Siemens Says Fewer Employees Break Rules in Compliance Drive

Peter Loescher, CEO of Siemens AG. Photographer: Daniel Acker/Bloomberg

Siemens AG, Europe’s largest engineering company, said the number of workers fired for breaking compliance rules has tumbled, with about 90 workers dismissed in the first nine months of its financial year.

The German maker of turbines, trains and health-care scanners has lost no business since introducing stricter rules and margins remain undented, board member Peter Solmssen said in an interview at the company’s headquarters on July 19. About 240 employees were dismissed in each of the past two fiscal years.

“We say no, and we still get the deal,” said Solmssen, appointed to oversee legal and compliance affairs in 2007.

Siemens, which ousted more than 600 employees from 2007 to 2009, investigated almost 2,200 possible violations in the wake of a bribery scandal that cost the company about $3.2 billion. For decades, Siemens paid kickbacks and bribes to win contracts such as a commuter rail project in Venezuela, mobile-phone networks in Bangladesh, power plants in Israel and traffic- control systems in Russia.

Solmssen, who used to work with Chief Executive Officer Peter Loescher at General Electric Co. before they both joined Siemens, helped the German engineer tighten rules and regulations, an effort that earned the company the top spot among diversified industrials in the Dow Jones Sustainability World Index.

Siemens has gained 19 percent in Frankfurt trading this year for a market value of 70.2 billion euros, more than double the 8.6 percent gain of the 81-member Bloomberg European Industrials Index.

Tragic Consequences

The share of possible compliance violations relating to corruption fell to 9 percent last year from 18 percent in 2007. Breaches outside that category include theft, violation of employment laws, according to Solmssen.

Other German companies have also been touched by bribery probes. Industrial-plant contractor Ferrostaal AG faces an investigation, while truckmaker MAN SE, part-owned by Volkswagen AG, last year agreed to pay 150.6 million euros in fines to settle corruption charges. Two Daimler AG units on April 1 pleaded guilty to violations in the U.S.

For Siemens, having to win contracts by being competitive rather than giving backhanders isn’t hurting margins, according to the executive. Profitability is at levels “not seen in a long time,” Solmssen said. The German company is headed for record profit this year.

Investigation Hubs

Siemens has hired professional investigators and set up internal hubs at locations including China so that regional managers can oversee local cases.

“China is an emerging market with a developing and increasingly strict legal system,” Solmssen said.

The Asian nation executed its former chief drug regulator in 2007 after being convicted to have taking bribes to allow fake drugs to be approved.

There is “no country Siemens can’t do business in,” Solmssen said.

This month alone, Siemens has announced orders worth “several billions euros” from Russia for wind turbines and trains, and the company is working with Kazakhstan’s state-run railway company on a project worth as much as 400 million euros. Russia ranks 146 out of 180 countries on Transparency International’s Corruption Perception Index 2009, the same level as Zimbabwe, while Kazakhstan came in on 120.

“It’s like with the Mafia: If you ever say yes, you’ll never get rid of them,” Solmssen said. “Compliance is not a program, it’s a way of doing business.”

"on a side note: reduction in Siemens has cause a significant drop in pregnancies and a decline in population growth ;-) mineon"