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German firms in ethics row

December 17, 2012

Many big German companies have become embroiled in criminal investigations recently, suggesting a worsening of ethical standards in corporate Germany. But only ethics pay off in the end, business experts say.

A man giving money. Corruption. Foto: LEHTIKUVA / Mikko Stig +++(c) dpa - Report+++
Image: picture-alliance/dpa

Tax fraud, money laundering and embezzlement - the list of allegations leveled against Deutsche Bank Chief Executive Jürgen Fitschen recently has become an outright scandal. They add to a number of woes besetting Germany's biggest private bank such as manipulation of the London Interbank Offered Rate (Libor) - a key interest rate for loans - or a libel lawsuit brought against Deutsche Bank by media mogul Leo Kirch.

It was hardly possible to quantify the pecuniary losses resulting from a tarnished image, Josef Wieland told DW, nor would they show up in balance sheets. However, a ruined reputation might eventually lead to the "collapse" of a business in the long run, the expert for corporate ethics at Konstanz University said.

Deutsche Bank headquarters in Frankfurt (zu dapd-Text) Foto: Alex Domanski/dapd.
Police raiding Deutsche Bank's headquarters means bad publicityImage: dapd

"Questions of what type of employees might be attracted by such a business, and how do customers react, have a lot to do with a firm's ethical reputation, which is why companies put enormous emphasis on the issue," he added.

Sex and crime

Nevertheless, a number of big German corporations have moved into the focus of German law enforcement authorities in recent years.

Steelmaker ThyssenKrupp, for example, is being investigated for forming a price-fixing cartel in the elevator market and the rail track business.

Truck and bus manufacturer MAN is said to have offered millions in kickbacks in return for lucrative deals from public and private transport companies in several countries.

An investigation into luxury carmaker Daimler uncovered evidence of graft in 22 countries around the world, while its German mass market counterpart Volkswagen was convicted of bribing labor representatives on its board with expensive presents, luxury travels and sex parties. Similarly unethical behavior had been rampant within the ERGO insurance group, it was uncovered last year.

These scandals seem to suggest that compliance with ethical standards in business remains underdeveloped in German companies.

Role models needed

Christoph Lütge, Professor for Business Ethics at Munich Technical University denied this. Noting that compliance just meant abiding by the rules and laws of a country, he told DW that most of the big corporations in Germany had invested substantial sums in setting up compliance units in their operations.

However, Josef Wieland disagreed, stressing that complying with existing rules and laws was not enough.

"What really matters is compliance and integrity, meaning the leadership example, or the 'tone from the top,' shapes the business culture within a company," he told DW.

Without integrity and determination among company leaders, the behavior of employees is bound to stray from the right course, he added.

Clean business pays off

In 2006, German engineering giant Siemens was involved in the biggest-ever graft scandal in German business history, as investigators uncovered bribery payments to the tune of 1.3 billion euros ($1.7 billion). As a result, Siemens was given a hefty fine of 1.2 billion euros by a German court and a penalty, reportedly at least as high, by a court in the United States.

"At least since the Siemens case, we know that non-compliance with ethical standards can turn out to be quite expensive," Josef Wieland told DW.

A tarnished reputation might not have an exact price tag, he said, but falling share prices as a result of mounting internal costs would certainly wake up investors.

Deutsche Bank: Imageproblem und rote Zahlen # bank22d # 14.12.2012 12 Uhr # Journal # englisch

"Shareholders have a vested interest in compliance and should make sure ethical standards are observed," he added.

In most German companies, the fact that honesty eventually pays off, appears to dominate business policy. Christoph Lütge pointed out that honesty is best served in a functioning business environment, in which consumers ensure that ethics were matched with commercial success.

Rolf Wenkel, uhe/sej