Civil Society, Economy & Trade, Europe, Headlines

EUROPE: For Big Business, Accountability Still a Foreign Word

Julio Godoy

BERLIN, May 22 2007 (IPS) - On Mar. 15, 2006, Noel Forgeard, at the time chief executive officer of the European aerospace corporation EADS, sold, apparently without any reason, some 170,000 shares he owned of the company, making an instantaneous profit of almost three million U.S. dollars.

Two months later, as it became public that EADS (European Aeronautic Defence and Space Company) would not deliver on time its new airplane Airbus A-380, the company’s share prices in the stock markets plummeted. In a single day, Jun. 14, EADS shareholders lost some six billion euros (about 7.2 billion dollars).

Other consequences of the EADS delivery delays were severe financial penalties, imposed by clients around the world, and the dismissal of more than 10,000 of its workers from company sites in France and Germany.

Forgeard was one of the few EADS shareholders who had the timely hunch to sell his equity. Some of Forgeard’s children, who also owned shares of the company, as well as the leading holder Arnaud Lagardere, sold them several weeks ahead of the Jun. 14 financial disaster.

Lagardere sold seven percent of his shares, for some 2.5 billion dollars. As the French unionist Hubert Prévaud, a leader of Airbus workers, puts it, “Lagardere made a timely, juicy profit, on the back of his own employees.”

In the weeks that followed the EADS shares crash, it became clear that something had gone foul within the company’s managing structures. Forgeard, Lagardere, and the like, were informed of the company’s inability to deliver the Airbus A-380 by the deadline, and could foresee the financial consequences of this failure.

For the opportune selling of their EADS shares, Forgeard, Lagardere, and several other high-ranking executives at the company, face official accusations of insider trading from the French stock exchange regulatory authority. All the defendants deny any wrongdoing. The case is ongoing, but it is likely that it will be closed without sequels for Forgeard, Lagardere, and Co.

As a consequence of the EADS-Airbus crisis, Forgeard was forced to quit his post at the helm of the company in June 2006. But even this fall from status had a golden touch about it for him. With a little help from his close friends in the French government, he received an indemnity worth some 10.5 million dollars, according to the German EADS executive Thomas Enders.

“Forgeard is now seen as an egoist predator and as a very bad manager,” union leader Prévaud told IPS. But Forgeard, who in the late 1980s was head of cabinet of then French prime minister and former president Jacques Chirac, must not fear anything else for his failures as the highest-ranking executive at EADS.

For some in the European corporate world, accountability apparently remains another empty word.

For instance, at Siemens, the German electrical and telecommunications company, and one of the continent’s leaders, has been beleaguered by numerous corruption scandals over the last several months.

In the most important case, the company has admitted that some of its executives kept illegal bank accounts in several countries, including Switzerland, Dubai, Liechtenstein, and Monaco, through which at least some 500 million dollars flowed, to pay illegal commissions to obtain contracts around the globe.

According to the German newsweekly Focus, which quotes unnamed prosecution sources, the illegal commissions paid by Siemens could reach four billion dollars.

While the inquiries by German justice have lead to mild prison sentences for low-ranking executives, the two most important managers, Klaus Kleinfeld and Heinrich von Pierer, under whose direction the affairs developed and reached such dimensions, so far have been left untouched.

In mid-May, a tribunal in Darmstadt, some 400 km southeast of Berlin, found Andreas Kley, former head of Siemens’ finance department, guilty of participating in the illegal payments scheme, and gave him a two-years suspended prison sentence.

But Kley received an indemnity from Siemens of well over 2.1 million dollars. According to several sources at Siemens, it was von Pierer who authorised payment to Kley. Von Pierer was head of the board of directors until Apr. 19, when he was forced to resign under the pressure of the corruption scandals.

One week later, and as it became clear that the shareholders would not extend his contract beyond September 2007, Klaus Kleinfeld also quit his post as CEO.

As in the EADS case, mismanagement at Siemens led to the bankruptcy of the company’s cellular telephone branch, which caused led more than 3,000 people to lose their jobs in Germany.

These and similar recent cases involving other European enterprises have led groups such as Transparency International to urge the German government to finally ratify the United Nations Convention against Corruption (UNCAC), the landmark global legal framework.

After meeting the German Chancellor Angela Merkel on May 14 in Berlin, Transparency International chair Huguette Labelle said that the group of eight (G8) most industrialised countries of the world should “adopt a stronger stance against corruption at its (next) summit”, to take place in the Baltic seaside resort of Heiligendamm Jun. 6-8.

Labelle noted that four of the G8 member countries – Canada, Germany, Italy, and Japan – have not ratified the UNCAC. The other four members are Britain, France, Russia, and the United States.

Germany is this year’s president of the G8, and is hosting the Heiligendamm summit.

“The German Presidency of the G8 has already shown that it understands the importance of good governance and anti-corruption,” Labelle said after meeting Merkel.

“But it cannot stop there. As president of the G8, Germany has a special responsibility to lead the G8 in ensuring that anti-corruption measures are central to the commitments of Heiligendamm and strongly reflected in the final communiqué,” Labelle added.

Activists and experts say corporate accountability goes beyond fighting corruption, and must include respect for internationally agreed standards and principles in areas such as human rights, social, labour, environmental and economic norms for corporate behaviour.

Non-governmental organisations, associated in the European Coalition for Corporate Justice (ECCJ), complain that the European Commission so far focuses its action for corporate accountability only on a catalogue of voluntary measures.

“This approach has been proved insufficient to solve social and environmental problems related to corporate behaviour,” Paul de Clerck, steering group member of ECCJ and corporate campaigner at Friends of the Earth-Europe, told IPS. “If European companies do not respect human rights and environmental interests in other parts of the world, we need to ensure that affected people can find justice and hold companies accountable.”

Among other principles of corporate accountability, the ECCJ proposes mandatory reporting on social and environmental issues, the creation of a duty of care for CEOs for the environmental and social impacts of their companies’ activities, and the enforcement of mechanisms of redress for affected communities

Apparently, some European authorities have been listening to such calls.

On Mar. 13, the European Parliament approved a Corporate Social Responsibility resolution urging the European Commission to extend legal obligations to some key aspects of corporate accountability.

By voting for the resolution, the European Parliament called for directors to personally take on legal responsibility for the behaviour of their companies; for European corporations to be liable in the EU for damage they cause abroad; and for lobbyists to be obliged to disclose their clients and budgets.

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