What the public sector can learn from the private sector’s experience recovering from the reputational damage of massive fraud.

It’s hard work regaining trust once you have a reputation for corruption.

Last week, IBAC released its report examining suppliers’ perceptions of corruption in Victorian public sector procurement – and the results show that the public sector has a lot of work to do if it wants to regain suppliers’ trust. A third of suppliers surveyed said they had been deterred from tendering by corruption concerns. To restore supplier confidence, the Victorian public sector could follow the path of one German engineering company.

This company – Siemens – experienced a massive corruption scandal in 2006. Employees were found to have fabricated consultancies and used false invoices to divert millions of Euros into shell firms. This money was then used to pay large bribes in order to win contracts. Driven by pressure to meet targets, senior managers used removable sticky notes to authorise potentially incriminating transactions – and their superiors tolerated this conduct. A trial judge described it as “a system of organised irresponsibility”.

“The scandal shamed Siemens, not only in the eyes of furious shareholders and investors but also the German public, and brought humiliation to its employees,” The Guardian reported.

“Its trustworthiness came under intense scrutiny; its integrity was called into question, as well as the benevolence of its senior leaders in appearing to tolerate such practices. One leading group of shareholders questioned the Board’s basic competence for its handling of the affair.”

IBAC recently asked Siemens’ Mark Gough, regional head of compliance case handling in Asia and Australia, about this experience and what the Victorian public sector can learn from it.  Mr Gough sees no difference between public and private sector organisations responding to corruption – both types of organisation must focus on people to completely change the culture.

“Once the scandal broke we were in criminal courts across the world. We went one day to the next from having an absolute reputation, high-tech cutting-edge engineering, a name for over 160 years in Germany, to the bad boy in the world,” Mr Gough said. “…We sued all of our board members for large amounts of money. We took such a strong stance that anyone who was left in the company who knew what went on learned that was definitely no longer the way forward.”

The ‘absolute message’, according to Mr. Gough, must be one of thoroughgoing change in institutional culture.

A refusal to tolerate wrongdoing must establish itself in the organisation. This new outlook must come from the board, and new senior managers replacing the disgraced fraudsters: “the message goes out very quickly that these are very tough times so you now need to behave very carefully.” Change at the top levels created a receptive environment for reform throughout the company. While Mr Gough notes that such change is difficult in a large organisation such as Siemens, the scandal accelerated the reforms so that they were complete in two years, “a lot quicker than expected. Within two years every system was in place, the vast majority of the company had been trained on risk and compliance issues. By about 2010 we had convinced staff and the outside world that we had turned the ship around.”

The Siemens response to its scandal has been recognised as effective by independent anti-corruption and ethics experts, including the OECD. Having changed fundamentally, Siemens has managed to rebuild its brand and restore trust and is now seen as an industry benchmark in compliance. The Victorian public sector can learn from Siemens that effective steps to rebuild trust following a corruption scandal include:

• change of leadership at the top
• strong stance against both wrongdoers and managers who tolerated
• fundamental change in organisational culture led from the highest level by:
  – creating an environment receptive to reform
  – embedding a strong compliance culture
  – refusing to tolerate wrongdoing
• training all staff to comply with anti-corruption processes
• convincing all staff that change has, in fact, occurred.

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The material in this blog has been based on:

• IBAC report on its 2016 supplier perception survey
• an IBAC interview with Mark Gough regional head of compliance case handling for Siemens in Asia and Australia
• an article in the Guardian by Graham Dietz and Nicole Gillespie “Rebuilding trust: How Siemens atoned for its sins“
• “Compliance Program@Siemens” by Nadeem Anwer, Regional Compliance Officer, Siemens LLC March 2010.

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Further reading:

Unfair tender fears turning government contractors away – The Mandarin

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A participant in the UN Global Compact, CourtHeath seeks to raise awareness about the sustainable development goals and the principles of the Global Compact with business and government organisations in Victoria. Anti-corruption is one of the ten principles of the Global Compact.

Image by Shutterstock