Ethical Performance
inside intelligence for responsible business


‘Courageous’ BAE agrees root and branch reform

June 2008

One of the world’s largest defence companies has been praised for having the ‘courage’ to adopt 23 recommendations from an independent committee on how to improve its ethical standards.

BAE Systems will implement all the proposals of the four-member Woolf committee, headed by the former UK lord chief justice, Lord Woolf. The committee concluded last month that the company had previously fallen below necessary ethical standards and had to perform better.

Woolf said the company had shown ‘not a little courage’ in appointing the committee and then agreeing in advance to implement its recommendations, which he described as ‘an unprecedented step’.

Woolf conducted the review at BAE’s request after the UK’s Serious Fraud Office controversially ended an inquiry, on government orders, into alleged bribery and corruption surrounding the company’s £43billion ($83bn) Al-Yamamah arms deal.

BAE has consistently denied accusations that it illegally paid Saudi officials to sweeten the deal, but it wanted Woolf’s committee to report publicly on the state of its ‘ethical policies and processes’. The committee included Philippa Foster Back, director of the Institute of Business Ethics.  

The report revealed that ‘both the chairman and chief executive [of BAE], in discussions with us, acknowledged that the company did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage’.

Woolf said BAE ‘recognized that these perceptions have damaged its reputation’ and that it must take ‘all practicable steps to ensure that such circumstances do not re-occur in relation to future contracts’.

The committee was asked not to look specifically at the Al-Yamamah case but to concentrate on whether the company has policies and procedures in place ‘to reduce, as far as is practicable, the risk of such allegations being made in the future’.

It recommends that BAE:

 develops, publishes and implements a global code of ethical business conduct
 makes all policies and procedures publicly available
 is open about its actions to investigate unethical behaviour – and about the outcomes
 makes ethical conduct a standing item on board agenda.

The report says the company’s board-level corporate responsibility committee should have primary responsibility for oversight and reporting on conduct standards and reputational risk management. The committee should commission and publish an independent external audit of the company’s ethical business conduct within three years and then at regular intervals.

Performance appraisals and remuneration of senior executives should also be linked to high standards of ethical conduct, says the report.

Mark Pyman, leader of Transparency International’s defence sector programme, said the recommendations ‘should go a long way towards reducing the company’s vulnerability to corruption’, if rigorously implemented and monitored.

BAE | UK & NI Ireland | Business ethics

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