Thursday, 25 March 2010

The bribery mess at Daimler

The bribery mess at Daimler makes sorry reading. Every party involved is showing up in the worst possible manner. Whatever promoted a global corporation of the standing of Daimler to be in this situation ?

The case is as follows. Daimler is accused by the US authorities of paying bribes of tens of millions of dollars in over 22 countries over a 10 year period. Daimler, it is reported, has agreed to pay a $185 m fine to settle civil and criminal charges. Daimler, it is alleged, set up shell companies to channelise the bribes, Bribes have included gifting an armoured car to a Turkmenistan official, siphoning of funds to the bank account of the wife of an official in China, 10% kickback to Iraqi government under Saddam Hussein, and so on and so on. It makes sordid reading.

First culprit is Daimler , of course. This has been going on systematically over a number of years. A lot of people have turned a blind eye to the goings on. At best, this can be calculated ignorance, and at worst, active encouragement. The amount of money involved has not been much. It is estimated that through all this bribery Daimler earned a profit of $50 m which is a drop in the ocean that Daimler is. Did this really matter so much to stoop to the level of blatant bribery. Why did they do this ?? Why on earth would an organization of the stature of Daimler take such risks for such a measly reward ?

The affair came to light through a whistle blower, in the then Chrysler wing of Daimler. An internal auditor at Chrysler blew the whistle. He went to his boss. His boss told him to keep quiet. He went to his boss’s boss. Who also did nothing. In due course, he was transferred and then sacked. Classic fate of whistle blowers. So much for whistle blowing mechanisms, hotlines, Sarbanes Oxley provisions, etc etc. Total muck on the faces of the people who handled the whistle blower. And equal muck on the face of those responsible for running Daimler’s ethics practices.

Lets turn to the position of the German government. Normally the German authorities are at the forefront of actions against bribery and corruption. They acted famously in a case involving Siemens a few years ago. Daimler is a German company. But they have been prosecuted by the US government. The German authorities have not yet brought any charges. What were they doing. A charitable explanation is that they were sleeping. At the very least they should look sheepish – a German headquartered corporation’s behaviour in 22 countries has been acted against in the US, not Germany.

The only party coming out of this without a stink is the US authorities. They are usually very rigorous in pursuing acts of wrong doing relating to bribery and corruption. They went after Daimler through a variety of laws that gave them jurisdiction, even though Daimler is German company and these acts happened outside the US. Other countries would do well to emulate the US authorities who simply do not compromise on such matters.

This affair makes this writer wring his hands in despair. Multinational companies are accused of all sorts of things all over the world. The very world multinational is construed to be a very dirty world. The majority of such accusations are blatantly false. They are the product of jealousy, misguided nationalism and downright lies. For the large part, multinationals behave honourably across the world and often much better than their local counterparts. I have some credentials to say so – I have worked in multinationals all through my career, and seen very many of them operating across many countries. But then there are also cases like Daimler. They deserve to be given exemplary punishment – not only because of the shame of what they did, but also because mud sticks on very many other more responsible companies because of their actions.


Half Indian said...

Thank you for your support, Ramesh. It gives me the strength to face tomorrow's life, and I hope I can get stronger.... Again, thank you for all of your comments and compliments.
I always love to read your writing with deep thoughts.

Durga said...

Whatever happened to business ethics! But then Ramesh, if one looks deeper into the case, one realises that it is the act of a few selfish individuals, who indulge in such lowly acts only to "achieve targets". Now now, don't we all know of people/companies who achieve targets without blemishing their hands? The fact that US has many complicated legislations enacted to check that companies are "behaving themselves" brings much chagrin to those who have to follow - the rigors of compliance can be tiresome. But then, how else will such disdainful acts by corporates ever be detected without such enactments? At the end of it all, what has Daimler gained by bribing so much in so many countries? Their goodwill account is actually showing a credit balance now!

Ramesh said...

@Dave's mama - Thanks very much. No doubt you'll be stronger. And Dave will continue to light up your life.

@Durga - Yes its the act of individuals, but unfortunately in this case, its more than a few. For this to happen so widesperad, there must have been tacit approval, or at the very least turning away of the eye. That is inexcusable for a corporation of Daimler's standing. Their goodwill account will indeed show a credit balance.

SL said...

From Ancient times to now, from government to individual, it never stops. In China, we call it "GuanXi",
One typical representative is "HeShen" from Qing Dynasty, he supported his student ( Xue Sheng in Chinese) to climb up to the top of social ladder, then take advantage of this relationship to help others. By this way, he became very rich, richer than a country is.
Recently, it became even dirty. In some companies, they cater for their shareholders' or stakeholder's interest not only by bribing, but also using some innocent young people, that resulted in notorious event "Yan Zhao Men" two years back.
It is good that we could discover and reveal these things through SOX, external or internal audit, but how do we know whether this mechanism really works or not. Think about what happened in UK recently. Some big brothers were lobbing to change the law on behalf of enterprise to get 3~4 grand per day. We might have a clear business environment for free competition if each of us had a good faith, behave in a professional way to do what we should do, take what we should take. Is it so hard for those companies to do?
Let us take this Daimler case as a start and teach them to be discipline in future!

ambulisamma said...

As the saying goes,"koduppavannum vangubavanum irukkum varaiyil lanchathai ozhikka mudiyathu",how true.

Ramesh said...

@SL - Hey Sunny; delighted to see you come here and leave a comment. Much impressed that you beat the Net Nanny to come here. Its more than guangxi. guangxi is there in every country, but when it extends to bribery then it becomes a problem.

I don't know about the Yao Zhao Men (Is that the milk adulterators ?) Will ask you to teach me those words tomorrow !

