Unit 3 Case Study PIW

ORIGINAL PAPER

Disclosure Responses to a Corruption Scandal: The Case of Siemens AG

Renata Blanc1 • Charles H. Cho2 • Joanne Sopt3,4 • Manuel Castelo Branco1

Received: 28 February 2016 / Accepted: 4 June 2017 / Published online: 22 June 2017

� Springer Science+Business Media B.V. 2017

Abstract In the current study, we examine the changes in

disclosure practices on compliance and the fight against

corruption at Siemens AG, a large German multinational

corporation, over the period 2000–2011 during which a

major corruption scandal was revealed. More specifically,

we conduct a content analysis of the company’s annual

reports and sustainability reports during that period to

investigate the changes of Siemens’ corruption and com-

pliance disclosure using both quantitative and qualitative

methods. Through the lens of legitimacy theory, stakeholder

analysis, and organizational façades, we find evidence that

Siemens changed its compliance and corruption disclosure

practices to repair its legitimacy in the wake of the 2006

corruption scandal. We analyze these strategies more closely

by using the rational, progressive, and reputation façades

framework (Abrahamson and Baumard in The Oxford

Handbook of Organizational Decision Making, pp 437–452,

2008). Our primary findings suggest that the annual reports

show peaks of disclosure amounts on corruption and com-

pliance disclosures earlier than sustainability reports, which

can be partly explained by analyzing the disclosures made

about—and to—the different stakeholder groups. We find

that the annual report focuses more on internal stakeholders

such as employees, while the sustainability report focuses

more on external stakeholders such as suppliers. We also find

that the company uses the façades differently depending on

which report is being analyzed.

Keywords Corruption � Corruption scandal � Legitimacy theory � Organizational façades � Stakeholder analysis � Sustainability reporting

Introduction

In the current study, we examine the corporate disclosure

practices of a specific and under-researched area of cor-

porate social responsibility (CSR)—that of countering

corruption. Corruption is often viewed as negative for

business as it affects a company’s ability to compete and

increases operational costs such as those associated with a

heightened legal risk (Hills et al. 2009). Disclosure on

corruption issues serves multiple purposes—it helps hold

companies accountable for their performance and

achievements on its anti-corruption efforts; raises public

awareness; exhorts pressure toward the adoption of similar

Editors at the Journal of Business Ethics are recused from all

decisions relating to submissions with which there is any identified

potential conflict of interest. Submissions to the Journal of Business

Ethics from editors of the journal are handled by a senior independent

editor at the journal and subject to full double blind peer review

processes.

& Charles H. Cho ccho@schulich.yorku.ca

Renata Blanc

renatablanc@fep.up.pt

Joanne Sopt

joanne.sopt@essec.edu

Manuel Castelo Branco

mcbranco@fep.up.pt

1 Faculty of Economics, University of Porto, Rua Roberto

Frias, 4200 – 464 Porto, Portugal

2 Schulich School of Business, York University, 4700 Keele

Street, Toronto, ON M3J 1P3, Canada

3 ESSEC Business School, 3 Avenue Bernard Hirsch, CS

50105 CERGY, 95021 Cergy Pontoise Cedex, France

4 Temple University, Alter Hall, 1801 Liacouras Walk,

Philadelphia, PA 19122, USA

123

J Bus Ethics (2019) 156:545–561

DOI 10.1007/s10551-017-3602-7

principles and procedures by other companies; and is a

means to understand what is effective in the combat

against corruption and which developments are most nee-

ded (Hess 2009).

Despite the importance of countering corruption, CSR

research has traditionally been focusing on issues such as

environmental protection, health and safety at work, local

community and stakeholder relations and management. It

was only in 2002 that this issue was considered by the

Global Reporting Initiative in its Sustainability Reporting

Guidelines (GRI 2002) and only in June 2004 that the fight

against corruption was added as the 10th principle of the

United Nations Global Compact (UNGC 2009). 1

This

suggests that fighting corruption in all its forms has only

recently become an integral part of CSR initiatives and

policies.

Although several studies investigating the effects of

specific events on corporate social disclosure practices

have been conducted, there is a lack of literature related to

the social aspects of such disclosures (Coetzee and Van

Staden 2011; Frost et al. 2005). Indeed, much of prior

social disclosure research examines whether and how

environmental disclosure reacted to environment-related

events (e.g., Cho 2009; Deegan et al. 2000; Jantadej and

Kent 1999; Patten 1992b; Savage et al. 2000), while few

studied other events (e.g., Coetzee and Van Staden 2011;

Islam and Mathews 2009; Vourvachis et al. 2016).

Although there is a wealth of non-academic studies on anti-

corruption disclosure, they rely mostly on corporate prac-

tices and place little emphasis on the factors explaining

why and how this type of disclosure is produced (Gordon

and Wynhoven 2003; KPMG 2008; Novethic 2006;

Transparency International 2009, 2012). To the best of our

knowledge, only a few academic studies have specifically

examined the disclosure of corruption-related matters and

most of them analyzed the drivers and the consequences of

such disclosure (Barkemeyer et al. 2015; Healy and Ser-

afeim 2016; Islam et al. 2015; Joseph et al. 2016), and no

academic study appears to have examined the impact of

specific events on these types of disclosures. As such, this

paper attempts to address this gap in the literature.

Despite (1) the scarcity of academic publications con-

cerning these themes and (2) the extant research on

decoupling and greenwashing (see Graafland and Smid,

forthcoming), 2

several institutions and organizations

believe that the degree or extent of reporting on corruption

can be a strong indicator of the quality and comprehen-

siveness of a company’s efforts in addressing bribery and

corruption (Transparency International 2009; UNGC

2009). More specifically, Hess (2009) refers to the

importance of CSR reporting in the fight against corruption

in similar terms. Accordingly, the inclusion of anti-cor-

ruption indicators in CSR reporting should serve both

internally and externally directed purposes. Regarding the

former, the inclusion of such indicators would help ensure

that the company is committed to combating corruption—

not only the reporting process helps companies in the

implementation of the indispensable changes and ensure

their continued effectiveness, but it also assists different

stakeholders in holding each other accountable. Concern-

ing the latter, such disclosures enable increased account-

ability of leadership to the public and strengthen the

knowledge about what works in fighting corruption and

developing more adequate risk assessments.

As such, we examine the changes in disclosure practices

on compliance and the fight against corruption at Siemens

AG (hereafter ‘‘Siemens’’), a large German multinational

corporation, over a period of 11 years during which a

major corruption scandal was revealed. This particular

scandal led to several other incidents, including a number

of investigations. We conduct a content analysis of the

company’s annual reports (AR) and sustainability reports

(SR) from 2000 to 2011 to specifically examine the chan-

ges of Siemens’ corruption and compliance disclosure

using both quantitative and qualitative methods. Through

the lens of legitimacy theory, stakeholder analysis, and

organizational façades, we find evidence that Siemens

changed its compliance and corruption disclosure practices

to repair its legitimacy in the wake of the 2006 corruption

scandal. Our primary findings, analyzed through a legiti-

macy theory lens, suggest that the AR shows peaks of

disclosure amounts on corruption and compliance disclo-

sures earlier than in the SR. We analyze these practices

more closely by using stakeholder theory and the rational,

progressive, and reputation façades framework (Abraham-

son and Baumard 2008). More specifically, we apply these

façades to the main stakeholder groups who were implicitly

1 The United Nations Global Compact and the Global Reporting

Initiative are known to be two of the most important CSR global

movements. 2 Social or CSR reporting is often used as a ‘‘corporate veil’’ to

project a positive image of the company and protect its ‘‘inner

workings’’ from ‘‘external view’’ (Hopwood 2009, p. 437) and

information therein has in many cases been found biased and

reflecting management’s interests rather than what really occurred

Footnote 2 continued

(Boiral 2013). However, one should highlight the importance of such

reporting in relation to practice, as best explained through the con-

cepts of decoupling and greenwashing (Graafland and Smid, forth-

coming). Whereas the former concept has to do with the

‘‘combination of promising policy statements and poor implementa-

tion of programs and impact’’, the latter is defined as ‘‘the intersection

of positive communication about performance (e.g., through report-

ing) and poor performance’’ (p. 6). According to these authors, higher

quality CSR reporting reduces a company’s policy-practice decou-

pling by way of the inducement to strengthening the quality of its

CSR programs.

