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Siemens, Satyam repent bad acts - Views on News from Equitymaster
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  • Dec 18, 2008

    Siemens, Satyam repent bad acts

    US$ 1.3 bn to get away with corruption 'A Euro 72 bn global powerhouse in electronics and electrical engineering, operating in the industry, energy and healthcare sectors' - is how the website of German corporate giant Siemens AG describes the company. However, 'powerhouses' these days are no longer synonymous with ethics, transparency and corporate governance. And that seems to be the case with Siemens AG as well The giant has recently pleaded guilty in a US court to a massive global corruption scandal that won it contracts around the globe from Argentina and Venezuela to Bangladesh, Iraq and Turkey. The company has agreed to shell out - hold your breath - fines of US$ 1.3 bn for its misdeeds.

    The penalty to be paid in the US court alone is to the tune of US$ 800 m which will be nearly 20 times more than what any other foreign company has paid in the United States for corruption. The court in the company's home country has charged it US$ 530 m. Besides this, three Siemens' subsidiaries in Argentina, Bangladesh and Venezuela have to pay up US$ 0.5 m each as fines.

    US officials have charged Siemens' employees with transporting masses of money in suitcases across international lines, set up slush funds and using post-it notes on documents for executive signatures so they could be removed afterwards to erase the trail. Further, the company has also been accused of amassing US$ 38 m in profits during Iraq's oil-for-food programme by bribing the Iraqi government US$ 1.7 m for contracts.

    "We are sorry," says Satyam
    Do you think this message will be flattering enough to the shareholders of Satyam, who were shocked yesterday at the management's decision to transfer more than a billion-and-a-half dollar of cash from the company's balance sheet to the promoters of a group company, without shareholder approval? We don't! What surprised us even more is that the management (in a conference call) claimed the valuation of the deal to be done by 'The Big Four' audit firms.

    What is even more ironical is that this company has won the Golden Peacock Global Award for Excellence in Corporate Governance for 2008! We really don't know whom to blame! The promoters? The board of directors who approved the deal? The auditors? Or the panel of judges who gave them the corporate governance award? As for minority shareholders, they have once again been reminded of why a company's management quality is important.

    We are not sure if the company will manage to pacify the infuriated shareholders with the dividend or share buyback it is now promising. Probably it will. But what we wish to emphasise here is that such conciliation may not be long lasting.



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