Cultural Change: How Siemens Changed an Irreparable Culture

How Siemens Changed an Irreparable Culture

As I’ve written before, there are many reasons that might cause an organisation to seek cultural change. These include regulatory, market (customer) pressure, and merger situations. Sometimes, the need to change is because a company’s culture has nearly destroyed itself from the inside. When this happens drastic action is needed, as Siemens found out in 2006/7.

When things go wrong and money goes missing, cultural change is a must

It was in late 2006 that investigations into suspected wrongdoing at Siemens discovered one of the largest cases of corporate financial misconduct on record. The German courts found a systemic practice of issuing phoney contracts, false bills, and creation of shell companies through which employees – hundreds of them – had embezzled millions of dollars.

At first, Siemens’ senior management tried to downplay the scandal. Eventually, though, its response was one that serves as a study in change management best practice when a huge sea-change in corporate culture is needed.

In total, Siemens eventually estimated that its employees had effectively stolen more than €400 million. Senior executives − the CEO and Chairman included − claimed they had no knowledge and that they weren’t involved. The result: shareholders deserting the company because they feared a lack of integrity. Consequently, the share price plummeted.

A month later, senior executives were forced to u-turn and promise to restore the company’s reputation.

Uncovering the errant corporate culture

The first action Siemens took was to conduct a full internal investigation. There was huge internal resistance to the investigation, and it wasn’t until both the Chairman and CEO had departed that the worst was revealed. New CEO, Peter Loescher, prompted the renewed vigour of the investigation when he offered an amnesty to all whistleblowing employees (though he excluded directors from the amnesty). What the internal investigation uncovered as the cause of the scandal was a failing corporate culture prompted by:

  • An aggressive growth strategy that forced managers to shortcut in order to hit targets
  • A complex organisational structure that enabled divisions to operate completely autonomously
  • Negligible checks on accounts and payments to be made
  • A culture of tolerance of these practices, with employees feeling ‘encouraged’ to accept bribes

It was clear to Loescher that only extreme action would break down the existing and failing corporate culture and enable it to be replaced with a culture of business integrity. Loescher unconditionally accepted the goal to:

“create a culture in which managers do not fall back into easy, and illegal, patterns of behaviour.”

Emergency change begins with process and procedure

Siemens employed outside consultants for advice and guidance, and immediately set out a set of strict rules and processes aimed at increasing organisation-wide compliance and anti-corruption procedures. Compliance was redesigned to “prevent, detect, and respond.” Compliance helpdesks and hotlines were set up (and manned by 500 new compliance employees), and a web portal created for employees to more easily evaluate customer and supplier risk.

Training and coaching was initiated and targeted at creating a new integrity among employees. Whistleblowers were treated with fairness and confidence.

Real change comes with a sustainable change in corporate culture

New processes and people cannot, by themselves, stop a rotten organisation from total decay. The only way to sustain such organisational change is to change culture.

Siemens undertook this massive cultural change program with full efforts on training, coaching, and education. Within 12 months, more than 200,000 employees had been trained on anti-corruption practices. Some of this training took place in classrooms, while other training was rolled out on the company’s intranet.

Further, Siemens undertook a wide-scale review of its strategy. It:

  • removed countries known for their systemic corruption activities from target market lists;
  • suspended its application for funding from the World Bank;
  • undertook by binding arrangement to pump $100 million each year for fifteen years into non-profit organisations fighting corruption;
  • disciplined around 900 employees, including dismissals.

Reinforcing cultural change

Realising that cultural change needed to be reinforced, Siemens continued its internal reviews throughout the next twelve months, identifying hundreds more cases of malpractice.

Continuing coaching of executives and employees centred around the new corporate culture, until a time when the executive charged with supervising the new culture of ethics and compliance declared, “We are quite confident we have eliminated anything systemic.”

Then he added, “But it’s never over.”

And, perhaps, this is the biggest takeaway for CEOs today. Corporate culture permeates through systems, processes, and procedures. If you want to really change corporate culture and maintain that change, you’ll need to strategize for change management to intervene in all three simultaneously and with the full support of senior and middle managers.

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