546 R. Blanc et al.

123

referred to in the disclosures pertaining to compliance and

corruption issues and involved in the crisis to understand

the general trends noted. We find that differences in AR

and SR disclosures can be partly explained by analyzing

the disclosures made about—and to—the different stake-

holder groups. We find that the AR focuses more on

internal stakeholders such as employees, while the SR

focuses more on external stakeholders such as suppliers.

We also find that the company uses the façades differently

depending on which report is being analyzed.

In the following section, we present the theoretical lens

of our analysis. ‘‘Case Background’’ section provides some

background information about the Siemens case. Our

methodology and analysis are presented in ‘‘Methods’’ and

‘‘Findings’’ sections, respectively. We discuss our findings,

limitations and implications, and conclude in the final

section.

Theoretical Framework

Legitimacy Crisis and Disclosure Strategies

Proponents of legitimacy theory argue that firms exist as a

part of a broader system which determines whether the firms

are legitimate or not and thus grants the license to operate

within that system (Deegan 2002). The central issue is that

society may revoke its social contract with the company if the

company is perceived as falling short of its expectations

(Deegan and Rankin 1996; Dowling and Pfeffer 1975). When

an actual or potential disparity exists between the two value

systems—that of society and the company—a threat emerges

and questions the entity’s legitimacy (Dowling and Pfeffer

1975). External perceptions of legitimacy may change in the

advent of threats due to specific events (Deegan and Rankin

1996; Deegan et al. 2000; Patten 1992a) such as changes in

the community’s expectations (Lindblom 1994), changes in

the composition and/or values of the public (O’Donovan

2002) or the occurrence of incidents (Cho 2009; Deegan et al.

2000). Evidence of such a rupture can be illustrated with

consumers reducing or eliminating the supply of labor and

financial capital to firms, or constituents lobbying the gov-

ernment for increased taxes, fines or laws to encourage the

reduction of those actions which do not conform to the

community’s expectations (Deegan and Rankin 1996).

Companies are increasingly known to use strategies to

influence societal perception in reaction to legitimacy gaps.

A common strategy involves making changes to a com-

pany’s disclosures. Patten (1992b) found increased envi-

ronmental disclosures in the annual report following an

environmental disaster in firms unrelated to the crisis,

while Deegan and Rankin (1996) found increased positive

environmental disclosures in firms’ annual reports related

to their own environmental prosecution. Deegan et al.

(2000) found that in the wake of an event that resulted

directly from its own operations, a company is more likely

to disclose incident-related information in its annual report,

in comparison with other companies operating in the same

industry. Cho (2009) noted an increase of disclosures in

both a company’s annual report and corporate releases

following environmental disasters along with more specific

reporting strategies. Eweje and Wu (2010) also proposed

different disclosure strategies over a longer period com-

pared to Cho (2009) following an incident.

As such, the current study builds on prior literature that

looks at a firm’s disclosure practices following an internal

incident by analyzing in more depth how the stakeholders

involved in a scandal were addressed in the disclosures.

Reporting to and on Stakeholders in Light

of Legitimacy Crisis

According to Freeman (1984), a stakeholder can be defined as

‘‘any group or individual who can affect or is affected by the

achievement of the firm’s objectives’’ (as cited in Welch and

Jackson 2007, p. 183), and different stakeholder groups can

be characterized between internal and external (O’Dwyer

2005; Savage et al. 1991). Darnall et al. (2009) also make this

distinction between these two stakeholder groups highlight-

ing that the former are management and non-management

employees (Waddock and Graves 1997), while the latter can

be regulatory stakeholders (Freeman 1984), interest groups

and professional organizations (Etzion 2007), and entities

involvedinthesupplychainsuchandsuppliersandcustomers

(Cox 1999). Competitors can also be considered an external

stakeholder (Harrison and John 1996).

Organizations need the support from their stakeholders as

it does from the broader society in order to survive—there-

fore, stakeholders require organizations to act in a certain

manner to maintain such relationships. Social disclosures

are an effective way for organizations to communicate with

its different stakeholder groups (Gray et al. 1995). In general,

the annual report is viewed as catering to the needs of

shareholders. Studies such as Teoh and Shiu (1990) and

Epstein et al. (1994) focus on investors’ needs when studying

the needs of users of financial statements. In contrast, Thorne

et al. (2014) found that stakeholder theory is adequate to

understand why companies publish SRs. As suggested by

Belal and Owen (2007) when interviewing managers from

Bangladesh, social reporting in SRs is a way to manage

stakeholder groups. Spence (2007) found a similar motiva-

tion when interviewing companies and their views of CSR. A

quote from a CSR Manager in Financial Services was note-

worthy when discussing the pressures from different stake-

holder groups to report on CSR activities:

Disclosure Responses to a Corruption Scandal: The Case of Siemens AG 547

123

Stakeholders expect it, employees expect it, the

communities expect it, our peers expect it, the gov-

ernment expects it. There is an awful lot of people out

there who are watching. Because we are such a big

company out there. Because we supply a lot of people

with their life assurance, they want to know that we

are a good company. And that is why we do a lot of

what we do out there (as cited in Spence 2007,

p. 867).

The interest of the current study, though, is in how

companies report about the main stakeholder groups

implicitly referred to in the disclosures pertaining to

compliance and corruption issues when facing a legitimacy

crisis associated with a corruption scandal that involves

those very groups. A few studies have actually analyzed the

reporting of different stakeholder groups but the analysis

was limited to employees (Mäkelä and Näsi 2010;

Williams and Adams 2013). In addition, these studies do

not investigate how a company responds in light of a

legitimacy crisis when the stakeholders such as employees

themselves are involved in the crisis. Williams and Adams

(2013) examine how a company reports about—and to—

employees in light of British trends in employment

following the government policies of Margaret Thatcher,

and Mäkelä and Näsi (2010) analyze the disclosures

surrounding a downsizing of a company. In slight contrast,

our study investigates a legitimacy crisis that was partly

due to the wrongful activity of certain stakeholders. As

such, besides analyzing whether the company used report-

ing to influence stakeholders’ perceptions in the wake of a

corruption scandal, we also question whether the main

internal and external stakeholders—who were implicitly

referred to in the disclosures pertaining to compliance and

corruption issues and involved in the crisis—were treated

differently from each other when reported in the AR and

SR. In terms of a more specific strategy, we argue that one

way to manage the different—and sometimes conflicting—

stakeholder demands is through organizational façades.

Organizational Façades as a Reaction to Legitimacy

Gaps

Organizational façades can constitute a useful way to study

and understand how companies react to conflicting stake-

holder demands (Cho et al. 2015). An organizational

façade according to Abrahamson and Baumard (2008) is ‘‘a

symbolic front erected by organizational participants

designed to reassure their organizational stakeholders of

the legitimacy of the organization and its management’’ (as

cited in Cho et al. 2015, p. 82). Work processes, organi-

zational structures, and pronouncements could all con-

tribute to the creation of a façade (Starbuck and Nystrom

2006). Abrahamson and Baumard (2008) suggested three

different façades that an organization may establish—ra-

tional, progressive, and reputation. As described in Cho

et al. (2015), a firm projects the rational façade when using

a market logic such as a cost-benefit analysis or another

form of organized logic. The business case for sustain-

ability is another way to think about this façade. The

progressive façade is used when a company displays a new

approach to solve a problem that highlights its innovation.

