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Corporate Responsibility
How We Operate

Ethical Business Behaviour

Ethical business behaviour is critically important to the defence industry and our stakeholders consider it a priority issue. We invited Philippa Foster Back of the Institute Business Ethics (IBE) to comment on how the defence industry should ensure it acts ethically, and to review our progress. Our response is below. This commentary does not imply an endorsement of this report by the IBE.
Stakeholder position Philippa Foster Back, Director, Institute of Business Ethics (IBE) The IBE encourages high standards of business behaviour based on ethical values. It is funded by donations from companies, associations and individuals. “Bribery and corruption are bad for business. Bribery is illegal in most countries and is a form of ‘stealing’ from shareholders. Being caught making bribes or engaging in corrupt behaviour can seriously damage a company’s reputation and lead to loss of business. The defence industry is one of three sectors most at risk from bribery and corruption, according to analysis by the NGO Transparency International. So it is particularly important for BAE Systems to have strong policies on business ethics. They must be open and transparent and demonstrate that they meet high ethical standards. Business ethics is the application of ethical values to business behaviour – such as openness, transparency or responsibility. Companies can demonstrate these values through their policies and through their relationships with stakeholders. An ethics policy or code is needed to set the tone and provide clear guidance to staff on the standards expected of them. This should include examples or Q&As to help employees handle ethical dilemmas or issues that might arise in their work. Companies should embed this policy with staff at all levels of the organisation. It is vital that the code is distributed to all staff and translated into local languages. It must be supported by face to face or e-learning training sessions, referred to in staff appraisals and written into contracts of employment. BAE Systems has undertaken a survey of employee views on ethical issues and has a detailed code of ethics which was recently updated. This code includes details of how to raise an ethical concern and follows good practice. Ensuring good business ethics requires continual effort. BAE Systems needs always to keep their policy alive and in front of staff to ensure that standards are maintained. This includes induction programmes for new staff and regular refresher courses. The best way to embed ethical behaviour is by example from those leading the Company. Business leaders must demonstrate in their relationships with staff, customers, suppliers and others that they practice what they preach. This sets the tone for how all employees behave. To monitor performance and demonstrate progress, companies should track the number of calls to their ethics help lines; conduct staff surveys to find out if there are concerns about ethical behaviour; and report the number of staff disciplined for unethical conduct, as done by companies such as BP, Shell and BT. Courage and collaboration are needed to eradicate bribery and corruption. Companies have to take a firm stand and not participate in making or taking bribes. Ultimately they must be prepared to walk away from a piece of business rather than engage in corrupt activities by explicitly supporting staff who take the right path yet lose business as a consequence. If businesses stand together on this issue and are prepared to be transparent in their transactions we will see fewer instances of bribery and corruption.” Our response “We expect all our employees to act with the highest standards of ethical behaviour and integrity. We should accept no compromise of our values in or out of the workplace.” Dick Olver, Chairman We are committed to meeting the highest ethical standards in our dealings with others. The nature of our business means it is particularly important that we have strong values and an awareness of public concerns. We do not condone unethical or illegal conduct. The consequences of such conduct may be far reaching and severe not only for the Company and its employees, but also for other stakeholders. Unethical behaviour is wrong, could lead to loss of business, could seriously damage our reputation and leave the Company and its employees open to criminal sanction. We agree with the views expressed by Philippa Foster Back on behalf of the IBE. We recognise the importance of such institutions in furthering awareness and improving standards on business ethics and gain significantly from our subscription to and association with the IBE. Our policies on business ethics The intent of our policies is to establish compliance with the law as the minimum and to aim for higher standards where possible. Our Operational Framework includes policies and governance systems on business ethics. It requires all BAE Systems employees to act with honesty, integrity, and fairness and states that we will not tolerate bribery or other attempts to improperly influence the decisions of customers or suppliers. The Operational Framework is reviewed annually. In 2005, it was updated to include our five ethical principles. The Operational Framework is supported by more detailed policies covering topics such as health and safety, employee relations and anti-corruption. Our anticorruption programme has been established in alignment with international standards such as those developed by the International Chamber of Commerce (ICC) and Transparency International. The heads of each of our businesses and functions are required to sign statements (Operational Assurance Statements) every six months confirming that their area of responsibility meets the requirements of the Operational Framework. Transparency In last year’s report we made a commitment to be more transparent about our operating principles. We are confident that we meet the highest ethical standards in our dealings with others and have the processes in place to ensure our employees comply with our policies and the law in all the countries where we operate. We also recognise the importance of demonstrating this to our stakeholders. This year we have published an external statement on our ethical business principles and practices. Ethics management structure Compliance with our ethical policies and principles is the specific responsibility of our Group Legal Director, Michael Lester, who performs this task on behalf of the Executive Committee and the Board of Directors. He is supported by a team of legal experts, human resources and our Internal Audit Group. The heads of each business are responsible for ensuring that employees in their area are familiar with the requirements of our business ethics policies, know what is expected of them and know how to act if they suspect wrongdoing. We have established points of contact to address employees’ ethical concerns; these can be contacted directly or through anonymous telephone helplines. In the UK our Ethics Review Committee is chaired by the Group Audit Director; its members