More Than Words

What's the difference between an ethics programme that will keep you out of jail and one that won't?

Sympathy is not something often felt for a company with a corruption-riddled past. So what makes Siemens different? Two years after an avalanche of accusations hit the German electronics and engineering firm, anger, disgust and even disappointment certainly prevail. But it’s hard not to feel a little sorry for the company. Not because of the heads that have rolled — the chairman’s, CEO’s and CFO’s, among others. Nor because of the fines that it has paid, starting with a €200m penalty that a Munich district court ordered it to cough up following bribery charges in Nigeria, Russia and Libya. Siemens gets sympathy because of the Herculean task that it faces to restore its credibility — a task referred to by president and CEO Peter Loscher in the €72 billion firm’s latest annual report as his “highest priority.” The only way the job can be done is by proving that it is now a law-abiding company — no more bribes to government officials to win contracts, slush funds, money laundering or deals with shady middlemen.

Anyone involved in implementing an ethics compliance programme understands the enormity of the challenge. Siemens “is at the beginning of a very difficult change-management programme,” says Jermyn Brooks, director of the private-sector programme at Transparency International (TI), a nonprofit anti-corruption organisation. “If you’re a large company like Siemens, it can take several years to know that a compliance programme is working properly at all your subsidiaries.”

The consolation for Siemens’ new executive team is that misery loves company. Other companies in the same boat as Siemens include Deutsche Bahn, BAe Systems and Alstom. Although Siemens eclipses their recent scandals in terms of global publicity, the results of all of these ethics breaches are similar — battered reputations, bruised morale and costly investigations.

But companies no longer need to be hit by a scandal to realise that ethics programmes are essential. They are certainly now high on many CFOs’ agendas. Indeed, in a survey in early summer by the Chartered Institute of Management Accountants and the Institute of Business Ethics, nearly 60% of the 1,300 finance professionals polled globally said they contribute to their firm’s ethical performance, and 73% believed that ethical performance will become a formal part of their role in the next few years.

The reason for the increased attention is twofold, says Brooks of TI — fear and greed. “The fear is prosecution and imprisonment,” he says. “For the first time, partly because of scandals like Siemens, countries that were previously uninterested in investigating and prosecuting are now becoming quite active.” As for greed, he cites the growing interest in “socially responsible investment,” such as the FTSE4Good and Dow Jones Sustainability indices that include anti-corruption criteria.

Fraud Squads

It’s not that ethics programmes are a new idea — Siemens, after all, had one for years before its scandals were made public in 2006. It is the efficacy of such programmes that is being questioned as never before. A global survey of nearly 400 executives published earlier this year by PricewaterhouseCoopers and the Economist Intelligence Unit (a sister company of CFO Europe) found that most companies have, at a minimum, a code of ethics — be it a doctrine posted on an intranet or a booklet that’s handed out to employees. Yet the survey also found that nearly one-third of the respondents admitted that they have problems communicating or enforcing these codes, and less than one-quarter were very confident that their programmes would hold up if put to the test.

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