A company may implement new standards to advance its

sustainability program with, for example, the Global

Reporting Initiative or implement a triple bottom line. The

reputation façade is one that is found in company mission

statements, which potentially enhances a company’s image

and gives the impression that the company can achieve

more than it realistically can. Themes related to social and

environmental stewardship is an example of such a façade.

A company undergoing a legitimacy crisis involving

different stakeholders could employ several façades at one

time to cater to the different stakeholder needs. Cho et al.

(2015) analyzed these façades in the AR and SR of two

large multinational oil and gas companies during the years

of an environmental debate. The authors found that the

rational façade was featured more in the AR, while the

progressive and reputation façades were more prevalent in

the SR. These results, however, are preliminary since the

analysis was more exploratory in nature. 3 The authors also

argue that the companies were able to organize their

façades through limited differences within them. However,

inconsistencies were noted across each façade. The authors

suggest that the progressive façade was key to ensure the

companies painted a picture of themselves that was ade-

quately cohesive for their stakeholders, hence mitigating

the disparities between the rational and reputation façade.

The current study empirically examines in more depth

the use of façades by analyzing the different stakeholder

groups in corporate reporting. The current study also

examines reporting practices over a longer period by ana-

lyzing a company’s reporting before and after a legitimacy

crisis rather than around a socio-environmental/political

debate (see Cho et al. 2015). Since work processes can

contribute to a façade as can pronouncements, the current

study does not make a distinction between the actions of a

company and its disclosures.

How does a company discuss its internal and external

stakeholders involved and implicitly referred to in the

disclosures associated with a legitimacy crisis in its cor-

porate reporting while reassuring its stakeholders reading

3 The study by Cho et al. (2015) puts a higher emphasis on the

theoretical (as opposed to empirical) contribution—namely organized

hypocrisy and organizational façades, that provides a more nuanced

framework to explain and understand sustainability/social reporting

practices.

548 R. Blanc et al.

123

the AR and SR? Following legitimacy theory, we expect

that the disclosures will increase following a legitimacy

crisis. As suggested by Vourvachis et al. (2016), legiti-

macy-threatening events heighten the social and political

exposures of companies and/or industries and the response,

as consistently documented, is an increase in disclosure.

However, while the affected companies increase event-re-

lated disclosure, they may also increase disclosure of issues

not directly related to the specific event in order to divert

attention from it (Deegan et al. 2000).

Based on the findings reported by Cho et al. (2015), the

rational façade follows a market logic, whereas the pro-

gressive and reputation façades focus more on corporate

image. Therefore, we expect that the former to be found

mainly in the AR whereas the reputation façade is more

likely to be exhibited in sustainability reports. We also

expect that the AR will focus more on internal stakehold-

ers, while the SR will focus more on external stakeholders

based on stakeholder theory. The AR contains the financial

statements and caters predominately to the shareholders

who are more interested in the financial situation of the

business. In contrast, the SR allows the company to focus

on its social and environmental activities, thus responding

to a wider stakeholder base. While these stakeholders may

demand different types of information, the SR report has

been found to be a form of greenwashing (Cho et al. 2012;

Guidry and Patten 2010; Lyon and Maxwell 2011)—thus, a

more reputational report is expected. The progressive

façade is expected to have mixed results since it may

associate with both the rational and reputational façades.

We also expect that the stakeholders will be treated dif-

ferently between the AR and SR. For example, employees

in the AR are expected to be disclosed ‘‘rationally’’ while

in the SR they would be discussed in a more ‘‘reputational’’

way.

According to Cho et al. (2015, p. 83), legitimacy theory

suggests that companies deliberately obfuscate potentially

controversial issues and actions by way of selection of

information to be disclosed, omission of pieces of infor-

mation, and/or biased accounts. These authors further

explain that a legitimacy theory perspective would lead to

conclude that outcomes are likely to be detrimental for

broader society. In contrast, however, organizational

façades—which are seen as courses of action through

which companies manage conflicting stakeholder

demands—combined with organized hypocrisy ‘‘may

indeed make room for potentially positive outcomes for

broader society’’ (Cho et al. 2015, p. 84). They also suggest

the possibility of a reputation façade expressing an ideal

that can be subject to aspiration and pursued. As they put it,

‘‘the façades can free the organization to experiment and

innovate beyond the rational boundaries of the market’s

judgment’’ (Cho et al. 2015, p. 84). Notwithstanding, one

has to acknowledge that just because beneficial societal

outcomes can ensue from them on top of their fundamental

legitimating functions, this does not mean that façades will

necessarily procure such outcomes. These authors finally

argue that when considering a company’s options within

the broader societal context, the situation may leave it

‘‘with little choice but to engage in organized hypocrisy

and establish discrepant organizational façades for this

purpose’’ (p. 91), and that such possibility is not adequately

acknowledged by legitimacy theory.

We selected Siemens as our empirical case company as

it went through a legitimacy crisis. Not only was Siemens’

corruption scandal grand in terms of both scale and geo-

graphical outreach, Siemens’s ‘‘efforts in setting up anti-

corruption processes and universally applying strict anti-

corruption processes worldwide were unprecedented’’

(Schembera et al. 2015, p. 14). Further, Eberl et al. (2015,

p. 1208) identify Siemens’ corruption case ‘‘as an extreme,

unique case of bribery worth studying’’, namely because it

is today perceived as a model for how to deal with a cor-

ruption scandal and carry through compliance processes.

Although this scandal and related incidents have already

been the object of some recent studies (Eberl et al. 2015;

Schembera et al. 2015; Schembera and Scherer 2014), none

have focused on how the company has reacted in terms of

its reporting practices. Hence, we view the study of the

impact of Siemens’s corruption scandal as the most

appropriate to contribute to the literature examining the

impact of specific corruption-related events on the disclo-

sures of a company.

Case Background

In November 2006, the Munich public prosecutors con-

ducted searches at the offices of Siemens and its employ-

ees’ private homes in search of evidence concerning

suspicions of public corruption including embezzlement,

bribery, money laundering, and tax evasion. As a result, the

company incurred a fine of €201 million in October 2007. According to the court decision, a former manager of the

communications group colluded with other colleagues and

bribed foreign public officials for the purpose of obtaining

contracts on behalf of the company in Russia, Nigeria, and

Libya which totaled 77 cases during the period from 2001

to 2004 (Siemens 2008a, p. 179). Investigations from the

Munich public prosecutor continued throughout 2006 and

involved several companies from the Siemens group in

different geographical areas such as Germany, Greece,

Switzerland, Liechtenstein, and Italy. Some of the cases

that led to these investigations dated back to 2004 and

2005. In 2007 new corruption allegations appeared,

involving Siemens companies in China, Hungary,

Disclosure Responses to a Corruption Scandal: The Case of Siemens AG 549

123

Indonesia, Nigeria, Norway, and the USA. In December

2008, legal proceedings against the company’s Supervisory

and Managing Board from the Munich legal prosecutor in

Germany and the USA were terminated with the imposition

of an additional fine of €395 million. Also in December 2008, Siemens pleaded guilty for violating the US Foreign

Corrupt Practices Act (FCPA). 4 Three of its subsidiaries

(Siemens Argentina, Bangladesh, and Venezuela) agreed to

pay to the US Department of Justice a combined total

criminal fine of US$450 million (Siemens AG with

US$448.5 million fine and each of the subsidiaries agreed

US$0.5 million).

