Legal action by German boards to rise

By Daniel Schäfer in Frankfurt

Published: December 3 2009 02:00 | Last updated: December 3 2009 02:00

The compensation deals agreed with nine former Siemens' executive board members in the wake of the bribery scandal at Europe's largest engineering group mark a sea change for German corporate governance, Gerhard Cromme, its chairman, said yesterday.

Mr Cromme, a former head of the country's corporate governance board, told the Financial Times that Germany would in the future see more legal action by supervisory boards against former managers.

"Yes, this will happen more often," he said in an interview hours after Siemens' supervisory board approved settlements with two former chief executives and seven other ex-managers following a multi-billion euro bribery scandal at the group.

"This has shown that the room for manoeuvre is very, very limited for supervisory board members. They have no choice but to claim damages in cases of wrongdoing by former managers, as shareholders will otherwise sue the supervisory board," Mr Cromme said.

His words came at the end of an intense yearlong battle between Siemens and several ex-managers including Heinrich von Pierer, former chief executive and chairman, who agreed to pay €5m ($7.5m).

Siemens had accused the former managers of breaching their supervisory duty when they did not stop "illegal business practices and extensive bribery" at the group.

The company has identified more than €1.3bn of suspect payments to officials around the world to win contracts in a scandal that rocked corporate Germany when it became public four years ago. The case has radically changed the way German managers tackle compliance issues, which had been treated as low priority in the past. Foreign bribes could even be tax-deducted as recently as a decade ago.

The scandal at Siemens has cost it in excess of €2bn in legal fees and fines paid to US and German authorities. The amounts the ex-managers will pay will thus cover only a symbolic sum.

Mr Cromme displayed confidence that Siemens' shareholders would approve the deals at the group's annual meeting at the end of January 2010, even though a small minority of 10 per cent would be enough to block the settlements.

Mr von Pierer's lawyer said in a statement that "accepting Siemens' suggestion doesn't mean Mr von Pierer accepts the allegations against him. Rather, he still vigorously rejects them."

Siemens will launch legal action in January against two former executive board members after failing to reach a damages deal with them, Mr Cromme said.

The two managers are subject to prosecutors' investigations in connection with the bribery scandal, which made a deal more difficult to achieve.