19 December 2008

A Billion Here, A Billion There

On a cold, grey and wet Munich day I visited the Siemens Forum with a friend. I knew that Siemens was a big company, but I had never realised quite how big. With around 450,000 - more than half of them outside Germany - it is one of the world's biggest employers.

The range of products the company produces is equally impressive. The company can sell you light bulbs and build you a nuclear power station to provide the energy to run them. It can build and run your hospital and provide a full range of diagnostic equipment. It can sell you a high-speed train or a toaster.

However, it turns out that the company's impressive global growth in recent years has not always been achieved by legitimate means.

Following an investigation initiated by prosecutors in Munich and the US (where Siemens has a listing on the New York Stock Exchange) into allegations of bribes being offered in return for contracts, Siemens has agreed to pay over EUR 1 billion in fines to German and US authorities. (Siemens had already been fined more than EUR 200 million by German prosecutors).

The total financial cost to the company is estimated at EUR 2.5 billion. In addition to the financial cost though, the company also lost its Chairman, Chief Executive, half of its senior managers - and its reputation.

Apparently, though, this was considered a good result for Siemens. By cooperating with both the German and US investigators and by getting rid of the senior managers in charge at the time, the company avoided even heavier fines - potentially EUR 1.7 billion in the US alone - and, worse still, losing its status as a 'responsible contractor' with the US Defence Logistics Agency.

The investors were clearly happy - a small loss on the DAX and a small gain on the NYSE followed the announcement and in the days since Siemens' shares on both exchanges have been rising.

While EUR 1 billion sounds like a lot of money - and is a lot of money - the orders keep rolling in. Two days after this announcement Siemens announced a new order for ICE high speed trains from Deutsche Bahn. The order is worth EUR 500 million.

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