Several other anti-corruption investigations continued or

started after 2009 in Afghanistan, Argentina, Austria,

Brazil, Greece, Russia among other countries. Most of

these legal proceedings were related to events that occurred

before 2006 but were only uncovered after the 2006

scandal or because of its investigation. Hence, the post-

event period considered in the current study is not exempt

from corruption-related situations. Given the difference in

terms of how the 2006–2008 period (when the last settle-

ment occurred) unfolded when compared to the period

between 2009 and 2011, we divided the post-event period

into these latter sub-periods in order to obtain a compre-

hensive understanding of the problem and provide a more

refined analysis.

As a result, we analyzed the AR and stand-alone SR by

Siemens based on the following timeline:

• 2000–2005: pre-event period (Period 1); • 2006–2011: post-event period divided as follows:

– 2006–2008: post-event time period from when the

first corruption scandal emerged to its last settle-

ment (Period 2); and

– 2009–2011: post-event time period during which

the company was under ongoing corruption inves-

tigations (Period 3).

Methods

Legitimacy Analysis

We use content analysis—a method commonly applied in

social disclosure/reporting research (Coetzee and Van

Staden 2011; Gray et al. 1995)—to examine the ARs and

stand-alone SRs available on Siemens’ website. We

measured the extensiveness of disclosure using the number

of sentences 5 (Branco et al. 2008; Buhr 1998; Deegan et al.

2000, 2002; Hackston and Milne 1996) related to compli-

ance and corruption. Consistent with Branco and Rodrigues

(2008) and Cho and Patten (2007), we made the assump-

tion that each item of disclosure was equally relevant and

added the disclosure scores rather than weighting them. We

analyzed the topics of both corruption and compliance

since these themes appeared together.

In addition, we adopted the methodology of considering

pre- and post-event periods of similar duration, which is

well established in the literature examining the effects of

events on CSR disclosure (Branco et al. 2008; Coetzee and

van Staden 2011; Deegan et al. 2000; Islam and Mathews

2009; Jantadej and Kent 1999). Consistent with these

studies, we consider that this is the optimal approach of

analyzing the effects of an event on corporate disclosure in

a meaningful way.

Stakeholder and Organizational Façades Analysis

In order to better understand the differences in disclosure

volume peaks, we performed (1) a stakeholder analysis to

determine whether the AR and SR emphasized the stake-

holder groups differently and (2) a façades analysis to

determine whether those stakeholders were treated differently.

In the stakeholder analysis, we focused on employees 6

and suppliers because they stand out as the stakeholder

groups for whom corporate policies regarding compliance

and corruption issues are of most interest and concern. A

company can conceive and implement compliance and

corruption-related policies specifically centered on these

two stakeholder groups, proposing certain types of con-

ducts regarding how employees should behave and how

relations with suppliers must be handled, as well as

instruments to make such policies effective. For example,

in a document offering guidance on how to report on the

fight against corruption, the UNGC proposes a ‘‘Matrix of

Reporting Elements’’ in which the main stakeholder groups

specifically mentioned correspond to the ones we consider

(UNGC, 2009, p. 14). 7

4 The US FCPA dates from 1977 and is probably the most widely

enforced law pertaining to the fight against corruption. It regulates

corruption by (1) prohibiting bribery of foreign officials and (2)

requiring companies registered with the SEC to keep accurate books

and records (Reilly 2015).

5 While the number of words or the number or percentages of pages

(Gray et al. 1995) are also both widely used in corporate social

disclosure research, Hackston and Milne (1996) suggest that sentence

counts are preferable because they convey a better meaning and may

generate fewer errors (Milne and Adler 1999). 6 When referring to employees, the paper is referencing non-

management employees only. Siemens distinguishes employees from

management, and the paper maintains the same distinction. 7 The UNGC refers to business partners, including agents, consul-

tants or other intermediaries, joint venture and consortia partners,

suppliers and customers. However, a close reading of UNGC (2009)

provides evidence that suppliers are viewed as the most fundamental

of these partners.

550 R. Blanc et al.

123

We searched for instances when these stakeholders were

referenced by using the keywords ‘‘supplier’’ and ‘‘em-

ployee’’ in the AR and SR from 2000 to 2011. We coded

these sentences to identify major themes. For example, a

sentence such as ‘‘Compliance with the Code of Conduct

for Siemens Suppliers will be monitored by means of an

additional corporate responsibility monitoring module in

connection with the periodic quality audits of suppliers’’

(Siemens 2007b, p. 47) was coded as ‘‘compliance with

code of conduct for suppliers’’ and ‘‘supplier audits’’. The

themes were reviewed for references to compliance and

corruption. We also broadened those themes to include

references to responsibility and sustainability. All of these

themes were analyzed together comparing each year with

the previous year to identify the addition of new themes

throughout time.

We then performed another level of coding around the

different façades—rational, progressive and reputation.

Based on the literature review, we used the following

guidelines to distinguish the different categories. The

rational façade was evident when the disclosures quantified

one of themes, referred to a legal standard, and displayed a

business case or organized logic to explain its actions. This

façade also tends to focus more on the negative aspects of

the corruption scandal by simply stating the events as they

happen. For example, the following sentence from the 2006

AR was classified as a rational façade: ‘‘Another former

employee was apprehended in Austria and extradited to

Germany’’ (p. 131). The progressive façade highlights new

tools and the latest sustainability trends, such as the GRI

Index, that the company is using to solve problems. Other

tools that were noted were training, surveys, and the code

of conduct. For example, the following sentence in the

2000 AR was classified as a progressive façade due to

implementing employee training: ‘‘Siemens employs

extensive internal controls, enterprise-wide uniform

reporting guidelines and additional measures including

employee education and training, to ensure that its financial

reporting is conducted in accordance with applicable reg-

ulations and accepted accounting principles’’ (p. 38). The

reputation façade highlights the positive by discussing the

benefits and goals of its actions. The tone allows the

company to appear that it can do more than what it can

realistically achieve. For example, highlighting that the

company expects all employees to uphold its principles is

an example of a reputation façade since it is unrealistic to

assume that all employees would uphold its code of con-

duct at all times. It is possible that two façades could be

evident at the same time. The previous example given

related to employee training was also classified as a repu-

tation façade since the tool was also referenced to its goal

of proper financial reporting. The authors conducted at

least two iterations of the coding to ensure consistency.

Findings

Legitimacy Theory

Period 1: 2000–2005

As shown in Fig. 1, the content analysis of the company’s

ARs and SRs indicates that the lowest amount of disclo-

sures was recorded in the 2000–2005 pre-event period,

which is expected. Figure 2 shows similar results but also

breaks the disclosures into the categories of corruption and

compliance.

Period 2: 2006–2008

As expected, results indicate a significant change in Siemens’

disclosure patterns in 2006 as shown in Fig. 1. The volume of

compliance and corruption disclosure included in both the AR

and SR exhibits a highly significant increase with the advent

of the 2006 corruption scandal as seen in Fig. 2. These results

provide evidence on the company’s intent and strategy to

repair its legitimacy in the wake of a threatening event such as

a worldwide corruption scandal. They also suggest that the

increase in disclosure volume was even more significant for

the years following the scandal burst (i.e., 2007 and 2008).

