Siemens Settlement: Relief, But Is It Over?

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Settlement Hurts Profits

At least Chief Executive Peter Löscher, hired in 2007 to oversee an aggressive internal cleanup, now has one less major headache as he steers the Munich-based company through a global slowdown that is already hitting profits. In the quarter ended Sept. 30, Siemens reported a $3.3 billion loss, in part because the company set aside $1.3 billion to cover a settlement in the corruption case.

The scandal has been deeply painful for Siemens. It swept away a whole generation of senior executives, including former Chief Executive Heinrich von Pierer and much of the company's board of management. They stood accused of, at best, turning a blind eye to widespread bribery to win contracts. Von Pierer and former CEO Klaus Kleinfeld—now the CEO of aluminum giant Alcoa (AA)—have denied wrongdoing. Dozens of middle managers also have had to go, and even employees who weren't involved suffered from the internal turmoil and trauma. Many also spent long hours gathering information sought by Debevoise & Plimpton, the law firm hired to conduct an internal probe. "It has been a huge distraction," Solmssen says.

The larger question is whether the Siemens case will deter other companies from corrupt practices. Prosecutors still could decide to pursue criminal charges against individual managers. Execs being marched off to jail would amplify the shock effect. "Certainly the $800 million will have an effect, but it's the orange jumpsuits that get everybody's attention," says Wrage of Trace International.

Ewing is BusinessWeek's European regional editor.