Corporate Governance

In all of the cases, the companies were subject to anti-corruption laws and regulations, and it is evident that some had focus on internal control mechanisms. Several of the companies publicly expressed that corporate governance was a high priority in their business. Both Siemens and GSK had statements of corporate governance on their websites, and Telia declared their activities were conducted after the highest of ethical standards. Nevertheless, in all the cases we found a total negligence of the companies’ internal controls and what they communicated to stakeholders, and the cases had several similarities. In Siemens, Daimler, and GSK corruption and bribery was a business strategy and deeply imbedded in the companies’ cultures. As

found in the analysis, both Siemens and Daimler to some extent encouraged bribery to acquire business, and the same can be argued for GSK through their sales incentives system in China. Furthermore, there were several warnings of possible and directly illicit practices that were deliberately ignored by the boards and management. No disciplinary actions were taken at all. In all the cases, the corrupt practice, or transactions as in the case of Telia and Yara, was sanctioned by key executives and even the board whose very responsibility is to monitor and control the company’s activities and protect shareholder interest. Hence, our analysis shows that internal corporate governance mechanisms failed or were bypassed and neglected in all of the cases. This demonstrates what was presented in section 2.4 regarding internal control mechanisms being neglected and failing, rather than a lack of national and international laws and regulations the companies should comply with.

In contrast to this, the cases of Telia and Yara offer a different perspective. The investigations by the authorities in those two cases did not find concluding evidence to state that internal governance systems were completely neglected. These were rather cases where the corruption was conducted by only a small group of managers with enough power in their organizations to sidestep the control mechanisms. However, that situation in itself is a strong argument to assert that the board failed and was ineffective in carrying out its duty. This is supported by Pirson and Turnbull’s (2011) argument presented in chapter two that the boards’

failure to control risks was due to lack of information supply or inability to process the information.

The initial response by Siemens and Telia followed a nonexistence strategy (Coombs, 1995). Siemens’ CEO denied involvement and disregarded the problem while Telia initially cooperated with the investigation but denied all allegations. However, through the investigations and internal reviews, both companies were found guilty and their response strategies changed, in line with the three other cases. Our analysis of the short-term response in corporate governance shows that all five companies followed classic strategic response strategies when the scandal is a result of intentional actions. In all five cases, there were layoffs of responsible executives and additional complicit employees were fired from Siemens, Daimler, and GSK while Yara replaced its board. GSK adopted a mortification strategy where they issued a public apology to the Chinese people and promised to become a frontrunner in reforming the Chinese healthcare industry. Furthermore, Siemens offered immunity to all whistleblowers and Telia established a new whistleblower scheme.

All companies made multiple changes to their corporate governance and we found drastic increases in our search words in the short-term after the scandal (table 21). Most notably is Siemens who mentioned corruption 51 times and bribe 22, both up from 0. Daimler and Telia followed suit, and GSK and Yara had

minor increases in mentions of corruption. An interesting observation is with GSK where the mention of bribe decreased. A possible reason for this is that they were very public with their changes in corporate governance and wanted to take some focus away from that in their annual report.

In the long-term, Daimler has restructured their organization, GSK implemented a new corporate governance framework where control and risk management are highlighted, and Yara has created a 20-page document named Anti-Corruption Commitment to raise awareness of corruption among all stakeholders. We found no additional changes to Siemens’ corporate governance tough they have carried on and invested resources in their Integrity Initiative fund, which is a direct result of the corrupt behavior, explained in section 4.2. Telia has withdrawn from all Eurasian markets after realizing they are vulnerable to corruption in the region.

All companies show evidence of long-term commitment to mitigate corruption through corporate governance measures. This is supported by the continuing focus on our search words in their most current annual reports. Only in Siemens we found a decrease in mentions of corruption. This is possibly due to Siemens’ Integrity Initiative fund issuing an individual annual report focused on Siemens’ initiatives against corruption. The 2017 version has 265 mentions of corruption.

Summary

These are all different companies operating in different industries and exposed to different scandals. Thus, one may imagine they would respond differently as well. Siemens and Telia denied the allegations at first, but there is no concluding evidence to assert that those were deliberate strategies. This is remarkable because the corruption concepts in the two cases were so different. Siemens had a long history of bribery, driven by supply to grow their business. Telia, on the other hand, was not prone to a corrupt culture and the evidence points to a conspiracy at the top level of the organization. Additionally, we asserted that the corruption in Telia was driven by demand and, thus, a feasible explanation is that the conspiring executives were the only ones who knew the transactions were, or could be connected to, bribes. Even though the transactions were approved by Telia’s board, it is possible the board was deceived when evaluating the Uzbek business. It is also possible the attractiveness of the Uzbek market influenced the corporate governance processes as suggested by Doidge, Karolyi, and Stulz (2004). The corruption in Siemens, Daimler, and GSK follow the same concepts of active bribery and sophisticated methods of fraudulent accounting to conceal the illicit practice. In these three cases, bribery was part of their business strategies and responsible managers were complicit. Telia and Yara differ from the other cases in that these were only one or a few isolated

from India were driven, partly in the case of Yara, by the demand for bribes. Nevertheless, the incentive in all cases were to benefit the company.

All the companies were subject to, and consequently violated, laws and regulations prohibiting corruption and bribery, such as the OECD Anti-Corruption Convention which all the companies’ home-countries have signed. Thus, it was the internal governance controls who failed in all companies. Nonetheless, they have all implemented a good deal of governance measures in the years after the scandals. Concluding from our measurements on search words, they all seem to maintain focus on robust corporate governance and anti-corruption. Figure 11 shows the companies’ responses related to corporate governance.

Figure 11: Companies’ responses related to corporate governance