are the Director of Corporate Responsibility, the Director of Employee Relations, the Director of International Compliance and the Director of Security. The Committee reviews issues raised on the ethics helpline to ensure that these matters are investigated and that appropriate action is taken. In the US our ethics programme is run by an Ethics Steering Committee with representatives from each operating group and our legal and human resources departments. This reports to an Executive Ethics Oversight Committee made up of senior executives and chaired by the Senior Vice President General Counsel of BAE Systems. An Ethics Officer in each North American business unit is responsible for investigating allegations of unethical conduct. During 2005, the Group Audit Director reported on ethical issues raised through these groups to the Group Audit Review Board. From 2006, this report will be submitted to the Corporate Responsibility Committee. Reports to the helpline from Saudi Arabia, Australia and other international locations outside the US are reviewed by the UK Ethics Review Committee. Embedding ethical behaviour We have training and awareness programmes to ensure employees understand our policies and the standards expected of them. Our booklet Ethics and You summarises our ethics policies and incorporates our five ethics principles. Copies are currently being distributed to all employees in Australia, the UK and South Africa. It will be available on our intranet and internet sites. We intend to issue a version in Arabic for our Saudi Arabian employees during 2006. A similar booklet entitled Code of Ethics and Standards of Conduct is distributed to all US employees and contains additional information on regulations for US government contracts. In 2005 we revised and reissued the booklet completely after analysing similar publications from 15 others companies to establish best practice. We provide training on our anti-bribery programme to managers from commercial, procurement, finance, customer support and other functions as well as to marketing staff and other senior managers. On completing the training, employees are required to sign a statement confirming that they will comply with our policies and will report any issues of concern. This training is mandatory for all senior employees and for those employees involved in dealings with marketing advisers. In the US, all new employees must complete four online ethics training modules. All employees in the US are also required to view an ethics training video every year. Over 33,000 employees completed this annual training in 2005. Our video, Ethical Leadership: Let’s Talk, features senior management discussing the significance of our ethics principles. During 2006 we aim to develop, pilot and roll out a similar online ethics training package for our UK and Australian employees. This training will consist of an online module that all employees must complete. All BAE Systems’ marketing advisers are subject to rigorous due diligence under our compliance programme, are made aware of our anti-bribery policy and are expected to maintain our ethical standards. Monitoring We encourage employees to seek advice from an ethics officer, their line manager or the helpline if they have a concern or do not understand any aspect of our ethics policy. Employees are required to report suspected cases of unethical conduct through their line manager, or confidentially through our independently-managed ethics helpline. The helpline number is listed in our ethics publications and on our internal websites. During 2005 we set up local toll-free helplines in most of the countries where we operate (23 in total). Our ethics helpline email address can be used by all employees worldwide: ethics.helpline@baesystems.com In 2005, 31 enquiries were made to the UK helpline and to the worldwide email address from the UK, compared with 42 in 2004. These covered a variety of topics including HR practices and employee relations and conduct, conflicts of interest as well as requests for guidance on ethics policies and procedures. In the US, there were 336 formal enquiries (including 196 requiring formal investigation) to ethics officers through the helpline, by mail, email and visits to the ethics office. These covered a variety of topics including conflicts of interest, misuse of Company assets, gifts and gratuities, intimidating or threatening conduct, hiring practices and overcharging for services given. We observed no significant new trends in the type of enquiries received during 2005. When we do find evidence of unethical conduct disciplinary action is taken. Disciplinary actions in the US and UK have ranged from formal reprimand to suspension without pay and termination of employment. During 2005 there were a number of dismissals due to employees breaching our UK Respect at Work policy. Improving our ethics programmes BAE Systems is committed to taking part in the debate on anti-corruption measures. In the UK,we participate in the Confederation of British Industry and ICC (UK) anti-bribery forums. In the US, BAE Systems is a signatory to the Defense Industry Initiative (DII) on Ethics and Business Conduct. We report annually to the DII on compliance with its standards for ethical conduct and public accountability. BAE Systems is also a sponsoring partner in the Ethics Officer Association. In 2005, BAE Systems in the US participated with other major US defence companies in the DII Ethics Environment Survey to assess the effectiveness of our ethics programmes. The survey was carried out by the Ethics Resource Center (ERC), an independent non-profit organisation. Over 25,000 employees from 14 companies (including 1,820 from BAE Systems) took part. BAE Systems ranked among the top three companies in all seven categories that summarised the effectiveness of ethics programmes. Our scores for individual questions all exceeded the average of DII companies. In 2005 we carried out an employee ethics awareness survey in the UK. More than 11,000 employees (around a third of UK employees) replied to the survey. The results showed that more than 80% of respondents would describe the Company as ethical and more than 98% would act if they suspected unethical behaviour. However, the survey also highlighted that employees did not have enough information regarding the ethical standards expected of them, with less than 30% being familiar with the specific requirements of our ethics policies. Awareness of the ethics helpline was also shown to be poor, with less than a third of respondents having heard of it. The results have led us to revise and re-issue our Ethics and You leaflet and distribute it to all UK-based employees. We have included articles on our helpline and ethics policy in BAE Systems’ employee newsletters. Our ethics intranet site has been more widely publicised and the content extended to include more information on expected behaviours. We have updated our Operational Framework to have a clearer focus on our ethical policies and the standards expected by the Company. We launched a new poster campaign featuring the five ethical principles early in 2006.

Stakeholder position

Our response