No Angels in Boardrooms, Germans Find

It’s been a dispiriting and, at times, titillating summer of scandal: Prostitutes on expense accounts, a home built for a lover on the Spanish coast, a bribe here, a kickback there, rich men wearing tans and sheepish grins, tabloid headlines, resignations and, every now and then, shame.

The marquee names of the German corporate world, including Volkswagen and DaimlerChrysler, have been entangled in corruption investigations that have angered a public accustomed to seeing only their politicians paraded before news cameras for financial sins.

The backroom dealings of businesspeople have further agitated a nation facing federal elections next month with tattered pride and a wobbly sense of destiny. The economy is slumping, the welfare state needs harsh reforms and, for many, the leading conservative and liberal parties are peddling rhetoric instead of inspiration.

“All this coming together means you have to be very careful that people don’t lose faith in the private sector,” said Hans Joerg Elshorst, director of Germany’s office of Transparency International, a corporate watchdog organization. He added that the public has been mistrustful of political parties for years, and if businesses lose credibility, “then you would have faith in nobody.”

The corporate world was once like the vaunted deutschemark, a symbol of ingenuity and strength rising from the destruction of World War II. The coin of the realm was reluctantly sacrificed to the euro six years ago when Germany joined the single monetary policy of the European Union. And now the reputations of corporate executives are in jeopardy as greed, reprehensible to the romantic German vision of the socially conscious state, becomes the stuff of headlines.

“In Germany, there is the virus of corruption -- not only in officially protected niches or in the profit-crazy milieu of stock exchange brokers, but everywhere,” Uwe Jean Heuser wrote recently in a front page editorial in the weekly Die Zeit. He charged that the scandals prove “nothing undermines scruples” more than a false sense of entitlement.

The Volkswagen scandal was among the most sensational. The German media reported that company executives had bribed union representatives with vacations and prostitutes in exchange for labor support on cost-cutting measures.

The reports and police investigations led to the resignation of Peter Hartz, VW’s director of human resources and the architect of Chancellor Gerhard Schroeder’s economic reform plans that have outraged Germany’s working class. Hartz has denied wrongdoing.

The disclosures also forced labor leader Klaus Volkert to step down, raising questions about Germany’s policy of granting union representatives seats on corporate boards and work councils. Union brass has been involved in company decisions in Germany for decades as a means to reduce friction between labor and industry during collective bargaining.

Other scandals have also vied for the public’s attention. Prosecutors are investigating five Commerzbank officials for alleged money laundering involving millions of dollars and a Russian telecommunications company. The U.S. Security and Exchange Commission is investigating whether DaimlerChrysler violated the United Nations oil-for-food program in Iraq after its trucks were reportedly shipped to Saddam Hussein’s regime. A company spokesman told German radio that DaimlerChrysler was cooperating with the SEC on the matter.

In a separate DaimlerChrysler story, the carmaker is investigating a director in its Mercedes division for allegedly using company money to build a home for his girlfriend on the Spanish island of Majorca. The auto manufacturer BMW had its own problems -- a purchasing manager was questioned by investigators for allegedly receiving $100,000 in bribes.

“These kinds of things happen,” said Elshorst, adding, however, that Germans were stunned that renowned companies would be involved in such allegations. “We’re very happy about it as corruption fighters. Now the public realizes this happens in the private sector too. But I’m not sure it points to an overall breakdown of morals in corporate culture.”

Union leader Michael Sommer told a crowd of several thousand at a rally in Mannheim in May that business “managers excel each other in displaying naked greed. Small wonder workers’ rights are increasingly perceived as an obstacle and something that should be done away with.”

Germany ranks among the least corrupt nations in the world, according to Transparency International, but prosecutors and business executives are concerned that abuse is more widespread than previously believed. A recent survey by the Forsa polling organization found that 54% of small and medium-sized businesses said they had lost contracts after refusing to pay kickbacks.

Such an atmosphere exists, according to government officials, because for years corporations have not policed themselves and have resisted calls for transparency.

Rules have been tightened in recent years, but independent investigators say there are too few government regulatory agencies. The best known, BaFin, targets money laundering and related crimes. The agency’s staff has risen from just over 1,000 in 2002 to 1,500 today, and it has completed more than 40 investigations in the last two years.

The mood against big business shifted last year during a trial in which it was disclosed that a handful of executives received about $70 million in bonuses when Vodaphone took over Mannesmann in 2000. Facing an 11.6% unemployment rate and a sluggish economy, Germans were stunned at such high-stakes capitalism as the media compared the scandals to the Enron case in the U.S.

The business world received more criticism this year when the chairman of the ruling Social Democratic Party, Franz Muentefering, suggested that some foreign investors “spare no thought for people whose jobs they destroy. They remain anonymous, have no face, fall like a plague of locusts over our companies, devour everything, then fly on to the next one.”

The comments were largely viewed as a ploy to win votes in Germany’s industrial belt, where tens of thousands of coal miners and steelworkers have lost jobs in recent decades. German executives blamed Muentefering for jeopardizing international investment, but his remarks resonated in many eastern areas of the country still suspicious of capitalism 15 years after the fall of communism.

In assessing the scandals, Frankfurt State Prosecutor Wolfgang Schaupensteiner told Stern magazine: “Whole herds of gray and black sheep are flocking into boardrooms and government offices.”