Transparency International
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Having a reputation for zero tolerance of corruption will be a distinguishing asset for a defence company Foreword 1 Foreword Corruption threatens all nations and With this ground-breaking study, Transpar- companies. The issue increasingly domi- ency International UK is encouraging nates daily headlines and public debate companies to move a step further. This around the world. Companies are often well comprehensive analysis of the major defence aware of the financial, legal, and reputa- companies from all over the world examines tional consequences of corruption – fines, what systems and processes they have in loss of public trust, reduction in stock price, place to prevent corruption, based on the blacklisting, and even prison. Yet, to the information available. Its purpose is to raise despair of many trustworthy people working standards globally, promote good practice in in the sector, defence has maintained a preventing corruption, and increase transpar- reputation for dishonesty and corruption. ency in the sector. I very much hope that the But there is also a major opportunity. industry responds to the challenge. Those defence companies that do take the subject 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 The Rt Hon Lord Robertson distinguishing asset for a defence company. of Port Ellen KT GCMG honFRSE PC, Ignoring both the risk and the opportunity Former Secretary General of NATO is poor business strategy. Collaborating with Transparency International UK’s Defence and Security Programme since 2006, I launched the Common Industry Standards – an initiative that led to the first Europe-wide set of standards to tackle the practice of bribery among defence companies. This same initiative led to the creation in 2010 of IFBEC, a global defence industry forum for raising business conduct standards among defence companies. It is clear that there is an appetite for change in the industry. 2 Executive Summary Executive Summary The purpose of this study is to assist industry-wide improvement in reducing corruption in international defence sales. www.defenceindex.org www.ti-defence.org Executive Summary 3 Corruption in The defence sector is crucial to a country’s The 129 companies analysed in this study security, and yet has a reputation for secrecy are those with the greatest defence revenue defence is and corruption. News stories about corruption from the six largest arms exporting nations, dangerous, in defence deals appear regularly in the news plus the largest defence companies from a in many countries. This must change. further twenty-five countries. Together, divisive and Corruption in defence is dangerous, these companies account for over USD 500 wasteful. divisive and wasteful. It puts international billion of global defence revenue, and USD security at risk; it can lead to regional arms 11 trillion of total revenue.1 The defence races to satisfy the greed of intermediaries; sector by nature is complex and diverse – and billions can be wasted in dishonest companies in this index include traditional arms deals. This reputation has a detrimen- arms manufacturers as well as consultants, tal effect for companies and governments technology providers, logistics specialists alike, much to the frustration of the many and construction firms. honest people working in it. The companies are scored on 34 questions What the news stories often don’t tell is that inquire into the specifics of the ethics what defence companies are – and are not and anti-corruption systems they have in – doing to combat corruption. At a time of place. The information used to compile the increased scrutiny by governments and Index is drawn from what companies disclose citizens alike, it is very much in a company’s publicly on their websites about their interest to prevent corruption, and how it anti-corruption systems. does this will increasingly become a Transparency International UK also invited competitive advantage. This report looks all the companies to present evidence about into what defence companies currently do their anti-corruption practices to supplement and fail to do to prevent corruption. The what could be found publicly. Thirty-four of purpose is to assist in raising anti-corruption the companies provided such information, standards across a major sector that is sharing material from internal company global in nature yet whose business has sources. The report presents the results for historically been hidden from public view. these companies on the basis of both publicly available information and how they would have scored if they made public the additional internal evidence. 4 Executive Summary Two thirds RESULTS BASED ON PUBLIC RESULTS BASED ON BOTH INTERNAL INFORMATION ONLY AND PUBLIC INFORMATION of defence Ten companies score in the top two bands. The thirty-four companies that provided companies do Fluor Corporation is the only company to internal information on their anti-corruption score in Band A. In Band B are Accenture, systems are predominantly companies that not provide BAE Systems, Fujitsu, Hewlett-Packard rank reasonably well on the basis of their adequate Company, Meggitt, Northrop Grumman public disclosure only: 28 of the 34 are in Corporation, Serco Group, Thales, and Bands A to C in the public-information levels of United Technologies Corporation. ranking, with just six in Bands D and E. transparency. These companies publicly demonstrate The inclusion of company-internal in considerable detail the systems and information would have improved the procedures that they have in place to company results on average by one to two prevent corruption. This is to their credit, bands, with almost half of the 34 moving and demonstrates clearly that there is no up to Band A. The improvement is mostly confidentiality or secrecy barrier to good due to additional disclosure in two specific public disclosure about anti-corruption areas: in how they assess the risk of in the defence industry. corruption (e.g. in business decisions, in However, this group represents less geographical scope, in particular product than ten per cent of the companies studied. sectors), and in how they train staff on Two thirds of defence companies do not ethics and anti-corruption measures. There provide adequate levels of transparency. is little impact of internal information in Almost half of the total – 60 out of 129 – respect of the three other areas – Leader- provide very little evidence of having basic ship practices, Codes and policies, or systems in place to prevent corruption and Personnel practices. instil strong ethical values, scoring in Bands E and F. This includes companies from all the major arms exporting nations: USA, Russia, Germany, France, the UK and China. D E 19% 10% A: 1 Company C B: 9 Companies 26% 37% F C: 34 Companies D: 25 Companies 7% B 1% E: 13 Companies A 129 COMPANIES F: 47 Companies Executive Summary 5 GOOD AND BAD PRACTICE ACTIONS The detail of this study provides numerous The Chief Executives of defence companies examples of good practice from which all worldwide are the principal audience for this companies can learn. Several of them can report. The following are four immediate serve as best practice across the defence actions they can undertake to implement sector as a whole. Perhaps the best practice good ethics and anti-corruption systems: of all, and the most convincing to us as a civil society organisation, is that there are 1. Review your company’s ethics and defence companies who have instituted a anti-corruption systems, comparing them practice of regular assessment of their total with the results of this study. Require that ethics and compliance programme by an an improvement plan be put in place and independent organisation (such as a law or review progress at main Board level. Review accountancy firm) and who have committed the information disclosed publicly by your to publishing the assessment in full. company so that your commitment is clear ThyssenKrupp AG and BAE Systems are the to all. We suggest you aim to provide only two defence companies in the survey ‘Band A’ level disclosure. that we are aware of who commission such For the 85 companies in Bands D to F, external assessments and make them analyse why your company demonstrates publicly available. such limited evidence of ethics and compli- It is also striking how bad practice is ance systems, and insist that substantive increasingly obvious when compared with the improvement plans be put in place. good examples. There are three main culprits. 2. Commission an independent external • Legal jargon: There are many Codes organisation to assess annually your of Conduct that focus on legal compliance company’s total ethics and compliance and use legal jargon that may make them systems, and commit to publishing the report. difficult for employees to find useful, or 3. Speak up for industry-wide improve- even intelligible. This could be a product ments in ethics and compliance standards of lawyers having drafted most of the in the defence sector. There is much scope anti-corruption programme. for more visible external leadership and for • “Box-ticking: ”The tone of the whole multi-country collaboration. Actively support ethics and compliance programme – all the IFBEC, the new global defence forum for way from the CEO statement in the Annual good business and ethical conduct, and Report through to detailed policies – is written make it the leading sector example of in a style that lacks any conviction. This pro-active corporate behaviour. “box-ticking” style is immediately obvious to 4. Commit your company to engage with the interested reader, and it is likely this is stakeholders who promote transparency and also obvious to the company’s employees. accountability of the defence sector.