Similar to Cho (2009), the current study analyzes both ARs

and SRs, and documents different trends for each type of

report during this second period that are worth noting:

• AR disclosures for the year of the corruption scandal (i.e., 2006) are far more extensive than those included

in the SR;

• peaks and general increases in disclosure extensiveness occurred at different moments in both ARs and SRs. More

concretely, peaks and increases in disclosure volume in

SRs exhibit a one-year lag when compared to AR;

• peaks in disclosure extensiveness during the 3-year time period occurred for the AR in 2007, which is the

year when the company had its first condemnation and

for the SR in 2008 when the 2006 corruption case

ended following the settlement.

These results thus suggest that from 2006 to 2008, Siemens

disclosed information earlier in its AR compared to its SR.

We also find that AR had more total disclosures than the SR

for the years 2006 and 2007 in Period 2. Explanations for the

different trends are provided in the following section covering

the stakeholder analysis.

Period 3: 2009–2011

Figures 1 and 2 show an inconsistent evolution of disclo-

sure in the 2009–2011 post-event sub-period. As expected,

Disclosure Responses to a Corruption Scandal: The Case of Siemens AG 551

123

* Corruption scandal + First fine

++ Final settlement

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006* 2007+ 2008++ 2009 2010 2011

V ol

um e

of D

is cl

os ur

e

Year

Nr. ofTotal Sentences SR

Nr. ofTotal Sentences AR

Period 1 Period 2 Period 3

Fig. 1 Disclosure volume on Siemens scandal, 2000–2011

* Corruption scandal + First fine

++ Final settlement

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006* 2007+ 2008++ 2009 2010 2011

V ol

um e

of D

is cl

os ur

e

Year

Nr. of Sentences on

Nr. of Sentences on

Nr. of Sentences on

Nr. of Sentences on

Compliance SR

Corruption SR

Compliance AR

Corruption AR

Period 1 Period 2 Period 3 Fig. 2 Disclosure volume on Siemens scandal divided

between the themes of

compliance and corruption,

2000–2011

552 R. Blanc et al.

123

the extensiveness of SR disclosure on compliance and

corruption overall decreased significantly in the year fol-

lowing the 2008 settlement (except for 2011), except for

compliance items in the 2009 AR and corruption items in

the 2010 and 2011 AR as well as in the 2011 SR. While we

acknowledge that the 2006 event has likely raised other

corruption-related events from 2009 to 2011, we conjecture

that increases in disclosure are associated with possible

new corruption-related situations such as ongoing investi-

gations, especially in 2011 when specific corruption-related

disclosure substantially increased.

Stakeholder Analysis

While the stakeholder analysis only covers a portion of the

corruption and compliance sentences, it does reveal that the

SR focuses more on the suppliers, while the AR focuses

generally more on employees (see Table 1). Suppliers are

mentioned in relation to the themes of compliance and

corruption 320 times in the SR compared to 33 times in the

AR. This finding is more pronounced following the crisis

for employees. Employees are mentioned 13 times before

2006 in the AR and 19 times before 2006 in the SR;

however, the numbers drastically increase with 240

instances after 2005 in the AR and 145 in the SR.

As found in the previous section, the AR peak is in

2007, while the SR peak is in 2008. The analysis shows

that part of the AR peak can be attributed to the disclosures

covering employees, which peaked in 2007. The supplier

disclosures peaked in 2008, which has a direct impact on

the SR. These figures show that, in general, the AR and SR

emphasized different stakeholder groups such that the AR

focuses on those stakeholders with more direct ties with the

company while the SR emphasizes those stakeholder

groups that are more external to the company.

The next section will answer the following question—

how does Siemens try to keep legitimacy with the main

stakeholder groups implicitly referred to in the disclosures

pertaining to compliance and corruption issues and

involved in the crisis using organizational façades in the

AR and SR? The following sections will report in more

detail how each of the stakeholder groups either supports or

deviates from the previous assumptions. We also analyze

how the disclosures change over time. Table 2 details the

different façades over time for employees and suppliers,

and only includes compliance and corruption disclosures

for the stakeholder groups.

Stakeholder and Organizational Façades Analysis

Disclosure Volume in Total and Over Time

When comparing employees to suppliers on total disclo-

sure volume measured by number of occurrences, Siemens

focuses on different façades in the AR and SR. The rational

façade is the focus in the AR for employees, while the

reputation façade for employees is the focus in the SR with

both the rational and progressive façade displaying a strong

presence in the SR as well. The rational and reputation

façades are key in the AR for suppliers, and the progressive

façade is the focus in the SR for suppliers with also a strong

focus of the rational façade and slightly less the reputation

(Table 2).

When focusing on volume over time in Table 2, dif-

ferent trends begin to emerge for both employees and

suppliers. The façades occur in waves in the AR for

employees, while the façades occur more simultaneously in

the SR for employees with peaks happening a year later

than the AR. In the AR, the rational façade begins the year

of the crisis in 2006, followed by a peak in 2007 while

Table 1 Compliance and corruption disclosures in AR and SR according to stakeholder groups

AR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

1 4 0 3 3 2 26 65 45 43 36 25 253 SR

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total 0 4 7 8 0 0 0 40 66 26 7 6 164

AR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

0 0 0 0 0 0 2 8 2 4 7 10 33 SR

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total 0 0 1 3 0 0 7 60 101 71 37 40 320

Employee

Supplier

Disclosure Responses to a Corruption Scandal: The Case of Siemens AG 553

123

gradually decreasing in number until 2011. Both the pro-

gressive and reputation façade begin in 2000; however, the

peak for the progressive façade is in 2009 (i.e., the year

after the final settlement regarding the 2006 event) and the

peak for the reputation façade is in 2010 and 2011 (i.e., the

post-settlement period). The peak of the façades in the

SR occur in 2008 which decreases in the subsequent years.

Like the AR, the rational façade occurs late beginning in

2007, while the progressive and reputation façade are

evident since 2001. The façades are not evident between

2004 and 2006.

The façades occur in waves in the AR for suppliers as

well with less of a presence of the progressive façade.

While the progressive façade is limited in number, it does

peak in 2007 like the rational façade and the reputation

façade peaks later in 2010 and 2011. The rational and

reputation façades do not appear in the AR until 2006, the

year of the crisis while the progressive façade first appears

Table 2 Compliance and corruption disclosures in AR and SR according to stakeholder groups and organizational façades

AR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

Rational 0 0 0 0 0 0 19 52 34 24 16 11 156

Progressive 1 2 2 1 1 1 3 11 10 15 10 4 61

Reputation 1 2 2 3 3 2 8 7 5 9 12 11 65

SR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

Rational 0 0 0 0 0 0 12 20 6 2 1 41

Progressive 0 1 1 3 0 0 14 20 10 2 1 52

Reputation 0 3 6 5 0 0 18 32 12 5 5 86

AR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

Rational 0 0 0 0 0 0 1 5 2 0 1 3 12

Progressive 0 0 0 0 0 0 0 3 0 1 1 0 5

Reputation 0 0 0 0 0 0 1 0 0 3 6 7 17

SR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

Rational 0 0 0 1 0 2 26 54 16 14 7 120

Progressive 0 0 0 0 0 2 28 33 44 19 17 143

Reputation 0 0 1 2 0 3 15 27 15 7 16 86

Note: colors added to indicate level of disclosures with yellow being the lowest and red being the peak

"We recognize and accept supplier or industry codes of conduct if these are at least equivalent to our own" (Siemens, 2008b, p. 91)

"…We only do business with suppliers that operate under the principles of our Code of Conduct for Siemens Suppliers or an equivalent code of their own" (Siemens, 2007b, p. 47)

"Comprehensive backing from our employees is crucial here. Every Siemens manager, from our CEO down, has to be a role model and ambassador for our values" (Siemens, 2008b, p. 49)

Supplier

"Included in €(1,728) above is a €(440) total impact related to a fine imposed by the European Commission in connection with an antitrust investigation involving suppliers…" (Siemens, 2007a, p. 232)