Ramesh said...

@ambulisamma - Treu ; but then as a big corporation, ethically run, kodukka koodathu.

Anonymous said...

the whole incident sounds like "The Firm" john grisham novel. Tom cruise vachu padamavum vanthichi nenakren. Fall, as an act, is adorable only for water. Anywhere and everywhere else its seen as blasphemy. Daimler, being Daimler, it looks so sad that they did such an act. Such acts happen day in and day out in each and every traffic signal in every single city of India. I think there is a strong notion that..ethics are something which are best practiced by westerners and their "fall from grace" is often treated as an aberration. but down here..a person being straightforward and clean is considered the same way. If the same news comes in daily one wud give it a second glance for people are so used to seeing such news :)

Ramesh said...

@gils - No gils ; it is not so bleak. There are so many upright and honest citizens who do not resort to petty bribery. Each of us must stand up for our values. A Rs 5 bribe is the same as a $5m bribe. Done by me, its the same as done by Daimler. There is no such thing as materiality to bribery. There are no shades of grey - its either black or white. If we just say no ; never; and listen to our conscience instead of the long arm of the law, it would become rarer and rarer. I know it sounds utopian, but on ethics, an utopian objective is a noble aim worth going for. Each of us count. We can make the difference. If not to everybody else, we can at least hold our head high to our conscience.

zeno said...

Reminds me of one Indian IT company which refused to pay bribe for a local telephone line in bangalore and routed their calls from office to another office via kentucky their own fiber-optic lease line.
I found it very difficult to believe that this company doesnt gives bribes and to my surprise, one of my friend who was working for them in accounts section dealing with government officials confirmed me that "they never pay anything to move files" in offices where others pay. all he has to do was to say the name of the company and they wont ask you under or above the table.

zeno said...

At the same time it would be interesting to read this article, more especially what arun shourie says

and if i read the post right, do you mean the amount of bribe given outweighs the profit made out of it? If that was the case, i would say what a lousy deal and all those who turned a blind eye to this should definitely be punished :) :)

zeno said...

and coming to petty bribery and 5rupee bribe, what can you do if a constable at signal asks "don't you have even two rupees" or just takes one left over cigarette! [no exaggeration and i am not making up anything here!]

Sandhya Sriram said...

unlike the expert gils who writes hollywood in tamil, i have never gone beyond koliwood and so i remember "Indian Tatha" where Director Shankar recommends capital punishment for anyone who accepts or gives bribe.

Influenced by the MNC i have worked for, i think it is possible for companies (atleast large ones - the size of daimler) to take a stand and live by the stand. atleast i have gone through some very very testing times (of-course at a very small level) and this kind of a hard stand have if only helped the company in the long run. The minute a precedent is sent, it can grow and manifest itself in very dangerous way and i guess that is the downward spiral which daimler has landed itself in.

But it requires a lot of nerve to battle the bad world outside and while multinationals can afford, what about those who cannot.

we have this routine flower vendor who used to bring flowers to my house everyday (given that you already know my heart for Malli Poo). she decided to go one step further in her ambition and set up a shop. and believe me, in a year's time, she had to double her price.. to take care of all the so called law enforcers. she may be a small example but a representation of the fate of many.

wish Lokayukta and the like gets power to award capital punishment to every confirmed case of bribery!!!

Deepa said...

I have personally seen Corporate houses being very particular about their ethical standing and public image at large! And all this coming from Diamler is too disturbding.

But to think of, if in India we started picking up people for bribery, directly or indirectly, every one would have to sign up for a compulsory jail term.

J said...

Kudos to the whistle blower. Along with the responsibility of refusing to pay the Rs.5 (whoever accepts such a low bribe :)) we also need to accept the responsibility of blowing the whistle when we see such wrong doings. I think that takes a lot of guts but laws alone cannot fight such corruption issues without the support of someone from the inside.

Ramesh said...

@Zeno - Right. There are a few companies who absolutely refuse to pay anything. Once word gets around, people start asking them knowing they won't get it. Its possible.

The contable at the junction - usually he asks only if we have committed a violation. Else would we ever stop.

@sandhya - The capital punshiment theory is exactly what they do in China. If the size of corruption was above a certain amount, its a mandatory death sentence here. Unfortunately, that hasn't stopped corruption one bit.

The flower seller story is a bigger problem. She's just trying to earn her livelihood. Her problem is that her shop is probably illegal - that's why the hafta. But then she probably does not have the means to acquire a shop legally. That's not an easy dilemma.

@Deepa - Yes, everybody including yours truly has to go to jail. But We can try to reduce and slowly eliminate. One small step at a time. One trick I have tried works - When confronted with a demand, I say, I'll pay it, but not to you. Instead I will give it to the beggar sitting outside. Surprisingly it seems to work.

@J - The sad fact is that I can't think of a single whistleblower who has not been destroyed . We somehow don't seeem to accept whistleblowers at all.

Deepa said...

I liked the suggestion of paying it to the needy, instead of a govt. officer.

Vishal said...

Yes, FCPA compliance is very important for the states’ companies and US authorities are equally serious about any wrong doing around this area by any other company which has very little connection to the states. The sad part however is: corruption is so prevalent and penetrated, (in direct or indirect form) that one cannot rule out possibility of other big companies involved in bribery acts. I wonder how such acts persist to happen despite establishment of so many stringent preventive measures that follows each and every corporate debacle. Somehow, moneymaking is too important to these breed of “businessmen” (I doubt if they qualify to be called as a “businessmen”).

Ramesh said...

@Vishal - That is right - money maiking is far too important; not just for businesses, but even for ordinary people. Witness the looting that goes on in the aftermath of a disaster. It seems to be a basic human nature.

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