Global Investment Watch

A major global company, Siemens faces challenges common to other companies of its size. In spite of recent labor protests, proposed strikes and union campaigns against Siemens AG, it appears workers have been able to negotiate with the company, and persuade it to address some major labor concerns. However, concerns about the Siemens’ global scale – particularly its operations in AFL-CIO watch list countries – and apparent lack of control over supply-chain labor issues suggests heightened risk for the company from a human rights perspective. Furthermore, the recent bribery scandal is indicative of Siemen’s lack of transparency as a company.

Company Operations

Siemens is one of the largest electronics and industrial engineering firms in the world. Its operations encompass industrial automation and control systems, lighting products, heating and ventilation systems, power distribution and transmission equipment, and transportation systems. It also provides energy-related products for applications ranging from oil and gas conversion to wind farms. The company’s health care unit provides diagnostic and imaging systems. As of January 1, 2008 Siemens incorporated a new organizational structure – its operations are now divided into the three Sectors: Industry, Energy and Healthcare, with a total of 15 Divisions.

Corruption Issues

As reported by Agence France Presse, Siemens has been wracked by a recent bribery scandal, claiming in early November, that it had uncovered 1.3 billion euros (1.9 billion dollars) in a number of dubious transactions, highlighting the scope of corruption scandals that have engulfed the company. The group in particular is alleged to have paid nearly $2 billion in bribes in foreign countries to obtain contracts and has struggled with the revelations since late 2005. Siemens had participated in the Oil-For-Food Program, which was supposed to ease the impact of Western sanctions on Iraq. It was discovered that more than half of the 4,500 companies participating in the program, including Siemens, had paid illegal surcharges and kickbacks to the government of Saddam Hussein.

Internal investigators are also looking into allegations that Siemens gave several million euros in funding to the head of the AUB trade union to build it up as a counterweight to the large, established IG Metall labor union. Former Siemens boss Klaus Kleinfeld and supervisory board president Heinrich von Pierer have already left the company as a result of the scandals.

In January the company said it would extend a limited amnesty for staff who expose illegal practices. Siemens has promised not to take “any heavy sanctions, such as a firing or request for damages and interest, against staff who inform the company in an exhaustive and honest manner of violations of the law or irregularities in the accounts.” But the group did reserve the right to impose lighter sanctions such as a warning, transfer or an obligation to undergo ethical training. The offer does not cover senior executives, such as board members and cannot prevent possible judicial action.

There have been reports that the company, which recently paid a fine of around $300 million in the global bribery investigation by a German court, may soon be hit with FCPA (Foreign Corrupt Practices Act) charges as well. Additionally Siemens may face a lawsuit by the city of Chattanooga, Tennessee for the failed design and operation of a sludge treatment plant. The contractor hired in 2001 to develop the system, US Filter, is now owned by Siemens. A spokeswomen for the company said that Siemens “is actively working with the city to fulfill our contract obligations,” acknowledging that there have been performance and warranty issues. A January audit determined the project’s engineers were paid for phases of the project when work was not finished.

Corporate Governance & Social Responsibility

Siemens fully complies with the German Corporate Governance Code’s requirements. Its board structure is comprised of a Managing Board and a Supervisory Board. To permit the Supervisory Board’s independent advice and supervision of the Management Board, the Supervisory Board shall include what it considers an adequate number of independent members. Not more than two former members of the Management Board shall be members of the Supervisory Board and Supervisory Board members shall not exercise directorships or similar positions or advisory tasks for important competitors of the enterprise. There are eight members on the Management Board, none of whom are independent. The president of the Management Board also serves as CEO of the company. The Supervisory Board is comprised of 20 members. As stipulated by the German Codetermination Act, half of its members represent Company shareholders, and half represent Company employees.

CSR Policies

Siemens has standard CSR policies in the areas of environmental protection, employees (including recruitment, diversity, training and health and safety) and society (including community programs, projects and contributions). Siemens also outlines its memberships and partnerships with the following: United Nations Global Compact; World Economic Forum; econsense – Forum for Sustainable Development; Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria; UNICEF – the United Nations Children’s Fund; and the German Business Ethics Network (DNWE). Additionally, Siemens was listed on the Dow Jones Sustainability Index in 2007. According to a 2007 report by Climate Counts – a U.S. nonprofit fighting global climate change – Siemens is “moving beyond the starting gate in taking responsibility for climate protection.”

CSR Practices

In a 2006 Survey, Greenpeace stated that Siemens had not yet made a commitment to eliminate the use of some hazardous chemicals in its products. Fujitsu-Siemens (a joint venture between Fujitsu and Siemens) earned points for having some models free of the worst chemicals. But the company lost points for failing to disclose the chemicals it uses in its products and not committing to the complete elimination of polyvinyl chloride (PVC) and brominated flame retardants (BFRs).

