´óÏó´«Ã½

Ethics man at BAE

• Robert Peston
• 11 Jun 07, 07:31 AM

BAE has an image problem.

The giant defence company says it's never broken the law when selling military equipment.

But it's been embarrassed by the disclosure - made by the ´óÏó´«Ã½'s Panorama programme - that it paid hundreds of millions of pounds to a Saudi prince as part of the enormous Al Yamamah deal with Saudi Arabia, together with assorted other allegations about fat commissions being paid on deals.

So the company’s chairman, Dick Olver, and the independent non-executive directors want reassurance that the company does nothing improper in the way that it sells arms.

Their solution is to set up an independent ethics committee, to investigate the way it does business and ascertain whether its practices conform with the highest ethical standards.

And to demonstrate that it will be a serious, impartial enquiry, they are appointing a former Lord Chief Justice of England and Wales, Lord Woolf, to lead it.

To be clear, the Woolf appointment is not a direct response to last week's disclosures. Woolf agreed to do it a few weeks ago, in the wake of a steady stream of allegations over many months about the way BAE has won sales, but the announcement was held up by a delay in signing up other heavyweight members of his committee

However, he will not review BAE's past behaviour for fear of being accused of interfering with a criminal investigation by the Serious Fraud Office into past BAE deals.

The SFO abandoned its probe of BAE’s Saudi deals last December, following pressure from the British Government – which claimed that the investigation was threatening national security. However the SFO is still investigating other BAE sales in Africa, eastern Europe and South America, following allegations that it made illegal payments to win them.

Woolf will report on BAE’s current approach to winning deals. Which has the potential to embarrass a company as big, unwieldy and international as BAE - even if the executives at the top of the company are convinced that it does nothing wrong.

There are a couple of others risks for BAE too. First, shareholders may well question why the chairman and the non-executives need the reassurance of the Woolf review, if they are completely confident about the way the executive team – led by the chief executive, Mike Turner – runs the business. Any hint of a split between non-executives and executives would be destabilising.

Also the decision by the chairman and independent non-executives to appoint Woolf may be seen by some of BAE’s critics as the equivalent of them asking BAE’s executives the old chestnut "so when exactly did you stop beating your wife?"

• Permalink
• Comments