FT.com / Companies / Basic industries - Siemens woes deepen as executive arrested

FT.com / Companies / Basic industries - Siemens woes deepen as executive arrested

Siemens woes deepen as executive arrested
By Richard Milne in Frankfurt

Published: March 27 2007 15:37 | Last updated: March 27 2007 15:37

Siemens’ troubles reached the highest executive level on Tuesday as the first sitting management board member at Europe’s largest engineering group was arrested by prosecutors on charges of breach of trust.

Johannes Feldmayer, seen in the past as a potential chief executive of the German group, is being held in connection with an investigation by Nuremburg prosecutors into whether Siemens illegally financed a friendlier rival to its main trade union. Prosecutors also raided Siemens offices throughout Germany for a second time over the affair.

The probe is separate to a long running investigation by Munich prosecutors into alleged bribery payments mostly in its telecoms division of up to €426m. That probe has seen one former management board member arrested and another questioned as a suspect. Both men deny the charges.

Siemens said that Mr Feldmayer signed consultancy contracts in 2001 – when he was head of the group’s automation and drive unit – with Wilhelm Schelsky, the head of the AUB, a business-friendly trade union. Prosecutors say they are looking at whether any service was provided for the contracts. People familiar with the investigation add that they are checking whether Siemens supported the AUB financially.

Siemens said on Tuesday that Mr Schelsky provided education, training and advice on labour law to the company under the contracts. But he was also paid for additional services to be billed on top of the contract. Last year the money claimed for the additional services “grew and grew without any bills so we terminated the contract at the end of 2006,” a Siemens spokesman said. Mr Schelsky, who has denied wrongdoing through his lawyer, was detained on charges of breach of trust last month.

The AUB, which by its own account had about a tenth of Siemens’ German workforce as members and a majority of employees at its IT unit – which Mr Feldmayer now heads – has run a large campaign to take works council and union seats away from the more hardline and popular IG Metall.

The AUB scandal has stirred memories of recent events at Volkswagen, Europe’s largest carmaker. Peter Hartz, a former management board member at VW and an adviser to the previous Chancellor, was given a fine and suspended sentence last month after admitting to effectively buying the senior labour representative at the carmaker with €2.5m in illegal payments. Other works council members are alleged to have received payments in return for their help in negotiations and running the company.

Both scandals underline the enormous power wielded by German unions at large companies. Workers take up half of the seats on a German supervisory board under the system of co-determination that gives them a large say in strategic decisions such as the hiring of executives.

Despite pressure from the VW scandal – and the dislike of the current system expressed privately by many bosses – reform of co-determination is unlikely because it is politically sensitive and as it has fostered an unusually co-operative relationship between labour and companies. Unions in Germany have helped significantly improve companies’ competitiveness in recent years by agreeing to wage restraint and extra labour flexibility in return for job or investment guarantees.

Siemens confirmed the arrest but declined to comment further and could not provide contact details for Mr Feldmayer or his lawyer.

Copyright The Financial Times Limited 2007