Siemens bribery scandal is just the beginning

It may seem shocking that Siemens has been bribing officials around the globe, but the real question is which markets those bribes are appearing in and why.

Paying bribes in some developing countries has always been a tacit prerequisite to doing business there. Even venerable IBM, which has been scrutinized by the U.S. Department of Justice perhaps more than any other company in the last half century, was involved in at least two well-publicized bribery scandals. One occurred in Argentina back in the late 1990s, while the second occurred in Korea three years ago.

Somewhat ironically, IBM issued a code of conduct for its partners in 1995 that says, in part, “At times, you are required to comply with all applicable U.S. and local anti-bribery laws, such as the United States Foreign Corrupt Practices Act.”

Was IBM’s behavior wrong? Given the press accounts of the scandal, yes. Was Siemens wrong? Yes. Should this type of behavior be condoned? No. But unfortunately, it’s a fact of life in many developing countries.

It even occurs in many industries in developed countries. The big difference is that the laws are explicit that this kind of behavior is illegal. Newspapers are full of stories of construction and garbage companies in big cities in the United States being charged with paying bribes to city officials. Sometimes prosecutors crack down on this kind of stuff, particularly when an election is closing in. But for the most part, most people never report it because it affects their long-term business outlook.

The electronics industry has been protected from much of this activity because, at least until recently, most of the manufacturing has been done in established countries. OEMs, systems vendors and contract manufacturers have dealt with the bulk of this kind of behavior in developing countries, leaving their suppliers free of this unofficial taxation for personal gain. But as the electronics industry increasingly goes global, these kinds of issues are cropping up everywhere.

The fact that Siemens has a $1.4 billion fund for such activities should be an indication about just how widespread the problem has become rather than how much more dastardly Siemens is behaving compared with everyone else. This is a problem that needs to be fixed, to be sure, but it runs far deeper than Siemens.