Read, Laughed and Filed Why Siemens Should Never Have Been Listed by Wall Street

Germany's scandal-plagued Siemens should have been barred from being listed on the US stock exchange in 2001. According to internal reports, the company's management at the time, under then-CEO Heinrich von Pierer, was guilty of serious negligence.

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Siemens was everything but ready for its 2001 IPO and listing on the New York Stock Exchange.
AP

Siemens was everything but ready for its 2001 IPO and listing on the New York Stock Exchange.

Life has become much quieter for Heinrich von Pierer, very quiet for a man who was once CEO and then chairman of the supervisory board at Siemens. In fact, it's become astonishingly quiet for a man who is still seen as one of the captains of German industry and sits on the boards of steel giant ThyssenKrupp, Volkswagen and Deutsche Bank, and unbelievably quiet for a man who was once even considered a candidate for the office of Germany's president.

Since he resigned this spring from Siemens, not altogether voluntarily, 66-year-old Pierer has confined his public appearances to amateur golf and tennis tournaments. He was even spotted in the Himalayas not too long ago, climbing mountains at 5,000 meters (16,000 feet).

The mountain air should be nothing new to Pierer, who is used to thin air from his days as a corporate executive. But Pierer, an otherwise gregarious man, has little to say about the corruption affair that has been brewing for months in his former company. He prefers to talk about his granddaughters. "They get things from me that their mother wouldn't buy them," he recently admitted.

But the questions the former top executive will soon be forced to answer will be decidedly less pleasant. Instead of discussing his private life, Pierer will be asked about the role he played in Siemens' initial public offering on the New York Stock Exchange in March of 2001.

Like overly cocky young men, Pierer and a small group of senior executives rang the traditional bell at the New York Stock Exchange and threw baseball caps into the room. "Good timing is everything in business," he said, clearly pleased about his apparently successful coup. But it could very well lead to Pierer and his former fellow members of the Siemens executive board waking up to a true nightmare.

The IPO, now more than six years back, was a hot topic at the most recent meeting of the Siemens supervisory board. During the meeting, some members proposed that Debevoise & Plimpton, a US law firm, examine whether former members of the executive and supervisory boards at Siemens may have violated their due diligence obligations when they introduced the multinational group to the US capital market -- and whether they took sufficient steps to eliminate slush funds.

It is now clear that from an organizational perspective the group was everything but ready for the US stock markets at the time. Wall Street means more than just fame and prestige for senior managers. It also means that they are obligated to impose the toughest of standards to uncover possible corruption. This, as is now becoming evident, was clearly not the case at Siemens.

The auditors have set their sights on Pierer and the entire former Siemens management team. If it turns out that the executives are partly responsible for excessively lax internal monitoring procedures, the supervisory board would even be obligated to sue the former leadership for negligence and hold them liable for the resulting damage to the company.

Bribing foreign officials, maintaining slush funds and submitting false accounts have long been illegal in the United States. In the wake of several financial scandals, the US tightened its criminal penalties for these crimes in the summer of 2002. Siemens has paid about €190 million ($268.8 million) in legal fees alone in the past nine months. The US Securities and Exchange Commission (SEC) has the power to impose penalties ranging into the billions, and corporate executives found guilty of such crimes can even be sentenced to several years in prison.

Efforts by prosecutors in Munich could also come at a heavy financial cost to Siemens. As part of an initial case against a defendant in the company's former communications division (Com), investigators are considering confiscating any profits the company earned with the help of bribes, a figure that could be as high €200 million.

Former top Siemens executive Heinrich von Pierer will soon be forced to anser unpleasant questions about the role he played in the company's initial public offering on the NYSE.
DDP

Former top Siemens executive Heinrich von Pierer will soon be forced to anser unpleasant questions about the role he played in the company's initial public offering on the NYSE.

The Munich public prosecutor's office has refused to comment but expects to do so soon. There is mounting evidence that Pierer and his former entourage, under then Supervisory Board Chairman Karl-Hermann Baumann, may have at least acted negligently when they first listed the group on the New York Stock Exchange in 2001. This has emerged from memos on a political contribution scandal involving Germany's conservative Christian Democratic Union (CDU) party, in which Siemens was already associated with slush funds once before. As yet unpublished reports to the audit committee also suggest that the company's former leadership vastly underestimated the tremendous potential risks associated with the group's largely independent divisions.

"If you asked me whether large payments were made within the company without my knowledge, I would not hesitate to say that they were," Pierer told German parliamentarians during a meeting of the political contributions committee half a year after the company's US IPO. He said that he had "absolutely no idea of which accounts exist within the company." Pierer insisted then, and continues to argue today, that it was not his job to know.

Only a year before the IPO, Heribald Närger, the former chief financial officer and later chairman of the supervisory board at Siemens, admitted that bribes were paid in other countries during his tenure, but that he was never made aware of the details. "All those expenditures," he said, seeking to justify his omissions, "simply disappeared in a giant sea of numbers."

Many Siemens executives could have interpreted such statements as carte blanche to continue the practice of paying bribes as part of their global effort to secure contracts, even though bribes became illegal under German law in 1999.

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