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The Role of Credit Insurance in Managing Credit Risk at Siemens
INTRODUCTION
Siemens Corporation is a German multinational conglomerate that has been
in operation for over 170 years. The reputation that Siemens has built for several
years was brought into question in 2006 and 2007 after being caught engaged in a
series of corruption scandals (Zhu Wenzhong & Fu Limin, 2012). German law
prohibits any officials or citizens from engaging in corruption scandals. Thus, it was
against the law for Siemens to engage in the corruption scandal, which was justified
by the jury that handled the case. Immediately after the whistle had been blown on
the scandal, a team of investigators was appointed, who immediately raided
Siemens’ offices in Germany and other countries. Corruption scandals have severe
consequences on the company's financial health, reputation, and creditworthiness.
This case discusses the role of credit insurance in managing credit risk to the
Siemens corruption scandal that started in 2006, which also led to disclosures of
more corrupt deeds. Then, to know what specific actions were taken by the company
to deal with the bribery issue involving government officials of some countries and
evaluate if it was effectively helping the company in those times. Lastly, this case
seeks to evaluate Siemens' managerial approach and decision-making mitigating the
effects of the scandal internally.
Gerdeman (2022), a business analyst, articulated that companies face
business risks that can threaten their ability to achieve goals if these risks are not
adequately managed and monitored. The success of a business may be impacted
significantly by these risks, which range from compliance and cyber security threats
to financial and reputational concerns. Just like what happened to Siemens in 2006,
it was involved in corrupt activities like acquiring illegal funds, bribery, and
disregarding business ethics within its management (Klinkhammer, 2015). In addition,
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The Role of Credit Insurance in Managing Credit Risk at Siemens
German investigations implied specific executives that were held accountable for the
transactions representing Siemens. Hence, credit insurance is crucial for managing
credit risk in Siemens as they get involved in a corruption scandal. It not only
protects against financial losses but also helps restore confidence among
stakeholders and ensures business continuity. Also, efficient practice of business
ethics within the organization is crucial, as it serves as guidance for the management
policies.
BACKGROUND
Siemens is a German international empire founded in 1847 by Werner von
Siemens and Johann Georg Halske, which has grown to become one of the largest
industrial manufacturing companies in the world. Siemens is also known for its
innovation and commitment to sustainability. It is organized into six main divisions:
Infrastructure, Energy, Healthcare, Equity Investments, Siemens IT Solutions and
Services, and Siemens Financial Services (SFS). It is headquartered in Munich and
has several foreign branch offices. Siemens and its subsidiaries employ
approximately 420,800 people across nearly 190 countries and reported global
revenue of approximately € 73.5 billion for the year 2011. In the energy sector,
Siemens developed sustainable solutions for power generation and distribution. The
company has also been at the forefront of developing renewable energy
technologies such as wind turbines and solar panels. In healthcare, Siemens has
revolutionized medical imaging with its innovative diagnostic equipment. The
company's advanced technology has enabled doctors to diagnose diseases
accurately and provide better treatment options for patients. Meanwhile, Siemens'
contribution to transportation includes developing high-speed trains that have
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The Role of Credit Insurance in Managing Credit Risk at Siemens
transformed the way people travel across countries. Additionally, the company's
communication technology has played a crucial role in connecting people worldwide
through its telecommunication infrastructure.
Siemens' legacy and contribution are undeniable. Over the years, it created
an impact not only in Germany but also in different countries like Australia, China,
Indonesia, Korea, the Philippines, Singapore, and Switzerland. But just like any other
big corporation, Siemens' faced multiple accusations. In November 2006, the
German authorities revealed Siemens' massive corruption scandal (Blanc et al.,
2019). It began to unfold when German authorities launched an investigation into
allegations that Siemens had paid bribes to win a contract for a national ID card
system in Argentina. It led to further inquisition, which uncovered evidence of
widespread corruption within the company. Authorities found out that for about 7
years, the company had used illegal funds to pay bribes of about 1.3 billion euros in
provisions form. The bribes were paid to lower-level government offices, business
partners, and the whole government. The company also bribed almost 300
employees to keep things private (Aßländer, 2017). The people involved in these
transactions were awarded generous payoffs when leaving the firm, which resulted
in a fine of 40 million euros has been set on the charge.
