Executive Summary
In a company, regardless of its size and level of success, one of the most important places should be given to corporate governance. This approach provides an opportunity to regulate and monitor business activities and to solve and prevent potential problems in a timely manner. Siemens, like other German companies, adheres to such an approach to the corporate governance structure as the presence of two boards.
Despite its benefits for the decision-making process, it has caused problems related to conflicts of interest in the workplace, as well as corruption and bribery. As a result, Siemens faced criticism and distrust from the public and stakeholders, which affected its position and reputation. To address these issues, it is proposed to introduce regulatory measures to eliminate the two-tier system and the problem of corruption and bribery.
Introduction
For any company, corporate governance is a critical aspect of its operations. This is due to the fact that paying close attention to it will provide an opportunity to limit serious problems that can affect not only the performance of the organization but also its reputation. Siemens is one of the most efficient and best-known German brands and an industrial powerhouse.
Despite its success, the company faced serious problems of bribery and corruption. One of the reasons for this issue was the promoted double-layered corporate governance structure. This case study provides an analysis of the problem faced by Siemens and highlights several recommendations that will help solve and prevent similar issues in the future.
Problem Statement
One of the main reasons that led to the problem at Siemens was the presence of a two-tier corporate governance structure. This approach to the regulation and control of business operations is typical for many German companies. It represents the division of the company into two boards: supervision and management. The former is directly responsible for the governance of the company, while the latter is responsible for all management decisions regarding the organization’s activities (Mathew & Donepudi, 2007). This model had significant advantages for the company, which consisted of achieving such important characteristics as cooperation and trust.
However, despite the success of the two-tier corporate governance structure, Siemens faced a significant issue in the organizational leadership. Due to the lack of monitoring of certain areas of the company’s activities, conditions arose under which employees of the organization engaged in corruption and bribery practices. This aspect caused the deterioration of Siemens’ position in the market in the context of its activities and, last but not least, the reputation of the company and its CEO in the eyes of stakeholders.
Discussion
The corporate governance two-tier structure discussed in German companies has several unique aspects that need to be considered in order to better understand the problem under analysis. Special importance in this approach is given to the involvement of personnel in the decision-making and strategy-formation processes. It is understood that “for three decades, Germany has had a system of co-determination that allows employees to take part in important decisions on shaping their work environment” (Mathew & Donepudi, 2007, p. 3). At the same time, these circumstances created a conflict of interest within the organization, which later led to decisions aimed at increasing profits and share prices.
Another problem with the co-determination system was that employees could not cope with the need to perform multiple roles simultaneously. Thus, many of them began to resort to simpler, more profitable solutions that met the demands of labor unionists and other workers. This problem has not bypassed Siemens, leading to corruption and bribery among some staff members.
Subsequently, when the problem became public, it faced significant criticism and a deterioration in relations with stakeholders. In particular, the blame was placed on the company’s head, Mr. Kleinfeld, who was not directly involved in the scandal (Mathew & Donepudi, 2007). There are many examples of organizations that have also had this kind of problem, including Deutsche Bank and Volkswagen. As a result, many of them concluded that the two-tier structure was ineffective.
Position
I hold the position that corporate governance plays a leading role in achieving not only the greatest profit and competitiveness but also in limiting problems such as corruption and bribery. This is because it provides uniform and effective control over all operations within the company. At the same time, the initiative to divide the organization’s activities into two boards, supervision and management, does not seem to me to be the most successful, especially for large companies operating globally. This is because it has value only for tasks such as decision-making. On the other hand, it only encourages unethical employee behavior, arising from the inability to monitor and effectively oversee the work of several boards simultaneously.
Recommendations
First of all, to limit the recurrence of problems such as corruption and bribery, it is necessary to pay attention to regulatory and control measures within the organization. This aspect implies introducing initiatives to enable more effective monitoring of the company’s and its employees’ financial transactions, and to identify cases under suspicion. In addition, it is necessary to raise employees’ awareness of the harm this type of activity causes to the company and to them, as well as of the punitive measures that will be taken in such cases.
As another recommendation, rejection of the two-tier system can be singled out. Despite its effectiveness in some respects, it leads to increased opportunities for other problems. One of them is the limitation on anonymous voting in the decision-making process. It leads employees to make decisions in favor of certain groups or outcomes, depriving the process of objectivity and impartiality. This objective can also be achieved through the enactment of laws and regulations governing corporate governance and organizational leadership.
Conclusion
In conclusion, Siemens’ case study provided a more complete understanding of the factors that led to the organization’s corporate governance problems. In addition, it helped identify the main factors that led to malpractice by business employees. Thus, it was possible to highlight recommendations to help limit and prevent a recurrence of the issue. Carrying out this analysis of case studies of companies is valuable for understanding the main aspects of effective organizational activity.
Reference
Mathew, M., & Donepudi, A. (2007). Siemens saddled with scandals (A): Doubts over German board structure. Case Centre.