"To ensure that our suppliers adhere to these standards, we’ve established a system of self-assessments and on-site audits" (Siemens, 2007a, p. 43)

"To ensure that we’re a trustworthy partner for...suppliers...we’ve adopted clear and binding principles of conduct" (Siemens, 2009a, p. 50)

"During the period under review, we contractually bound 87 percent of our most important suppliers to observe our Code of Conduct for Siemens Suppliers" (Siemens, 2008b, p. 152)

"In addition, SiemensWorld, our worldwide employee newsletter, regularly reports on compliance themes" (Siemens, 2008b, p. 65)

Employee

"Another former employee was apprehended in Austria and extradited to Germany" (Siemens, 2006a, p. 131)

"Siemens employs extensive internal controls...and additional measures, including employee training and continuing education, with the intention that its financial reporting is conducted in accordance with accepted accounting principles" (Siemens, 2006a, p. 236)

"A number of employee suggestions made through the “Improve it” help desk have already been implemented" (Siemens, 2009a, p. 27)

"In fiscal 2007, we had to impose personnel sanctions on a total of around 500 employees who had violated external regulations or our internal policies" (Siemens, 2007b, p. 27)

554 R. Blanc et al.

123

in 2007. The façades occur more simultaneously for the

supplier SR with the progressive façade having its peak in

2009, a year later than the rational and reputation façade,

but the progressive façade is the focus with the reputation

façade until 2011.

In summary, the AR focuses on one façade at a time in

light of a crisis, while the SR focuses on several façades at

one time, albeit in a delayed fashion. The AR audience,

which is primarily shareholders, is concerned about the

financial statement impact, so the company may be

attempting to mitigate the concerns of lawsuits. Share-

holders need the information quickly to know how to invest

their money, which is why the disclosures began in 2007.

The AR audience may also need to get eased into the

reputation façade explaining why the progressive façade is

needed to act as an intermediary. For the SR, Siemens

cannot disclose the problems to the SR audience in the

rational façade before the company can disclose its actions

in the progressive façade and its goals in the reputation

façade. The next section will analyze how the content

differs among the façades.

Differences Between the AR and SR: Timing of the Content

in the Façades

Employees Several themes are similar between the AR

and SR, while the timing was different in certain areas. For

the rational façade, details of the investigation began in the

2006 AR, while the investigation was mentioned in the

2007 SR along with the ombudsman, amnesty program,

number of employees completing trainings, employees

getting fired, and number of employee sanctions. The

ombudsman was mentioned in the 2006 AR, a year earlier

than the SR, while the quantification of its actions, such as

its compliance training, began in the 2008 AR, a year later

than the SR. However, similar items were quantified for the

first time in both the AR and SR in 2008 such as the

number of employees associated with the compliance

program and the number of employees who are part of

the amnesty program.

For the progressive façade, the AR begins in 2002 dis-

cussing its code of conduct for employees while the SR

begins discussing its principles based on an employee

survey in 2001. Following the crisis, the AR mentions its

business guidelines first in 2006, while in 2007 both the AR

and SR mention similar themes such as the anti-corruption

guide, employee reporting channels, anti-corruption/com-

pliance training, the amnesty program, asking questions to

compliance officers, and helpdesks. The employee survey

was mentioned a year later in the AR in 2008 compared to

2007 in the SR.

For the reputation façade, the theme of the company’s

guidelines being binding for all employees began in the

2001 SR and in the 2002 AR, which continues after the

crisis in 2006 for the AR and 2007 for the SR. In 2007, the

AR and SR both mention the need for clear or precise rules,

in the former stating it as key to its compliance program

and the latter stating it as a goal:

Clear rules for all employees, extensive training,

confidential reporting channels for suspected irregu-

larities and a helpdesk for compliance-related ques-

tions are key elements of our Compliance Program

(Siemens 2007a, p. 43).

Our goal is to provide managers and employees with

a set of clearer and more precise rules (Siemens

2007b, p. 24).

Suppliers The number of suppliers signing a declaration

to uphold its standards began in 2003 in the SR before the

crisis, while the AR reported a number of suppliers com-

plying with its standards in 2006. After the crisis, 2007 was

the first year reported in the SR with similar information.

While the timing is somewhat different for the rational

façade, the progressive façade announces similar tools in

both the AR and SR in 2007 such as supplier self-assess-

ments and audits and channels to communicate problems.

The reputation theme of expecting compliance from sup-

pliers following the crisis begins in 2006 for the AR and

2007 for the SR. Similar themes of meeting anti-corruption

regulations and integrating suppliers in sustainability topics

were noted in both the AR and SR.

Differences Between the AR and SR: Content

of the Façades

Employee: Rational Façade In the AR, disclosures began

in 2006 when the corruption investigation commenced.

There is more of a discussion concerning the legal affairs

related to the employee violations in the AR compared to

the SR. For example, Siemens mentions the law firm who

was hired (Siemens 2006a), warrants against employees,

employees being sentenced, plea bargaining deals, court

fines (Siemens 2007a), updates on convictions (Siemens

2008a), employees in custody, and filing criminal charges

(Siemens 2009a). Siemens also specifies that the sanctions

could be against the company in addition to the employees

(Siemens 2006a) while only the employees were men-

tioned in the SR, costs for advisors (Siemens 2007a),

number of countries that have held management confer-

ences, number of answers it gave to employee questions,

response rate of employee survey (Siemens 2008a), and

number of employees with compliance violations (Siemens

2009a). In the AR, it also mentions that there is a com-

pliance component in the bonuses while bonuses are not

mentioned in the SR. What is of particular interest is that in

Disclosure Responses to a Corruption Scandal: The Case of Siemens AG 555

123

the 2007 AR Siemens admits that the company did not

make the importance of its rules clear while the 2007 SR

mentions that their goal is to have clearer rules:

But as the current investigations show, we didn’t

succeed in making the importance of our compliance

rules clear to all our employees (Siemens 2007a,

p. 42).

Within the reporting period, we began to revise and

expand the Business Conduct Guidelines. The find-

ings of our internal investigations will be incorpo-

rated into the project. Our goal is to provide managers

and employees with a set of clearer and more precise

rules (Siemens 2007b, p. 24)

In the SR, the rational façade began in 2007. Siemens

mentions different figures from the AR such as the percent

of employees getting fired and percent loss of salary, the

number of employee sanctions (Siemens 2007b), and the

turnaround time to obtain answers (Siemens 2008b). It also

mentions that employees are receiving reprimands and

warnings (Siemens 2007b).

In summary, the AR discloses that Siemens is partly

responsible for the employee violations, while the SR shifts

more of the responsibility onto the employees and portrays

Siemens as an enforcer implementing its newest actions.

Employee: Progressive Façade The tools that were

specific to the AR were incentivizing actions through

bonuses (Siemens 2008a) and training employees for

proper reporting (Siemens 2000a). In the SR, it provides

more details surrounding the tools such as using real and

new case studies (Siemens 2007b) instead of fictitious case

studies as mentioned in the 2009 AR. It also mentions

different tools such as compliance screening for employees

being considered for key positions within the company and

an employee newsletter reporting on compliance issues

(Siemens 2008b). In summary, more responsibility is

placed on employees in the SR compared to the AR as is

the case with the rational façade. For example, it highlights

in the 2008 SR that employees conduct incident-driven

inspections and that employees were included in the

compliance program launch instead of just improving it as

noted in the 2009 AR.

