June 2013 Raising the bar Good anti-corruption practices in defence companies Part I: Seven practices that distinguish the best “Those defence companies that do take corruption risk seriously have the chance to be seen by their government clients as better companies with which to do business. As governments toughen their attitudes towards corruption, having a reputation for zero tolerance of corruption will be a distinguishing asset for a defence company.” The Rt Hon Lord Robertson of Port Ellen KT GCMG honFRSE PC, Former Secretary General of NATO June 2013 Raising the bar Good anti-corruption practices in defence companies Part I: Seven practices that distinguish the best 2 Executive Summary Executive Summary The Defence Companies Anti-Corruption These are demanding questions. This report Index (CI) was published on 4 October 2012. looks in some detail at each topic and gives This analysis, the first of its kind, provided examples. We think that companies scoring full comparative information on the disclosure and marks on these topics represent today’s good quality of anti-corruption systems in 129 major practice. defence companies. In Part II of this report—available as a Whilst the media focused primarily on the separate online document—we have extracted banding results, the analysis also contains 104 good practice examples in relation to all of many examples of good practice by defence the 34 questions in the Index. These examples companies. Our objective is to help raise are mostly in the public domain. However, there anti-corruption standards in the defence sector were also examples of good practice from the worldwide. Publicising such examples is a good companies who opened up their company- way to spread knowledge of good practice and confidential practices, policies and procedures raise these standards. to review by us. Where the company has given us permission, we quote such examples as well. In Part I of this follow-up report, we present and discuss the topics that distinguish the Part II of this report can be found at http:// better companies. Our conclusion is that the companies.defenceindex.org/good- following seven are the most discriminating: practice. 1. The extent to which the company publicly APPLICATION BY DEFENCE PROCUREMENT reports information on its ethics and CHIEFS anti-corruption programme Government defence procurement chiefs 2. Company leadership speaking up against have also expressed significant interest in the corruption, internally and externally Index results and its analyses. For the first time, the CI gives them a list of questions they can 3. How the Board assure themselves of the use to compare in some detail the business effectiveness of their anti-corruption conduct practices of potential defence contract programme bidders. By reducing the list down to just seven demanding questions, and adding model 4. How the company carries out corruption answers, this represents a useful tool for risk assessments defence procurement chiefs to use in identifying those bidding companies that have the best 5. How the company manages corruption risk practice in ethics and anti-corruption. in third parties A draft of these questions and model 6. How the company trains its staff, answers, based on the good practice cited in especially those in exposed roles this report, is available online at http:// companies.defenceindex.org/good- 7. How the company follows up whistle- practice. blowing information Executive Summary 3 We hope that all defence companies will use this document, in conjunction with Part II Actions for compAnies Actions for GOVernment of the report which has extracted 104 actual Defence Procurement good practice examples, to review their own We call on all defence companies to Chiefs systems and identify areas of improvement. contribute actively to raising standards in defence through good practice in the 1. Make this good practice report We encourage companies to discuss following seven measures: available to your current and these areas, and to share their own prospective defence additional good practices and approaches. 1. Reporting the whole of your contractors. Require that the We also welcome feedback from companies ethics and anti-corruption contractors see if they can so that we can further refine and improve programme publicly. incorporate these practices into this document in the spirit of raising company their own anti-corruption standards. 2. Encouraging your Board Chair, policies and processes. the rest of the Board, the CEO Companies can also significantly advance and senior executives to speak 2. Consider using these seven sector-wide improvement efforts. A good up strongly on your zero questions—and related model example is the recently formed defence tolerance of corruption in the answers—as a requirement for industry initiative ‘IFBEC’—the International company and the sector. bidders to respond to as part of Forum on Business Ethical Conduct for the their pre-qualification. Aerospace and Defence Industry. This is a 3. Improving how your Board new forum, committed to promoting the reviews the effectiveness of the 3. Give consideration to applying development of global, industry-wide ethical overall anti-corruption the Defence Companies standards for defence and aerospace programme. Anti-Corruption Index (CI) companies. We recommend that all defence methodology to all their companies join it, and that defence ministries 4. Strengthening your corruption national defence contractors. encourage such participation. risk assessment process, and testing it against the good practice examples in the report. 5. Ensuring that your company has robust processes for flowing down your ethics and anti- corruption programme to all third-party representatives including partners, sub- contractors and agents. 6. Reviewing and improving your training practices, especially for staff in exposed positions like sales and government relations. 7. Improving your processes for following up whistle-blowing complaints—the experience of many is that they work well on paper but not in practice. Encouraging staff to raise matters before the offence takes place. 4 Table of Contents Table of Contents Executive Summary 2 Table of Contents 4 Introduction 5 The 2012 Defence Companies Index results in brief 8 The seven distinguishing areas of good practice 12 Public reporting of ethics & anti-corruption systems 16 Company leadership speaking up against corruption 20 Board assurance on the effectiveness of the programme 24 Corruption risk assessments 32 Managing corruption risk in third parties 37 Anti-corruption training 44 Whistle-blowing 50 Next steps 52 Introduction 5 Introduction The purpose of this study is to help raise anti-corruption standards in the defence sector worldwide by spreading knowledge of good practice examples found in our Companies Index (CI). www.defenceindex.org www.ti-defence.org 6 Introduction This report In a time of record fines and debarments Ethics And Anti-corruption systems from corruption-related prosecutions, focuses on companies are well aware of this risk to their Defence companies use a variety of terms to what we found bottom line. The defence sector faces unique describe their corporate system for promoting risks to corruption due to high-value contracts, integrity and reducing corruption risk. Such to be the areas requests for official secrecy, and close terms include business ethics, business distinguishing government interaction on the buyer and seller conduct, and compliance programmes. side. In 2012 alone, the press has reported better allegations of corruption in the defence industry TI-DSP believes that both compliance-based companies. in countries from Austria and Italy, to India, and values-based approaches are essential Indonesia, and China. It is very much in the parts of the overall system. We have used the interest of companies to prevent these corrupt phrase ‘ethics and anti-corruption systems’ to deals from happening. describe a company’s approach to promoting its ethical culture and reducing corruption risk. Some defence companies recognise this and devote great time and resources to developing This includes the values and principles that strong anti-corruption systems. There is plenty the company seeks to promote and build of guidance available on what constitutes good integrity, as well as the policies and procedures practice for corporations, such as the Global the company employs to ensure that each staff Reporting Initiative, UN Global Compact, OECD member abides by the company’s anti- Anti-Bribery Convention, and from Transparency corruption policy. International. We organise our understanding of an ethics Many other defence companies, however, and anti-corruption system into five “pillar have only recently put or are thinking about areas”: leadership, governance & organisation; putting systems in place; or have such systems risk management; company policies & codes; but without any real assurance that they are training; and personnel & helplines. We believe effective. The evidence for this was very clear in this represents the basic capability that an the Defence Companies Anti-Corruption Index international defence company should have in (CI), where only 10 out of 129 companies place. The typology opposite shows these scored in the top two bands (of six). pillars and the elements that comprise each. This report is a follow-up to the CI and A second compAnion indeX - The TI focuses, in Part I, on what we found to be the GOVernment Defence Anti- areas that distinguish the better companies. Corruption IndeX (GI) We also give 104 good practice examples Defence corruption is a supply (companies) relevant to all 34 questions in the Index, which and demand (governments) problem—with can be found in Part II of this report—a both parties contributing to the issue. This is separate document available online at http:// why we look at both. companies.defenceindex.org/good- practice. We have extracted good practice In January 2013, we launched the sister examples from as wide a range of companies in index to the CI, the Government Defence as many different environments as possible.