Siemens has had a program in place for the last four years that focuses on the advancement of all groups and nationalities, especially women. Currently 17 percent of the managers and “qualified experts” are women, an improvement over recent years.

According to the Public Citizen website – a U.S. nonprofit public interest organization – Siemens is part of a corporate front group called USA*Engage, which aims to eliminate human rights considerations from U.S. international commercial policy.

Political Risk

Siemens operates in over 190 countries around the world in the regions of North and South America, Canada, Europe, Africa, the Middle East, Russia, Asia and the Pacific.

Siemens operates in Angola, Bahrain, Belarus, China, Colombia, Egypt, Guatemala, Iraq, Kazakhstan, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Serbia-Montenegro, Swaziland, United Arab Emirates, Vietnam, and Zimbabwe. These countries are identified on the AFL-CIO country watch list for either lacking labor legislation or failing to enforce it. Additionally, the company conducts business in a number of other countries deemed sensitive by JMR (such as Burma and Pakistan) due to factors concerning labor, political freedom, civil liberties, and human rights.

Labor Relations & Workplace Practices

Unite is the UK’s biggest trade union and represents a number of Siemens workers. Other unions representing Siemens workforce include PCS; BECTU; the International Trade Union Confederation (ITUC); the International Metal Workers Federation; and IG Metall – a German metal workers’ union. The United Auto Workers represents Siemens Power Transmission and Distribution Incorporated at Richland.

In October 2007, The ITUC called on Siemens to leave Burma (Myanmar). Siemens responded to the ITUC letter, acknowledging company operations in the country, yet stating disapproval of the human rights situation and the disregard of ILO-standards in Myanmar. However, the company objected to withdrawal from the country, stating instead that international trade and activities of foreign companies can effectively contribute to the aim of moving the situation in the right direction, resulting in help for the local people.

On the other hand, the Sudan divestment campaign convinced Siemens to leave Sudan in 2007. The company said it would complete activities for existing orders and service contracts by June 30, 2007 at the latest and would accept no new orders there because of concerns about humanitarian conditions. Siemens said its decision to pull out of Sudan did not exclude possible involvement in humanitarian activities organized by internationally recognized organizations.

In June 2007, as many as 10,000 Siemens workers demonstrated in Germany to protest company plans to move production abroad. The company is exploring Hungary as a new location for factories producing phones because wages in the country are 30 percent lower. In August 2007, members of the union BECTU voted by 95% to accept an improved pay offer by Siemens. In October 2007, the union Unite campaigned against Siemens for its allegedly inadequate commitment to protect workers’ pensions. At the time, the union was in the process of balloting its workers for strike action against the company.

Siemens was suspected of rejecting Hepatitis B carriers in its Chinese facilities, according to a 2007 report by Students and Scholars against Corporate Misbehavior (SACOM) and Beijing-based Yirenping – support groups for Hepatitis B carriers.

A Chinese factory supplier to Siemens investigated in 2006 was found to be in violation of international labor laws. According to the SACOM report, alleged infringements included child labor, excessive overtime and overtime pay below the legal minimum, no social insurance and occupational health risks.

Additionally, an investigation into the Fujitsu-Siemens supply chain in both China and the Philippines found a number of ILO infringements including excessive hours, low wages and compensation for overtime, health and safety issues, unnecessary layoffs (e.g., when demand is low), lack of union representation and therefore the denied right to collectively bargain, and poor job security. The study was carried out by a Netherlands group, Stichting Onderzoek Multinationale Ondernemingen (SOMO), in collaboration with the Centre for Research on Multinational Corporations.

According to Human Rights Watch, in 1998, female employees at Siemens AG’s Mexican plant in Ciudad Juarez were routinely required to undergo pregnancy tests before being offered work. They were also required to undergo inspection of sanitary napkins as a proof of non-pregnancy in order to retain their jobs.

Production Shifts

After fears that the company might pull out of Lincolnshire (UK) after a total of 133 employees at the company were handed redundancy notices in November, and after it was announced a further 100 people could lose their jobs over the next year due to the “outsourcing of activities,” the company has agreed to remain in Lincolnshire, but will be moving operations to a new site for its industrial gas turbine business – as reported in The Financial Times Limited Marketwire in February. The decision, approved by the union Unite, will secure long-term future employment for both workers and the community. The new factory and offices will be built using environmentally friendly lighting and sustainable building technologies to reduce emissions and save energy.

In December, an association of employee shareholders at the company voiced fears that at least 10,000 jobs could be cut in central areas of administration and sales. It demanded that management restructure central areas in a socially acceptable manner.

In 2007, Siemens workers faced a number of proposals to offshore work from the UK. Siemens Business Services faced the transfer of hundreds of jobs to India. There was also a proposed transfer of around 30 posts from Siemens Corporate Shared Services to Prague. PCS union members fought these proposals and while PCS was unable to stop further offshoring, the union did convince Siemens to address major concerns of PCS members.