How Corrupt is German Business?

A sports reporter is awaiting trial while the executives of two major companies resigned as a result of suspicion of bribery. The events of the past two weeks give the impression that a dark wave of corruption has washed over once pure-as-snow Germany.

But that is not backed up by statistics. In fact, Germany is pretty clean compared to other nations. The latest corruption index published by Berlin-based Transparency International puts Germany in the top 20 in its ranking of least corrupt countries.

Still, corruption isn't just a financial, managerial or image problem for companies engulfed by scandals, it also hurts the economy, experts say.

"When we can reach the level of Finland (ranked as the least corrupt country), that then means that we are ensuring that contracts go to the most qualified companies and not to those who give the best bribes, and that those projects are worthy ones, not just created to line someone's pockets," said Johann Graf Lambsdorff, a economics professor in Passau who compiles the annual corruption index for Transparency International. "Reaching this level also means about six percent higher income for the average employee."

More corporate scandals

Recently two more corporate scandals made headlines. This week, Munich prosecutors confirmed that a top manager at chipmaker Infineon took more than 250,000 euros ($304,000) in kickbacks for motor sports contracts, and the company's management allegedly knew about it since 2004. That came on the heels of a bribery and corruption scandal at carmaker Volkswagen which has cost three high-level executives and the head of the company's works council their jobs. The allegations include contract kickbacks and payments to work council members for luxury trips and even prostitutes.

Still, many are taking it as a good sign that the latest scandals are out in the public even as others worry that these cases may just be the tip of the iceberg. Lambsdorff says that the recent scandals at Volkswagen and Infineon show that German companies need to do more to fight corruption.

"The point is that there needs to be very clear rules of conduct set down," he said. "There also needs to be a designated person to whom employees can turn to in order to report violations other than a supervisor who might be involved."

Corruption fight needs to be targeted

After major corporate scandals in the US, most notably that of energy company Enron in 2001, American companies began to create stronger internal controls and many created a chief security officer to oversee the function. German firms, however, haven't yet made the fight against corruption a strategic goal, says Thorsten Mehles, a former police officer who heads a private company that advises large companies on such matters.

Although few would consider Germany one of the world's most corrupt nations, it certainly needs to address these issues, say experts. Last year, two German institutions, a top-flight soccer club, TSV 1860 Munich and the nation's railway company Deutsche Bahn, made unwanted headlines for bribery and contract irregularities.

And the recent spate of corruption scandals in Germany might surprise many who still think of the country as a clean and fair place to do business. However, Hansjörg Elshorst, the chairman of the German chapter of global watchdog Transparency International (TI), said that the latest developments were unsurprising. But he added that the exposure of cases like the 1860 Munich affair showed that infrastructure was in place to combat corruption.

"We now have more tools to investigate corruption and more people to carry out investigations," he said. "On one particular day in the Munich investigation, there were 100 people working on the case. A few years back, there weren't even 100 investigators in Germany."

Conflict of interest

Another problem is that most of the boards that supervise companies are often made up of people who were once executives of the company. As a result, experts say there is no way to separate management and supervisory functions.

The result can be seen in the cases of Volkswagen and Infineon, where individuals are charged with attempting to enrich themselves. That is to be expected when corruption is part of corporate politics, especially when there are public contracts to be had, says Lambsdorff.

"It is not right when a few individuals from a company are jailed and the company still receives lucrative contracts," he said. "Instead, there needs to be a black list to which such corrupt companies are added. Then when they receive a contract, as punishment, they need to refund 10 percent of it as punishment."

German Economic Minister Wolfgang Clement has already considered a "black list," an anti-corruption register. But due to early elections this fall, this may have trouble getting off the ground.