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New Index Ranks Defense Firms’ Anti-Corruption Efforts

Oct. 4, 2012 - 08:58AM   |  
By ANDREW CHUTER   |   Comments
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LONDON — Two-thirds of the world’s largest defense companies fail to provide sufficient publicly available evidence about how they tackle corruption, according to a study from Transparency International UK (TI-UK) scheduled to be published Oct. 4.

A defense companies anti-corruption index, compiled for the first time by the respected organization, based here, singled out Fluor as the only firm to reach the gold standard in publicly demonstrating the systems and procedures it has in place to prevent corruption.

The U.S.-based engineering, construction and project management company has nearly 12 percent of its 2011 sales — valued at $23.3 billion — in defense projects like the U.S. Army’s Logistics Civil Augmentation Program.

Combining internal and public information elevated Boeing, Lockheed Martin, Raytheon, KBR, Serco, ThyssenKrupp and others to the top band.

TI-UK estimates that defense corruption costs governments a minimum of $20 billion a year.

Transparency International evaluated the publicly available anti-corruption practices of the world’s top 129 defense companies, placing them into six bands running from the gold standard, A, through to the worst performers in band F.

The organization cautioned, though, that the listing was a guide to information availability and not a guide to the level of any corruption among the companies.

“This index only looks at what companies say they do to prevent corruption, not how corrupt they are,” TI-UK said.

Band A companies provided extensive anti-corruption information while Band F companies provided little or none.

TI-UK said it hopes the data will help raise anti-corruption standards across a sector whose business historically has been hidden from view. The index focuses on publicly available information, but it also provides revised bandings including companies that gave TI-UK access to internal information regarding anti-corruption practices.

Nine companies made it into TI-UK’s band B as publicly demonstrating in considerable detail anti-corruption practices. Accenture, BAE Systems, Hewlett-Packard, Northrop Grumman and Thales figured among these companies.

BAE and Thales have been embroiled in big corruption investigations in recent years that ended up costing both companies hundreds of millions of dollars. TI-UK said corruption scandals often serve as a wake-up call for companies stung by having to pay huge fines.

Evidence suggests that companies Fluor and Accenture, which are not defense specialists, perform better than defense organizations when it comes to corruption prevention, and that publicly owned firms are better than state-owned concerns.

Mark Pyman, the author of the index, said the fact that 10 percent of companies had good disclosure of their anti-corruption systems was an improvement on the practices of a decade ago.

“This is much more than it would have been 10 years ago: the industry is changing,” Pyman said.

TI-UK were critical, however, on the performance of company chief executives for not speaking out against corruption often enough, noting that 85 percent of CEOs did not address the issue in public or internally.

Among the two-thirds of defense companies languishing at the bottom of the listings were companies such as Alliant Techsystems, Babcock International, Dassault Aviation, Hindustan Aeronautics and Ultra Electronics in bands D and E.

At the bottom were 47 companies ranging from Israel Military Industries through to Bumar, General Atomics, Sukhoi and NORINCO.

The report said that almost half of the 129 companies “provide very little evidence of having basic systems in place to prevent corruption and instill strong ethical values.”

Lord Robertson, the former secretary-general of NATO, said that corruption scandals can wipe away decades of efforts spent building a company’s reputation.

“By having the right anti-corruption systems in place, companies can avoid a drop in stock prices, blacklists and even prison,” Robertson said. “It is in their interests to take action, and this index provides the guidance to do so.”

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