Supply Side
Corruption – the Siemens Story and Thoughts on the New Procurement Directives

At the recent Wales Procurement Week, hosted by the Institute of Competition and Procurement Studies from Bangor University, we saw a couple of presentations focusing on the perennially relevant topic of corruption. The first came from Simone Davina, General Counsel & Company Secretary at Siemens Netherlands.

Siemens was involved in a high-profile bribery case some years ago. In 2008, following a string of high-profile bribery scandals, it agreed to a record $1.6bn legal settlement with American and European authorities. The scale of the problem, which Siemens admitted involved officials all over the world from Nigeria to Norway, suggested that bribery was a common way for the firm to compete and win contracts.

The firm had to sort out its issues and go through what is now generally called “self-cleansing” in order to be allowed to bid again for government contracts and satisfy the authorities. It was clear that bribery was endemic, not just the result of a few bad people. The problems were embedded in the system – there was considerable peer psychological pressure, so when new people joined, they were under pressure to conform to a certain way of doing things. But basically the firm had to find a way of staying in business.

Initially, Davina said, it was about informing and training staff. Then, it was essential to make sure the right behaviour “became part of them.” So scenarios were used – “integrity dialogues” as Siemens called them – to discuss potential situations and get staff talking about how they felt and how they should behave. And “a lot of senior people left the firm.” (Indeed, other reports have suggested that 80% of top-tier executives, 70% of second tier and 40% of third tier left.)

Siemens also realised they could not do it alone. They took the message out to academics, to suppliers and other audiences. The firm had to make sure everyone in their own supply chain followed the right behaviour. Very strong processes were introduced, down to the level of getting approval to have dinner with a business partner or supplier. Now, having made progress, those rules might be relaxed a little, she said. But, “some of our business partners may not be willing to sign up to the onerous rules of dealing with Siemens.”

This was a brave presentation, and one that showed how difficult it is to change the culture of a large organisation – but praise to Siemens for being so open about the issues. And perhaps Petrobras (see our article here) might go and talk to Siemens about their experience, as it looks like that oil firm needs a similar programme to combat endemic problems, even if their issue appears to revolve around receiving bribes rather than offering them.

The second session in Cardiff was from Peter Trepte from the University of Nottingham. He talked more generally, starting with the remark that in Germany, bribes to foreign governments were tax deductible until relatively recently! He then moved onto the new EU directives, and the concept of firms that can take action to write-off their previous bad behaviour. Trepte does not like the “self-cleansing” expression – “that’s what my cat does”! He prefers “rehabilitation” (and we agree).

One interesting point about the mechanics of corruption – in many places, he said, you pay the bribe after you have won the competition. The buyer expects it whoever wins the competition, it is so engrained in the behaviour and process.

But he is worried about the new regulations – “exclusion is a very blunt instrument.” And what happens if a senior manager is convicted, then at some point moves to another firm – they might be vulnerable to exclusion because of his previous actions.

Trepte is also concerned about the looseness of some of the definitions in the directive. Firms can be excluded for grave professional misconduct “demonstrated by appropriate means.” Bid-rigging is another route to exclusion, as are “conflicts of interest” and where the bidder “seeks to exercise undue influence” (which does seem very general). In terms of exclusion for performance, there are strong conditions that have to be met, so there is a reasonable safety net. But overall, he said, the directive “promises a great deal but sadly delivers little.”

It will be a while, we suspect, before we see just how many contracting authorities are taking advantage of the new ability to exclude bidders in this way. But this could be a whole new source of legal disputes and arguments if it does become commonplace.