Daily Management Review

Cracks At The Heart Of Germany Inc Revealed By Wirecard's Collapse


German business just had a particularly bad week.
While an accounting scandal resulted in the collapse of one of the biggest public companies of the country, another company was a forced to pay billions in damages. And a leading family-owned meat packing firm was dragged into controversy amidst the Covid-19 pandemic by its poor working conditions.
The biggest impact however was that of the collapse of the digital payments firm Wirecard because of an accounting scandal. A $2 billion accounting fraud that was not detected by the financial watchdogs, the company's supervisory board and its longtime auditor triggered the collapse.
This has increased pressure for regulators and corporate bosses in-charge of regulating Europe's biggest and most successful economy.  
Wirecard's accounting has been questioned for years by journalists, whistleblowers and skeptical investors. But its executives never paid much attention to such allegations and simply brushed them aside. The company was also supported by the banking regulator of Germany which pushed back such allegations from critical hedge funds and investigative reporters. However it failed to find the loopholes in the company’s accounting.
As a result one of the largest fintech companies of Germany collapsed within just seven days after the company acknowledged last week that about 25 per cent of its assets in cash of about €1.9 billion ($2.1 billion) probably never existed. Authorities quickly arrested the company’s CEO Markus Braun over charges of potential artificial inflation of the firm's balance sheet and sales using fake transactions. Wirecard filed for insolvency last Thursday Thursday.
"You have a multitude of evidence of sinners, of overlookers, of all kinds of various guilty parties," said Christian Strenger, academic director of the Corporate Governance Center at HHL Leipzig Graduate School of Management.
This incident also made Wirecard is the first company in Frankfurt's elite DAX stock index to collapse. But the ultimate fate of the company was preceded by a series of scandals over the past five years which caused severe embarrassment to the government, regulators and business community of Germany. This incident has also raised questions about the strength of corporate governance and financial regulation in the fourth largest economy of the world. 
Two more corporate scandals in Germany have grabbed headlines globally last week.
Local authorities were forced to impose a lockdown on more than half a million people in the region surrounding the a plant owned by meat processing giant Tönnies Group after more than 1,500 workers of the plant tested positive for the novel coronavirus infection.
On the other hand, pesticide giant Bayer agreed to payments of more than $10 billion as settlement against claims over the weed killer Roundup, a product the company now owns because of its acquisition of Monsanto, was behind multiple cases of cancer among its users in the United States.
The abysmally poor working and living conditions faced by foreign workers in the industry was brought to light by the outbreak at the Tönnies plant. In response, the German government pledged to put an end to the use of subcontractors and to increase the fines for breaching rules on working hours by two folds.