BAE to pay Lord Woolf almost £500,000 to chair ethics inquiry

BAE Systems will pay Lord Woolf, the former Chief Justice, up to £468,000 over the next nine months to chair an inquiry into the defence company's business ethics. BAE formally announced the appointment yesterday, confirming that the inquiry would have no remit to examine the controversial Al Yamamah arms deal between the UK and Saudi Arabia.

Dick Olver, BAE's chairman, said the company had been considering launching an independent business ethics committee for several months, and first contacted Lord Woolf on 10 May, well before the latest allegations about the Al Yamamah deal surfaced.

BAE has repeatedly insisted it has at all times acted legally over the 20 years since the Al Yamamah deal, but has faced claims in recent weeks that it has paid secret commissions worth more than £1bn to Prince Bandar, a senior Saudi Arabian politician, in relation to the deal.

Yesterday, Lord Woolf said he would not have wanted to take on a role at BAE that included "an inquest" into the Al Yamamah affair. But he insisted his appointment had not been made simply to head off criticism of the company's dealings with Saudi Arabia.

Lord Woolf's committee is to complete a report on the ethics of BAE's policies and practices, which the company has promised to publish in full. It also said it would act on Lord Woolf's recommendations.

"That's quite a remarkable thing for a company of BAE's size," Lord Woolf said. "If I thought this report was going to be window-dressing, I would never have accepted this job."

Mr Olver also insisted that BAE had not set up the committee simply in order to restore the company's reputation after widespread criticism of the Al Yamamah deal since the Serious Fraud Office announced last December that it would drop its investigation into the affair.

"This investigation will not go back and look at things that have already been exhaustively looked at by other people," Mr Olver said. "But the inquiry is not a fig-leaf."

BAE said that while the inquiry was not a direct response to the Al Yamamah allegations, the affair had encouraged it to get an ethics committee up and running. Mr Olver added: "We believe our policies and practices to be world-class and fit for purpose, but we recognise that questions have been asked about our business ethics." BAE also said yesterday that it had had no contact at all with the US Department of Justice, which the company's critics have suggested is on the verge of launching a criminal investigation into the Prince Bandar payments.

Lord Woolf said he would be paid £6,000 a day for his work on the inquiry, which is likely to consume two days a week for the next six to nine months.

He has already made two appointments to the ethics committee: Sir David Walker, a former chairman of the investment bank Morgan Stanley, and Philippa Foster Back, who currently chairs the Ministry of Defence's Defence Audit Committee, from which she is due to step down in July.