BAE review warns over ethics

A report into business practices at BAE Systems today said the firm admitted it previously failed to "pay sufficient attention" to ethical standards and avoid activities that had the potential to damage its reputation.

The comments from the company's chairman and chief executive were revealed in a report by Lord Woolf, the former Lord Chief Justice, who was last year appointed by BAE to lead a four-strong independent committee to review current policies and practices at the defence firm.

BAE has been at the centre of controversy relating to alleged payments to help win a Saudi Arabian deal in the 1980s. The company maintains that it did not believe it had done anything that would constitute a criminal offence.

However, the report said BAE's reputation continued to be tarnished by allegations of past unethical conduct.

The report said: "Critically, both the chairman and chief executive, 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.

"Combined with this was its acceptance of conditions which constrained its ability to explain the full circumstances of its activities. Together, these contributed to the widely-held perceptions that it was involved in inappropriate behaviour.

"They recognise that, justly or otherwise, these perceptions have damaged the company's reputation and that it must continue along the route of taking all practicable steps to ensure that such circumstances do not re-occur in relation to future contracts."

The committee, which did not investigate allegations relating to past conduct at the firm, recommended BAE publish and implement a global code of ethical business conduct, as well as carry out a regular, independent and external audit of business conduct.

Lord Woolf said BAE had "already made considerable progress" in creating the procedures that should ensure higher standards of ethical business conduct.

He added: "Given the position that it is in, the company has told us it accepts that it has no alternative but to continue along the route of taking all practicable steps to ensure that the circumstances that gave rise to allegations of past misconduct do not re-occur in the future."

Lord Woolf said the report provided a route-map for BAE which will ensure it becomes a "leader among global companies" for standards in business conduct.

The High Court recently ruled that it was unlawful for the Serious Fraud Office to end an investigation into the Saudi allegations, which related to contracts that formed part of the Al Yamamah programme between the UK and Saudi Governments dating back to 1985. The SFO has been given permission to appeal over the ruling.

Meanwhile, the company is also the subject of a separate ongoing investigation by the SFO into suspected false accounting. BAE denies any wrongdoing.

And in June 2007, the company was notified by the US Department of Justice that it had commenced a formal investigation relating to the group's compliance with anti-corruption laws, including business concerning Saudi Arabia.

Lord Woolf said that while BAE had made "huge improvements", it still needed to do more.

"The company had, like most companies in the past, just focused on the law. There was no ethical standards embedded in the company," he told the BBC Radio 4 Today programme.

"What the company has now done, it has moved quite considerably to getting those standards. What we have said is it hasn't gone far enough, it has got further to go.

"We've given it a road map to reach the gold standard."