Ethics man at BAE
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?"
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BAE Systems are to be commended on their decision to run an internal investigation and to appoint Lord Woolf to run it.
Shareholders will doubtless be pleased that the business leaders are taking these 'best practice' steps in order to demonstrate the company's ethics.
I think the horse may have already bolted.
The Directors of BAE are responsible for the coy's commercial health and conduct of its employees in the execution of its business pursuits. Proposing a externally appointed committee to ensure coy policy and sound business ethics are observed hints a]realisation that senior management's control is imperfect or at the least suspect and b] the desire to renunciate one of the prime obligations of the Board of Directors. Rgds
Does no one else see any irony in an arms dealer carrying out an investigation in to its ethical dealings?
A report which excludes the Saudi deals and which focuses on the current practices in effect acknowledges that previous deals have been won through corrupt practices. To say that no laws were broken leaves ambiguity. Laws under which jurisdiction? Would the deals stand up in court today - one suspects not or the investigation would not have been stopped. A classic example of setting the terms of reference for an inquiry in such a way that the best possible result can be acheived and the worst case scenarios are excluded - where do they get their ideas? The idea that there are still significant risks to the company gives some idea how bad things have been.
So when will the international watchdogs be turning their attention to Giat of France, General Dynamics of the US, Krauss Maffei of Germany, etc, etc, etc. Fair's fair after all. If there is a common problem endemic in the arms trade, everyone else should be signing up to more controls on how they do business (unless they are better at hiding their payments than us).
Three concerns:
1) Lord Woolf is being commissioned (i.e. paid) to carry out this investigation. He is not really an independent investigator.
2) I presume he will submit a report to BAE's board in confidence. So what version, if any, is made public?
3) None of this yet addresses the Al Yamarah deal. BAE and the Saudis seem to have put enough political pressure on the government to get the SFO investigation canned, but it doesn't actually mean the deal was honest. The only way that can be proved is by reopening the SFO investigation and making all its findings public.
Corruption is bad for business, bad for the client country and bad for Britain. If it isn't confronted it just gets more and more entrenched, making real business impossible.
I worked for British Aerospace then BAE Systems (BAES) for 14 years and within Al Yamamah (AY) as a project manager for 5 years. AY is a government to government project and the UK MoD are the UK government's appointed agents. They have established a Project Team in London and Riyadh to monitor BAES' performance and all aspects of the Project.
If BAES was to have been bribing Saudi officials, the UK Government would hsve known about it as they were involved in every aspect of AY. They agree the profit margins BAES makes so the government cannot wash its hands of responsibility. They ahve been trying to point the finger at the UK MoD but, as stated previously, they are appointed by the governement as their representatives/agents in all matters AY.
This present government should make up its mind where it stands and stop trying to blame others for its own problems (if, indeed, AY does have any problems of the bribery sort) - which I doubt.
If this new ethics committee is to have any credibility, it must investigate the Saudi deals. After all, there can be no question of interfering in a criminal investigation which has already been dropped.
Lord Woolf et al should also look at other past deals that are not under investigation to see if there are other on-going payments like those to Prince Bandar that might breach the law on corrupt practices since it was tightened in 2002.
If BAE has never broken the law, it has nothing to fear. If it refuses to ask Lord Woolf to look at past deals it will not just be those who question BAE's integrity who will believe it still has skeletons in the cupboard. Many shareholders and outside agencies will too - with harmful longterm consequences for the company.
In an episode of Law and Order a sportsman stars agent explains that at the request of the star he employs a £20m a year sports star's father and brother with the comment... "wouldn't you for a client worth 10 per cent of £20m a year".
Saudi Arabi is a kingdom owned and controlled by the Saud family. All the wealth and earnings of the state are the King's /the familly's. If BAE were asked to pay monies into an Embassy account controlled by a member of the familly why would they demur, providing the authority for payment was properly processed.
This isn't corruption, this isn't a western democracy, this isn't a democracy but neither are most Gulf States and many more UN countries. Small wonder the Saudi's are annoyed this is intrusion into their private matters.
I think the Saudi Sandstorm blog last week illustrated the problem of our confused perception of what actually constitutes a bribe. A fee payable to the foreign government is acceptable as a contract requirement. It is not secret or hidden from either of the contracting parties. It is usually confidential - as many commercial and particularly arms contracts should be.
Our government sells radio wavebands for billions as a fee for its agreement to issue licences for cellphone operators.
The Saudi government is actually the Al Saud family who sign contracts for their country to acquire Western goods and services. Within their contract terms are fees payable to a family member who is part of the government. The normal rate for arms is around 10% of the contract total but there is no reason why it couldn't be 100%. You could equally regard the taxation on imported vehicles in many countries as a cost of entry to the market. It is in the nature of international trade that the buying country sets the costs of entry.
Facilitating fees paid to government departments, or in BAE's case to members of the Saudi ruling family, are no more criminal than the payments made to obtain planning approvals in the UK by adding the cost of notional additional facilities or amenities to the required development. No value is lost in the development but the local planning department extracts a facilitating cost from the developer -or perhaps this is a "bribe"?
> Small wonder the Saudi's are
> annoyed this is intrusion
> into their private matters.
Thank goodness they are annoyed! It's
not entirely private if the firm
involved is using the "British" brand
to promote itself. Such firms
represent our culture in other
states, and we don't all want to be
looked on as bribers, do we? Think
how badly that would dent national
pride.
The British view themselves as a
civilizing force to be reckoned with.
If we can spend 12 billion pounds for
10 days of running and jumping, the
money is clearly a small priority for
the government. Let’s all pull
together here and preserve our
national integrity over this.
Peter Walker (No 10 on your list) is to be applauded for his incisive comment. Like Alun Smith before him I too used to work in that Industry many years ago. The Americans were up to all sorts of tricks to denigrate British products. I well recall having to investigate, what proved a false allegation as to the shortage of Spares for Aircraft we had supplied. In fact it was shown the American Service Engineers had replaced British components with those from American sources.It was a ploy to predjuice our products for their own commercial gain.
It is a hostile world "out there." Neither the Directors nor the Employees at all levels should suffer such hostile treatment.There is no disgrace
When purchasing any goods and services Commissions are not only due but must be paid: how else can Agents be successful and businesses prosper?.
If BAE did not do it the French and Americans most certainly would. Then lots of British jobs would be gone.
One has to ask the question why a company such as BAE , involved in the arms industry, does not have an ethics committee already and if the Chairman and NED's have actually been asleep at the switch. Their response does seem to be a little after the event and cynics will say it is purely a response to the Al Yamamah enquiry rather than a matter of good governance.
This is just a PR move. Woolfe will be paid by BAE, so how can he be considered independent?
Obviously, BAE has a problem- a business ethic problem. My concerns are: The UK’s defence have already benefited from strong government support for many years. If BAE have such problem, what about the other big companies? Clearly, the best business decision was to sell products to someone who need them, e. g. Saudi prince, probably plus some incentives, but what about the business ethics decision? Also, it seems more sarcastic when the products are actually weapons. Just like this blog says
I don't understand the press in this country. They hounded Rover out of business and they seem hell bent on doing the same to BAE. I hope everyone will be happy when there is no manufacturing left and everyone is stacked shelves with no money to pay for it!