Employee: Reputation Façade In the 2009 AR, the

‘‘improve it’’ desk was noted specifically, while the 2009

SR noted that the company made improvements based on

employee recommendations without specifically mention-

ing the ‘‘improve it’’ desk. In the SR, more themes were

noted like managerial employees pledging to uphold the

rules every two years (Siemens 2003b), human rights being

connected with training employees in 2007 (and not just

suppliers as mentioned in the 2009 AR), the importance of

having the backing and support from employees, the need

for employees to ask themselves questions (Siemens

2008b), and the company becoming a benchmark in com-

pliance according to an employee survey (Siemens 2009b).

The 2008 SR also mentions that employees have embraced

its compliance program largely due to its compliance

communications which highlights a general theme that

employees and the company are not in a two-way rela-

tionship per se but more in a one-way relationship in which

the company dictates to the employees what must be done.

Employee: Summary Employees are a key stakeholder

group for the AR, while they are more peripheral for the

SR audience. For the rational and progressive façade in the

AR, Siemens took more responsibility for the scandal. The

relationship between Siemens and its employees was also

viewed more as a partnership as a part of the reputation

façade compared to the SR. Siemens wants to portray to the

AR audience that its relationships with its stakeholders are

healthy since they are needed for business operations,

whereas it wants to portray to the SR audience that it is

being tough and that the stakeholders are getting back on

more solid footing.

Supplier: Rational Façade In the AR, Siemens mentions

the antitrust investigation, sanctions on suppliers (Siemens

2007a), and creating an equal playing field for bidding via

self-regulation:

Greater transparency, overall social responsibility

and monitoring will be essential for creating an even

playing field for all the suppliers bidding for con-

tracts. This will happen through self-regulating

mechanisms that customers and suppliers have com-

mitted themselves to implementing (Siemens 2011a,

p. 76).

In the SR, several figures are given such as the per-

centage of suppliers committed to upholding the code of

conduct, number of supplier audits (Siemens 2007b), and

the number of self-assessments (Siemens 2008b). The

topics of the code of conduct, audits, and self-assessment

were mentioned in passing in the AR. The SR also men-

tions the challenges associated with supplier compliance,

terminating supplier relationships (Siemens 2007b), and

the breaches followed by the audits and remedial measures

(Siemens 2008b). Details are also given about how it

constructed the code of conduct, e.g., explaining how the

company takes into account the business size and business

activity when constructing a code of conduct. The SR also

mentions that supplier standards are part of the discussion

with associations (Siemens 2008b). In summary, more

figures are in the SR, and the SR provides more of a

context surrounding the implementation of different tools.

556 R. Blanc et al.

123

The AR focuses more on the legalistic nature of the sup-

plier activities as is the case with the employees.

Supplier: Progressive Façade No new information was

noted in the AR. In the SR, more details are given about the

code of conduct, such as its revisions (Siemens 2006b),

training (Siemens 2007b), and accepting outside codes of

conduct (Siemens 2008b). The 2007 SR also mentions

compliance structures in relation to Chinese suppliers.

Tools that were highlighted in the SR are as follows:

inspections, online qualification module, integrity pacts

(Siemens 2008b), online sustainability training, and a

supplier sustainability award (Siemens 2009b). Integrity

pacts were specifically mentioned in the SR, which sug-

gests an agreement with the supplier and Siemens. How-

ever, the AR suggests that the relationship between

Siemens and the suppliers is a one-way relationship by

saying that the suppliers have to abide by the principles of

integrity.

Supplier: Reputation The AR discloses again Siemens’

role following the legitimacy crisis by stating the principles

are a way to show its trustworthiness to suppliers (Siemens

2009a). It also discloses a positive image of its suppliers by

stating the suppliers are committed to transparency and are

abstaining from bribes through collective action (Siemens

2011a). The SR discloses a more disciplined image of

Siemens by stating it only does business with suppliers that

uphold the code of conduct (Siemens 2007b). In summary,

the AR portrays a less harsh image of suppliers while the

SR portrays a stronger image of Siemens.

Supplier: Summary In contrast to the employee disclo-

sures, the relationship between Siemens and its suppliers as

a part of the progressive façade is less of a partnership in

the AR compared to the SR. Suppliers are a key stake-

holder group for the SR audience, so highlighting a positive

relationship is beneficial for Siemens. However, a more

positive image is displayed of suppliers in the AR as a part

of the reputation façade, while the SR portrays a more

disciplined image of Siemens. The AR audience values

suppliers that uphold the law as this will result in less

lawsuits, while the SR audience wants to perceive the

company as tough on suppliers in addition to having a

good relationship since more constructive change may

result.

Discussion and Conclusion

The interest of the current study was to examine how

Siemens reported about the main stakeholder groups that

were implicitly referred to in the disclosures pertaining to

compliance and corruption issues and involved with a

legitimacy crisis associated with these aspects. Following

legitimacy theory, we expected that the disclosures would

increase in the wake of the legitimacy crisis. Consistent

with prior research (Cho 2009; Deegan and Rankin 1996;

Eweje and Wu 2010; Islam and Mathews 2009; Patten

1992b), our findings suggest that Siemens did engage in

legitimacy strategies by increasing disclosure when faced

with an event threatening its legitimacy—the occurrence of

the 2006 corruption scandal.

The findings pertaining to the period 2006–2008 are

consistent with past studies that show a significant increase

in disclosures immediately after the occurrence of an

incident (Branco et al. 2008; Cho 2009; Coetzee and Van

Staden 2011; Eweje and Wu 2010; Islam and Mathews

2009; Patriotta et al. 2011). The results obtained for the

period 2009–2011 are also consistent with those obtained

in Cho (2009), who showed evidence of significant

decreases in disclosure in the post-event period. We also

find evidence supporting differences in disclosure strate-

gies between the two main sources of content analysis, the

AR and stand-alone SR. Concerning the stand-alone SR,

findings are consistent with previous studies since the

peaks of disclosure extensiveness occur in the year fol-

lowing the event as in Deegan et al. (2000) and Deegan and

Rankin (1996). 8 However, the current study notes that the

disclosure peak of the SR was one year later than the AR.

The findings contrast with our general expectations and the

findings of Frost et al. (2005), who performed a (non-

academic) study on corporate social disclosure trends in

Australian firms and concluded that issues related both to

non-compliance and specifically to corruption and bribery

had a higher presence in SR than they had in AR.

Frost et al. (2005) and our own findings may be in part

explained by one of the reasons mentioned by Branco and

Delgado (2012) as rationales for the lack of disclosure on

the fight against corruption—companies are likely to dis-

cuss as little as possible on this topic because they fear that

raising such sensitive issues could generate suspicions of

corruption-related problems. As Frost et al. (2005) did not

analyze disclosure reactions to negative events, the com-

panies examined by these authors had no substantial reason

to report on the fight against corruption in a detailed

manner and probably reported in a manner consistent with

what we call a reputation façade. On the contrary, Siemens

had to react to a negative event pertaining to corruption in a

context in which suspicions were already there and explain

8 Results of Deegan and Rankin (1996) indicate a significant increase

in positive disclosure after the successful prosecution of 20 companies

by the New South Wales and Victorian Environmental Protection

Industries. Deegan et al. (2000) show a higher increase in disclosure

in the year following specific environmental incidents concerning a

small sample of Australian firms.

Disclosure Responses to a Corruption Scandal: The Case of Siemens AG 557

123

the problem at hand as well as the specific measures taken

to prevent the occurrence of similar future events.

