Siemens 2006 Annual Report Download - page 140

Management’s discussion and analysis
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Risk management
Siemens’ risk management policy stems from a philosophy of pursuing sustainable growth
and creating economic value while avoiding and managing inappropriate risks. Because risk
management is an integral part of how we plan and execute our business strategies, our risk
management policy is set by the Corporate Executive Committee (a committee of the Manag-
ing Board that includes both the CEO and CFO). Siemens’ organizational and accountability
structure requires each of the respective Group managements to execute risk management
programs that are tailored to their specific industries, yet consistent with the overall policy
established by the Corporate Executive Committee.
Siemens has implemented a coordinated set of risk management and control systems
which support us in the early recognition of developments endangering the future existence
of the company. The most important of these systems include our enterprise-wide processes
for strategic planning and management reporting. The former is intended to support us to
consider potential risks well in advance of major business decisions, while the latter is intend-
ed to enable us to monitor such risks more closely as our business progresses. Our internal
auditors also regularly review the adequacy and effectiveness of our risk management system.
Thereby, deficits are detected and appropriate measures for their elimination become adopted.
This coordination of processes and procedures is intended to help ensure that the Managing
Board and the Supervisory Board are fully and timely informed about significant risks, as
described further in the section “Corporate Governance.”
Moreover, according to U.S. provisions, which are more comprehensive compared to Ger-
man law, Siemens is required to establish and maintain adequate internal control over finan-
cial reporting. Siemens implemented an internal control system. Based on management’s
assessment in fiscal 2006, the system proved to be not effective with respect to preventing
misappropriation of funds and abuse of authority. Siemens will take action in fiscal 2007 to
establish effectiveness of the internal control system.
Below we describe the risks which could have a material adverse effect on our financial
condition or results of operations. The risks we describe here are not necessarily the only ones
we face. Additional risks not known to us or that we currently consider immaterial may also
impair our business operations.
Business risks
Our business environment is influenced by conditions in the domestic and global economies.
Numerous factors, such as global political conflicts, including situations in the Middle East
and other regions, continue to impact macroeconomic parameters and the international capi-
tal markets. The uncertainty of economic and political conditions can impact the demand for
our products and services and can also make our budgeting and forecasting more difficult.
Our Groups are affected by market conditions. For example Medical Solutions (Med) is
dependent on the healthcare markets, particularly in the U.S. Some of our Groups are affected
considerably by the markets in Asia as well as Middle East, such as Power Generation (PG) and
Power Transmission & Distribution (PTD). In addition, the financial condition of our cus-
tomers may negatively impact our Groups such as, Siemens VDO Automotive (SV), which is a
supplier to the automotive industry. Furthermore, the demand for products of certain of our
Groups is linked to consumer demand, which may be adversely impacted by the continuing
uncertain economic environment.