Something rotten lurks in the shadows of German business

World

Something rotten lurks in the shadows of German business

Right at the top of the country’s biggest companies it is starting to look obvious there is an honesty issue. Why?

Matthew Lynn


Greece, for sure. Probably Italy as well. Perhaps China, Brazil and anywhere in the Middle East.
There are plenty of countries where we suspect that business can be corrupt, not many deals get done without some money changing hands along the line, and where bribes and backhanders are woven into everyday commercial life. But Germany is probably not on the list.
And yet it should be. In fact, over the last decade, many business scandals have been stamped with the words “Made In Germany”. 
The tech company Wirecard has just become the latest major German business to become embroiled in problems. Before that, Volkswagen was caught cheating on diesel emissions standards, Siemens was nailed in one of the most serious bribery cases of all time, while Deutsche Bank has been handed massive fines for breaking financial rules. 
Corruption appears endemic, and within the country’s very biggest and, on the surface, most prestigious companies.
That might just be a coincidence. But it looks as if there is something rotten in Germany’s business culture and, even worse, no one plans to do anything to fix it.
Wirecard is one of Europe’s most impressive fintech businesses and last year replaced Commerzbank in the blue-chip DAX index. Earlier this year, the Financial Times reported on allegations of fraud and accounting irregularities at its Singapore office. The company denies those stories, and the Japanese tech investor SoftBank this month took a big stake in the business, which suggests that the alleged scandal may yet blow over.
Even so, there have been serious questions about the way the company conducts itself. Only last week the FT reported more questions over the profits allegedly made by three “opaque partners”.
We have an image of Germany as a very law-abiding country, and on one level that is certainly true. The streets are safe, and no one can pay a bribe to get out of a parking fine. Transparency International ranks it as the 11th least corrupt country in the world, level with the UK. Backhanders are clearly not routine. And yet right at the top of the country’s biggest companies it is starting to look painfully obvious there is an honesty issue. Why?
There are three possible explanations. First, Germany has developed an inward-looking corporate culture where rules end up at risk of being bent. With the possible exception of France's CAC-40, there is no more moribund major index in the world than the DAX. Most of the companies on it have been around for decades, if not centuries, and are staffed by managers who have spent their entire careers within the same giant corporation.
It is hard to think of a better system for creating cover-ups and complacency, or a culture where breaking the rules is just accepted as the norm. No one asks difficult questions, and they are quickly frozen out if they do.
Next, there is not nearly enough scrutiny of companies, either from shareholders, the press, or the government. Most of the scandals uncovered have come to light elsewhere, usually in the US. It is rare that Germany’s own regulators discover anything – which suggests they are hardly even trying.
Finally, it is stuck with an old fashioned, export dominated economy where there is a constant temptation to break the rules. A huge percentage of Germany’s industrial base consists of big orders to the developing world. You don’t get those deals without being willing to grease a few palms.
The country’s business establishment has allowed itself to become reliant on wheeler-dealing with the murkiest corners of the world. It can hardly complain if that means executives often stray into breaking the law. It is part of the business model. The Germans are fond of portraying themselves as the exemplars of responsible, socially conscious capitalism. In truth, however, the hypocrisy is starting to become nauseating.
There is clearly something rotten within Germany's business culture – and even worse, no one seems to want to do anything about it.
– © Telegraph Media Group Limited (2019)

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