In May 2007, two directors were found guilty of bribing a quantity of 6 million
euros to beat arrangements for providing natural gas turbines with an Italian power
company, Enel (New York Times, 2007). A fine of 38 million euros has been set on
the charge. In addition to corruption of public officials and business transactions,
passive corruption and bribery in the healthcare sector (Sections 299a and following
the Penal Code) are also punishable by law. The bribery of voters and members of
Parliament is further sanctioned under Sections 108b and 108e of the Penal Code
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The Role of Credit Insurance in Managing Credit Risk at Siemens
(Szeny, 2022). In July 2008, another bribing scandal related to Siemens company
was investigated. It was found out that politicians received slash funds from the
company to secure a contract on its telecommunications business. The company
was able to secure a contract which was to create a lucrative security system for the
2004 Athens Olympics. This violation led to $1.6 billion fine plus millions of legal fees
and compliance cost (Sidhu, 2009).
ANALYSIS
Bribery and Corruption
The involvement of Siemens in corruption scandals several times made the
company pay multiple charges worth billions of euros. The fines paid by Siemens
have had a significant impact on the company's financial performance, which also
led the company to face a severe financial struggle due to the bribery charges it
faced. The highest fine made by the company was the 2008 corruption. The bribery
charges led to an investigation by the US Department of Justice and the Securities
and Exchange Commission. Siemens agreed to pay a $1.6 billion settlement, one of
the largest fines ever paid by a corporation for violating anti-corruption laws
(Schubert & Miller, 2008). The company's profits plummeted, and its share prices fell
drastically. It also had to spend millions on legal fees and compliance costs.
It has been alleged that Siemens used credit insurance to pay fines related to
these bribery charges. Jus, M. (2013) defined credit insurance as a financial product
that protects companies against non-payment by their customers or clients. While it
is not illegal to use credit insurance to pay fines, it raises ethical concerns about
whether companies are using such products to evade responsibility for their actions.
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The Role of Credit Insurance in Managing Credit Risk at Siemens
Critics argue that this practice allows companies like Siemens to continue engaging
in corrupt activities without facing any real consequences (Yang et al., 2021).
Hence, while there is no concrete evidence that Siemens used credit
insurance to pay fines related to bribery charges, the mere possibility of such a
practice raises serious questions about corporate ethics and accountability.
Companies must be held responsible for their actions and should not be allowed to
use financial products as a means of avoiding punishment for illegal behavior. In
addition, Peltier-Rivest (2018) argued that Siemens' financial struggle due to bribery
charges serves as a cautionary tale for corporations worldwide about the importance
of maintaining ethical business practices.
Business ethics
Siemens charged for bribing employee representatives on February 14, 2007,
authorities in Nuremberg, Germany, raided several Siemens offices following
allegations that the company was involved in bribing employee representatives to
secure their support for its policies. Business relationships rely on trust. Bribery and
corruption abuse that trust, and goods and services are not procured in a clear,
ethical, or transparent way. For this reason, an organization or its employees should
never accept or pay bribes, including facilitation payments.
The practice of offering or accepting bribes to gain an unfair advantage in
business dealings undermines the principles of honesty, integrity, and fairness that
are essential for ethical conduct. Corporations that engage in bribery and corruption
not only damage their reputation but also erode public trust in the entire business
community. Thus, such unethical behavior can lead to legal consequences, financial
losses, and reputational damage that can take years to recover from.
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The Role of Credit Insurance in Managing Credit Risk at Siemens
Government
Bribing politicians and corporation corruption have become prevalent issues,
as demonstrated by Siemens. Bribery would damage the authority, prestige, and
force of laws and regulations. The bribery circumvented the legal system and
obtained illegal interest, which is contempt against laws and detrimental to the
implementation of laws (Schmitt, 2010).
The impact of these corrupt practices is far-reaching and can lead to a lack of
transparency in decision-making processes. Berghoff (2018) debated that bribing
also creates an uneven playing field for businesses that do not engage in such
practices. Governments need to take action against these unethical practices to
restore public trust in their institutions.
SOLUTIONS AND RECOMMENDATIONS

Transparency

Re-evaluation of executives

Strict Obedience of laws and regulations in the government

Integrate ethical values
TRANSPARENCY
Siemens should increase their financial transparency. Transparency in
financial transactions is a crucial aspect of corporate governance. It ensures that all
financial dealings are conducted with integrity, honesty, and accountability. The lack
of transparency in financial transactions can lead to corruption, which happened with
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The Role of Credit Insurance in Managing Credit Risk at Siemens
Siemens multiple times. It resulted in severe consequences for the corporation and
its stakeholders. For example, fines that reached billions to pay charges.
Furthermore, corruption in a corporation can also take many forms, such as
embezzlement, bribery, kickbacks, and insider trading. These practices not only
harm the reputation of the corporation but also result in financial losses for
shareholders and other stakeholders. It is significant for the Siemens to establish
transparency in all financial transactions. It can be achieved through regular audits
by independent auditors, disclosure of financial information to shareholders and
stakeholders on a timely basis, and strict adherence to accounting standards.