The paper then sheds more light on the one-year lag of

the SR compared to the AR by using stakeholder theory

and organizational façades. The company may assume that

annual report readers constitute a different audience than

the sustainability readers and that the former have different

informational needs. We could assume that sustainability

reports are more targeted to external stakeholders such as

the community, consumers, suppliers, and certain types of

investors as opposed to annual reports, which are more

financial and technical in nature and target a different

public such as shareholders, banks, tax authorities, and

financial analysts as well as internal stakeholders such as

employees. Whereas for stakeholders other than investors

explaining the occurrence of the event and presenting the

measures taken to prevent the occurrence of future similar

ones could be done by way of a rhetoric consistent with

what we call reputation façade, for investors the discourse

had to be more specific and direct, consistent with a

rational façade. And this had to be done by way of the AR,

which is the document that investors are more likely to read

and analyze.

Stakeholder theory has been studied by the accounting

literature, but the research has been limited to analyzing

disclosures pertaining to employees (Mäkelä and Näsi

2010; Williams and Adams 2013). The current study also

investigates how a company responds in light of a legiti-

macy crisis when the stakeholders such as employees

themselves are involved in the crisis which has not been

addressed by the accounting literature. We found that the

AR focused more on internal employees, while the SR

focused more on external stakeholders, which is consistent

with stakeholder theory. The earlier peak in the AR can be

partly attributed to the disclosures covering employees,

which peaked in the earlier years as noted in Table 1. The

supplier disclosures that peaked in the later years had a

direct impact on the SR. Since the readers of the SR are

assumed to be more peripheral to the company, it is natural

to observe that the SR focused more on an external

stakeholder group such as suppliers while the AR focused

on employees who are more internal to the company.

The previous assumptions were further tested by ana-

lyzing the specific legitimacy strategies used by the com-

pany, particularly organizational façades, which can be

used when facing conflicting stakeholder demands. We

found that the AR focuses on one façade at a time in light

of a crisis, while the SR focuses on several façades at one

time, albeit in a delayed fashion. These findings contribute

to Cho et al. (2015) by furthering the study’s preliminary

results into the differences between how the AR and SR

report on organizational façades, a subject which has not

received adequate attention by legitimacy theory. We find

that the progressive façade was used differently by the AR

and SR. When analyzing the disclosures surrounding

employees, the peak of the progressive façade occurred

between the peak of the rational and reputation façade,

while the progressive façade peaked simultaneously with

the other two façades. Slight differences were noted around

the supplier disclosures. The AR audience, which is pri-

marily shareholders, is concerned about the financial

statement impact, so the company may be attempting to

mitigate the concerns of lawsuits. Shareholders need the

information quickly to know how to invest their money,

which is why the disclosures began in 2007. The AR

audience may also need to get eased into the reputation

façade explaining why the progressive façade is needed to

act as an intermediary. For the SR, Siemens cannot disclose

the problems to the SR audience in the rational façade

before the company can disclose its actions in the pro-

gressive façade and its goals in the reputation façade.

We also analyzed the content of the different façades.

The qualitative findings suggest that the AR is consistent

with its supplier and employee disclosures as is the SR. The

differences result from the type of report, having the

rational façade as the focus of the AR and the progressive

and reputation façade the focus of the SR. These findings

are consistent with Cho et al. (2015). However, the dif-

ference here is that the reputation façade was important for

suppliers in the AR, whereas the rational façade was

important for both employees and suppliers in the SR—

with the rational façade being more important than the

reputation façade in the SR. Associations and NGOs have

an interest in the SR, as noted in the 2008 SR, so having

some rational disclosures related to the crisis would be of

interest to them.

We note from stakeholder theory that social disclosures

are an effective way for organizations to communicate with

its different stakeholder groups (Gray et al. 1995). The

previous literature does not address how a company

responds in light of a legitimacy crisis when the stake-

holders such as employees themselves are involved in the

crisis. We found that Siemens chose to communicate to its

stakeholders differently in the AR and SR by analyzing the

content of the different organizational façades. The AR is

more concerned about sharing the responsibility for the

wrongdoing between the company and the stakeholder,

while more responsibility is placed on the stakeholder in

the SR. Siemens is presented as more of a partner with its

stakeholders in the AR, while in the SR Siemens is more of

an enforcer. Siemens wants to portray to the AR audience

that its relationships with its stakeholders are healthy since

they are needed for business operations, while Siemens

wants to portray to the SR audience that it is being tough

and that the stakeholders are getting back on more solid

footing. These findings are consistent across the different

558 R. Blanc et al.

123

façades with each façade emphasizing a different aspect.

The rational façade focuses on the violations and on who

was responsible, the progressive façade focuses on the

tools and the level of involvement of the different stake-

holders, and the reputation façade focuses on Siemens

aspirations in relation to itself and its stakeholders.

Like all studies, ours is subject to several limitations. It

does not allow for conclusive generalization given the

unique case and context that we examine, as well as its

exploratory nature. In particular, shareholders and society

stakeholder groups had the most mixed findings, which

may be due to the different and conflicting pressures on

these groups. For example, society in the AR was expected

to be treated in a more rational way, while society in

general is expected to be treated in more reputational

terms. These conflicting pressures may result in unexpected

results at times. However, since the Siemens case is

sometimes mentioned as a ‘‘leading example in the

industry’’ (Eberl et al. 2015, p. 1222), we believe that our

study may offer important insights, given that it is, so far as

we are aware, the first to apply an organizational façades

approach to the analysis of the reaction of a corporation to

an event such as the one we have studied.

Second, the analysis is limited to the extent that public

company information is made available only online in the

form of corporate reports. Despite these limitations, how-

ever, the current study contributes to existing research in

several ways. It first brings additional evidence to the

scarce research body on the social dimension of corporate

social disclosures. Further, and to the best of our knowl-

edge, this is the first study focusing on the specific impacts

of such a relevant social event as corruption on corporate

social disclosures. The specific results of the current study

document the changes in Siemens’ disclosure practices

over time for its different stakeholder groups in light of a

legitimacy crisis. It also documents its choices regarding its

portrayal of different stakeholder groups, which to our

knowledge is also novel.

In particular, we consider our study as an important

contribution to the literature using the analysis of organi-

zational façades in the examination of corporate social

disclosure practices. This type of analysis provides an

‘‘innovative’’ perspective in the social and environmental

accounting research (Michelon et al. 2016). As far as we

are aware, only one study has conducted such an analysis

(Cho et al. 2015). Our work provides insights on how a

company uses corporate disclosure to manage stakehold-

ers’ perceptions in the wake of an event such as the one

analyzed. We show that organizational façades analysis is

of utility when undertaking such an analysis, thus con-

tributing to this stream of research.

Finally, the current study uncovered several issues for

further investigation. Additional research could be

conducted concerning the impact of corruption-related

events in other companies in different contexts. The present

work also revealed the need for more research concerning

factors influencing disclosure on corruption. Although

studies have considered the materiality and importance of

social disclosure in the AR for its users (Campbell et al.

2003), a lack of research exists concerning differences in

informational needs of the users of corporate social dis-

closures in both the AR and SR. For example, what do the

different stakeholder groups expect to find when reading

the AR and SR? This question could be asked directly to

different stakeholder groups. Finally, additional research

could ask the question regarding how disclosures related to

corruption differ from environmental disclosures. In par-

ticular, is corruption a more socially taboo topic than

environmental concerns, and do the trends between these

corporate social disclosures differ in a significant way.

Acknowledgements We wish to thank Lisa Baudot, Den Patten and the participants of the 2013 Alternative Accounts Conference, the

36th European Accounting Association Conference, and the 2013

French Congress on Social and Environmental Accounting Research

(2nd CSEAR France) for their helpful comments and suggestions

provided on earlier versions of this paper. Charles Cho also

acknowledges the financial support provided by the Global Research

Network program through the Ministry of Education of the Republic

of Korea and the National Research Foundation of Korea (NRF-

2016S1A2A2912421).

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