| Bribes, corrupt chiefs and paid-for sex ... corporate Germany is in crisis |
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Big brands are being linked to widespread corruption
Car manufacturers BMW, DaimlerChrysler and Volkswagen; the country's fourth-largest financial institution, Commerzbank; Europe's largest chip-producer, Infineon - five of Germany's leading firms, all members of its Dax-30 blue-chip index, have become embroiled in corruption scandals in recent months.
There are even suggestions that corruption is endemic in German corporate culture. The revelations of kickbacks, money-laundering and paid-for sex have shocked a country that is already trying - and failing - to come to terms with its fall from graceas Europe's model economy and is mired in anxious depression. Not so much banana republic as backhander republic. A handful of senior executives, including Peter Hartz, VW's personnel chief and architect of the Schroder government's labour reforms, have resigned; others are being investigated by criminal prosecutors. The country's two-tier company board structure, including the role of the supervisory board, has come under increased criticism. "It's normal that the cases only come to light by accident and the 'dark' numbers are very high, but only 5% to 10% of cases become known," says Peter von Blomberg, deputy chairman of the German chapter of Transparency International. A former executive with insurer Allianz and protagonist of a series of measures to combat corruption through whistle-blowing and binding codes of corporate behaviour, he says: "We are speaking of the tip of an iceberg, but the problem is that we don't know how big the iceberg is." He points to a prominent state prosecutor who claims corruption is so rife that in the construction sector alone - which is allegedly responsible for 40% of cases - the damage to the economy runs at £5bn (£3.4bn) a year. But he says these are crude estimates, pointing out that Germany ranks quite high for lack of corruption in international indices - a few places ahead of Britain but behind Nordic countries such as Finland. 'Politically sensitive' Professor Manuel Theisen, who holds the chair of business administration at Munich university, insists that the phenomenon is widespread but agrees that greater transparency, especially after the scandals in America such as Enron and WorldCom, has played a crucial role. But he also believes that the dire economic situation has encouraged people, including investors, to come forward with allegations and says it's no accident that three of the scandal-hit firms are in the car sector. "One in eight German jobs is in the industry and it's also the most politically sensitive. It's probably no accident that at VW, where politicians sit on the supervisory board, there's a battle between the socialists and the Christian Democrats outside in Lower Saxony." The car industry is vulnerable because poor profit margins force purchasers to squeeze suppliers with price cuts, and they in turn are desperate to keep business. Prof Theisen says managers do not see backhanders as a crime but as a premium or even a commission for winning a contract. More generally, he argues that the notion of shareholder value, of executives working for a firm's investors, cuts too little ice. "It is too small a part of the consciousness of managers who are more and more looking to increase their own wealth and line their back pockets." Old boys' network Mr von Blomberg believes there should be a binding code, backed by sanctions or prosecution, for executives and managers. Publisher of a specialist magazine, the Supervisory Board, Prof Theisen agrees that such boards are too often part of a cosy old boys' network, with members lacking the courage to put forward alternative views or too prone to turn a blind eye to the workings of the executive board - to which they may have once belonged. This failing has been most striking at VW, where union leaders on the works council not only negotiate pay and conditions but also sit on the board and appear content to be paid off with free trips, gifts, false expenses claims and even prostitutes paid for by the firm. Ferdinand Piech, the supervisory board chairman and former chief executive, has disclaimed any knowledge or responsibility and says he deliberately stayed away from the firm to allow more scope for his successor as chief executive, Bernd Pischetsrieder. He says he will now be present once a week, adding more "bite" to clearing up management mistakes. Internal controls But Prof Theisen believes it is not the role of the supervisory board, which meets at most 12 times a year for six-hour sessions, to exercise internal controls; that is the job of the executive board - which, under German law, shares collective liability for all its members. "They are all responsible for what an individual does." Ultimately, commentators point to a cultural gap, a failure of corporate governance, at the heart of the recent scandals. Mr von Blomberg proposes reforms such as greater training in risk management, job rotation, more Chinese walls and, above all, an external, independent ombudsman to whom whistle-blowers can turn anonymously to expose scandals without exposing themselves. But in a country which is only just now preparing to force companies to publish full-scale remuneration reports, it's corporate culture itself that needs to change. The roll call of shame Tip of the iceberg The five corruption scandals rocking Germany:
This article appears courtesy of the The Guardian Newspaper
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