Moreover, Siemens must implement effective internal controls to prevent fraudulent
activities by employees or management. These controls should include segregation
of duties, authorization procedures for expenditures and payments, and monitoring
mechanisms to detect any irregularities.
RE-EVALUATION OF EXECUTIVES
In multiple cases involving Siemens in bribery and illegal slash funds, it is
observed that all of the masterminds are the executives. The role of executives in
modern organizations has undergone significant changes over the years. In the past,
executives were seen as authoritarian figures who made all the decisions and were
responsible for the success or failure of their organizations. However, recent trends
have shown that this approach is no longer effective in today's dynamic business
environment.
The re-evaluation of executives involves a shift towards a more collaborative
and inclusive leadership style. This approach recognizes that successful
organizations are built on teamwork and shared responsibility. Executives are now
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The Role of Credit Insurance in Managing Credit Risk at Siemens
expected to work closely with their employees, listen to their ideas and concerns,
and empower them to take ownership of their work.
Moreover, the re-evaluation of executives also involves a focus on ethical
leadership. Executives are expected to lead by example and uphold high standards
of integrity in all aspects of their work. It includes being transparent about decisionmaking processes, avoiding conflicts of interest, and promoting diversity and
inclusion within their organizations.
STRICT OBEDIENCE OF LAWS AND REGULATIONS IN THE GOVERNMENT
The strict enactment of laws and regulations in the government is necessary
to ensure that corporations do not sway the decision-making process. The
government's primary responsibility is to protect the interests of its citizens, and this
can only be achieved by enforcing laws that regulate corporate behavior.
Corporations have a significant influence on governments, especially when it
comes to policy-making. They have vast resources at their disposal, which they use
to lobby politicians and sway public opinion. This influence can lead to policies that
favor corporations over citizens, resulting in an imbalance of power.
To prevent this from happening, governments must enact strict laws and
regulations that limit corporate influence. These laws should include transparency
requirements for political donations, restrictions on lobbying activities, and penalties
for non-compliance.
INTEGRATE ETHICAL VALUES
Ethical values are often overlooked in the pursuit of profits. It has led to
numerous cases of misconduct by executives, resulting in financial losses and
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The Role of Credit Insurance in Managing Credit Risk at Siemens
damage to the company's reputation. Siemens need to integrate ethical values into
their business practices to avoid such situations,
The first step towards this is to establish a code of ethics that outlines the
company's values and principles. It should be communicated clearly to all employees
and stakeholders, with regular training sessions to ensure understanding and
compliance.
Additionally, Siemens should implement strict measures for reporting
unethical behavior and protect whistleblowers. It will encourage transparency and
accountability within the organization. Also, executives must lead by example,
demonstrating integrity in their decision-making processes and actions. As
expressed by Werner von Siemens over 175 years ago, the company's mission is
to provide technologies that improve quality of life and create lasting value for society.
Siemens is integrated to provide a quality environment to people and build a
community that promotes the common good. The company is committed to providing
customers with meaningful, positive change that shapes the world we want to live in.
The solutions and recommendations above will help Siemens Corporation to
enforce a better community for its employees and customers. It is where the
corporation participates fairly in business transactions and provides high-quality
service.
IMPLEMENTATION PLAN
To implement the recommended solutions, Siemens can start assembling a
general conference on which the highlight topics will be business transparency, reevaluation of executives, discussion of laws and regulations in the government, and
integration of ethical values.
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The Role of Credit Insurance in Managing Credit Risk at Siemens
Transparency
Achieving business transparency can be a step-by-step process that involves
several key elements.
STEPS
TIMELINE
1. Siemens need to establish clear communication
Monthly
channels with their stakeholders. It includes regular
updates on company performance, financial reports, and
any changes in policies or procedures.
2. Next, The company should adopt ethical practices that
Annually
align with their values and mission statement. It includes
fair treatment of employees, responsible sourcing of
materials, and environmentally sustainable practices.
3. Then, it should prioritize data security and privacy by
Monthly
implementing robust cyber security measures to protect
sensitive information.
4. Lastly, Siemens should encourage feedback from their
Annually
stakeholders through surveys or other means to identify
areas for improvement.
Re-evaluation of executives
The following are the step-by-step processes to re-evaluate executives in a
corporation.
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The Role of Credit Insurance in Managing Credit Risk at Siemens
STEP
IMPLEMENTATION
1. Siemens management must identify the key performance Every first month of
indicators (KPIs) that measure the executive's performance. the year.
