Scandals multiply in the German auto industry

Analysts expect major anti-corruption initiatives

Munich. A pack of reporters waits anxiously in front of the Brunswick courthouse. Suddenly a strobe-light storm sweeps over former Volkswagen employee Klaus-Joachim Gebauer. Then his attorney, Free Democratic Party politician Wolfgang Kubicki, steps up to answer questions from the press.

Inside a wood-paneled office, Michael Ganninger, the top attorney at VW, has leveled serious charges against VW’s former personnel manager. Ganninger alleges that Gebauer teamed with then-Skoda personnel chief Helmuth Schuster to build a network of at least 10 shell companies in eight countries in a scheme to enrich themselves.

Gebauer is not an isolated case. More managers in the auto industry are suspected of corruption. VW, BMW and DaimlerChrysler, the elite of the industry, have all been affected.

BMW just fired its purchasing manager, named only as “Guenther L.,” accusing him of pocketing $100,000 from an east German supplier.

DaimlerChrysler employees are being hammered from three sides: Stuttgart prosecutors, the U.S. attorney general and the Securities and Exchange Commission are all investigating DaimlerChrysler on suspicion of corruption.

Scandal quagmire

Is the industry sinking into a scandal quagmire?

“The auto sector isn’t any more corrupt than other industries,” said ex-state attorney Steffen Salvenmoser, a specialist in business crimes at the auditing firm PricewaterhouseCoopers. “It is pure coincidence that so many corruption cases have come up over a short period.”

In fact, compared with other industries, auto industry corruption is modest. That’s a conclusion of the most recent “Federal Republic of Germany Briefing on Corruption” report from the German government’s federal criminal office, published in August 2004.

The report estimates that about 1.9 percent of the German industry pays bribes. That is a long way from Germany’s most corrupt industry, construction. The figure there is 43.1 percent.

Compared internationally, corruption in the German auto sector does not stand out. But danger is lurking.

“The trend toward more outsourcing of production and development is masking dangers,” said Peter von Blomberg, vice chairman of the anti-corruption group Transparency International.

The number of inter-company transactions is rising, “and so are the possibilities for bribery,” he said.

Germany ranks as relatively uncorrupt on Transparency International’s corruption perceptions index, placing at No. 15 of 146 countries studied.

Corruption types

But the susceptibility to corruption has less to do with nationality than with character and professional setting. Birger Priddat, a researcher and professor of political economy at Zeppelin University in Friedrichschafen, classifies the corrupt into three types.

“The first is the player who wants to show that he can make money,” he said. Priddat cited Schuster, the ex-Skoda personnel chief, as an apparent example. Priddat called him “a highly intelligent man who underestimated the risk.”

The second type comes from a “loser” mentality. The individual is unsatisfied with how his career has progressed and wants to make money in other ways.

“Then there is the individual who recognizes too late that he is operating in a gray area and can’t find his way out,” Priddat said.

To keep employees from falling into temptation in the first place, companies need preventive measures. Transparency International's von Blomberg is advising automakers to give their suppliers “a catalog of required and prohibited conduct that assures that business relationships proceed properly.”

Within a company, there are many ways to prevent corruption. Von Blomberg recommends rotating top positions in sales and purchasing, since “longevity in key positions correlates with susceptibility to corruption.”

He said the “risk of becoming corrupt lessens as the scope of the employee’s activity is more clearly regulated.”

Automakers act

DaimlerChrysler’s sales organization already has charted its course. It is seizing on the company’s scandal as an opportunity to rework guidelines and instructions and then communicate them in an appropriate way, a company source said. Stuttgart prosecutors are investigating 17 employees.

VW has given its auditor KPMG the job of examining the scandal surrounding its works council.

“An important aspect of the KPMG investigation will be to make some recommendations for the future on such matters as paying undocumented expenses,” a VW spokesman said. The recommendations are expected in October at the earliest.

BMW already has clear rules in force. BMW forbids accepting gifts or perquisites, and a violation can lead to charges or dismissal. Even a Christmas bottle of wine must be immediately returned, BMW sources said.

But there is a fine line between courtesy and corruption. That’s clear from DaimlerChrysler’s rules, which are more liberal than BMW’s. DaimlerChrysler’s guidelines say that “visiting sports events, shows or other events as a guest of the same business associate is permitted twice a year.”

The line is crossed when employees “lose their independence,” von Blomberg said.

When this happens, vigilance by colleagues is especially in demand. To this end, more companies are placing ombudsman-style representatives inside their organizations.

The German railway system, Deutsche Bahn, is an example. It has company representatives that employees or suppliers can contact if they suspect improper practices.

A trend is setting up a procedure for anonymous whistle-blowing. For example, this can take the form of a telephone hot line that employees can use to pass on tips.

But this also has its disadvantages. Christine Holtzmann, a former hot line operator, has filed a lawsuit against DaimlerChrysler in the United States. Internal investigators kept trying to identify a hot line caller, she said. When Holtzmann complained, she was fired.

But anonymity is the key to receiving tips about corruption, said Kenan Tur, CEO of Business Keeper.

The former General Motors employee developed the Business Keeper Monitoring System, which is based on the Internet. The system guarantees an anonymous communication between the tipster and the company and neither police nor Business Keeper can identify the individual. Tur has banks and health insurers among his customers. He now is talking with DaimlerChrysler and VW.

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