, will be given when Siemens publishes its third-quarter results on July 30.
But L?scher, the first non-German to run the company in its 161-year history, is adamant about one thing. Questioned
whether Siemens is still being asked to pay bribes, he asserts: "We say no, irrespective of who asks ... We are a
clean business here and everywhere." But I'm told by at least one executive that the company has lost contracts
because it refused to pay up.
The CEO has already visited Russia, itself a haven of official corruption, three times this year and reports no
problems, praising Putin for knowing that Siemens has been active in Russia since 1853. He is a regular visitor to
China and is now on the verge of taking his executive team on a long trip to the Middle East. All vital areas for
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future growth as the western economies skirt stagflation but scarcely bribe-free?
L?scher, very tall and sternly serious, admits the group has another credibility problem. In April he was forced to
issue a profits warning after an internal review uncovered problems with key contracts, mainly in power generation
and transport, that would cause extraordinary charges of €860m in the current quarter. And, while seeking to
downplay the prospect of further charges, he can't rule them out. The group's shares continue to struggle as a
result and shareholders, promised higher margin targets earlier this year, are waiting for the good times to roll.
They may finally rally early next month when he at last gives details of the €1.2bn cost-savings plan that, unions
say, could mean 10,000 job-losses.
In his year in office, L?scher has reshaped the group, stripping out several layers of management in favour of three
core divisions - industry, energy and healthcare - headed by their own CEOs. Around 70 regional companies have been
cut to 20 "clusters". The group has spent €20bn on acquisitions and raised €12bn in disposals as it seeks to
reposition itself - much like the "competitor" unnamed at the summit (GE where L?scher worked for four years) - in
the face of "mega-trends" such as climate change, urbanisation and demographic upheaval.
He has now set his sights on getting all of Siemens's businesses into the No 1 or 2 position globally compared with
the current two-thirds. This week the emphasis has been on "green" technology, with the group claiming environment-
friendly products make up a bigger proportion (23% or €17bn) of its annual revenues than GE's and aiming for €25bn
by 2011 - but refusing point blank to give any earnings targets, even grosso modo. Certainly, growth in
"sustainable" markets such as wind energy has been respectable, at 17% a year, making Siemens the market leader. The
group develops highly innovative technologies such as COREX for Baosteel's new furnace in Shanghai which cuts
noxious emissions by up to 95%.
But credibility problems continue to dog it. L?scher insists that, in the "second world economy" in the making,
"curbing growth and lowering living standards is not an option" when the global downturn is already achieving that.
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There is plenty of evidence that, while oil at prices close to $140 a barrel should propel the long-term drive
towards alternative fuels, voters are pressing policy-makers for short-term remedies. Siemens this week seemed
simply to wish the slowdown away. It also needs to take note of the evidence presented in its own executive slides:
in the past five years both China and India have moved faster than anticipated into the hi-tech, low-cost products
that directly compete with the likes of Siemens in its home western markets. They are not waiting for Siemens to
sort out its internal problems.
Even so, L?scher simply has to sort them out and complete the deep-seated cultural change he is trying to achieve in
quick time. This week he said Siemens was one of the few institutions in the world to have a truly global reach -
comparing it to the Catholic church and Coke. It is indeed active in 190 countries, with 70% of its staff and 80% of
its revenues outside Germany. But, like Michael Ballack, it remains profoundly, old fashionedly Germanrate history. It is resident for tax purposes in Luxembourg
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