These KPIs should align with the company's goals and
objectives.
2. Gather data on how well the executive has performed
Annually
against these KPIs. It can be done through employee
feedback, customer satisfaction surveys, financial reports, and
other relevant data sources.
3. Analyze the data collected to determine if there are any
Every month
areas where the executive needs improvement or if they have
exceeded expectations.
4. Provide feedback to the executive on their performance and
Annually
discuss areas for improvement or recognition of their
achievements.
5. Create a plan for development or improvement for
Annually
executives who need it. It may include training programs or
coaching sessions to help them improve their skills and meet
key performance indicator (KPIs) more effectively.
Strict obedience to laws and regulations of the government
For Siemens to effectively follow strict obedience to the laws and regulations
of the government, several steps must be taken.
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The Role of Credit Insurance in Managing Credit Risk at Siemens
1. Siemens must have a clear understanding of the laws and regulations that
apply to your specific industry and business. It can be achieved through
research and consultation with legal experts.
2. It is crucial to establish a culture of compliance within the organization. It
involves educating employees on their responsibilities under the law,
providing training on compliance procedures, and enforcing consequences for
non-compliance.
3. Regular monitoring and auditing should be conducted to ensure that all
operations are in line with legal requirements. Any issues or violations should
be addressed immediately.
4. Siemens should maintain open communication with regulatory bodies and
government agencies. It includes reporting any incidents or concerns promptly
and cooperating fully with investigations.
Integrate ethical values
The process of integrating ethical values in Siemens is the following:
1. Identifying the core values that align with the company's mission and vision.
Once these values are established, they must be communicated to all
employees through training programs, workshops, and regular communication.
2. Create policies and procedures that reflect these ethical values. These
policies should be clear, concise, and easily accessible to all employees.
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The Role of Credit Insurance in Managing Credit Risk at Siemens
3. Siemens should establish an ethics committee or officer who can provide
guidance on ethical issues and ensure compliance with ethical standards.
4. To reinforce ethical behavior within the company, it is necessary to
recognize and reward employees who demonstrate exemplary conduct. It can
include bonuses or promotions for those who uphold the company's values.
5. Regular monitoring and evaluation of the company's adherence to its ethics
policies should be conducted. It will help identify areas where improvements
can be made and ensure that the organization remains committed to its
ethical principles.
Potential challenges/risks
The implementation of recommendations can be a daunting task for any
organization. While it may seem like a positive move towards accountability and
fairness, there are potential challenges and risks associated with this process. One
major challenge is resistance from executives who may feel threatened by the
prospect of being evaluated. It can lead to a lack of cooperation, which can hinder
the effectiveness of the process. Additionally, there may be concerns about privacy
and confidentiality and fears that sensitive information could be leaked.
Another risk is that transparency could lead to an overemphasis on short-term
results rather than long-term goals. Executives may focus on achieving immediate
success to avoid negative evaluations rather than making decisions that benefit the
company in the long run. Likewise, there are also risks associated with implementing
ethical values in corporations. One risk is reputational damage if a company fails to
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The Role of Credit Insurance in Managing Credit Risk at Siemens
uphold its ethical standards. It can lead to loss of customers, investors, and even
legal action.
Despite these challenges and risks, implementing the recommendations
mentioned can ultimately lead to greater accountability, fairness, and improved
performance within an organization if done correctly.
CONCLUSION
Siemens's involvement in multiple corruption scandals had a significant
impact on the business industry and its reputation. The overall findings show that
Siemens engaged in bribery, embezzlement, and other corrupt practices to secure
contracts and gain an unfair advantage over competitors. The impact of these
corrupt practices is far-reaching. It damages the trust of customers and investors,
undermines fair competition, and erodes public confidence in the integrity of
businesses.
Moreover, it leads to a loss of revenue for honest companies that are unable
to compete with those who engage in corrupt practices. Siemens' multiple
involvements with corruption have resulted in significant financial penalties and legal
consequences for the company. However, these penalties do not fully compensate
for the damage caused by their actions. The company has allegedly relied on credit
insurance when they have to pay for penalties.
Overall, recommendations can be a significant help for Siemens to improve
the company's managerial setup while sticking to their existing mission and vision.
Implementing the recommendations mentioned will compel the company to compete
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The Role of Credit Insurance in Managing Credit Risk at Siemens
fairly with other businesses. Likewise will promote a healthy workplace environment
for its employees and provide quality service to the consumers.
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The Role of Credit Insurance in Managing Credit Risk at Siemens
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