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Why aren’t defence companies defending against corruption?
Our Defence and Security team has today launched the Defence Companies Anti-Corruption Index (CI).
This is a brand new Index that has taken us almost two years to complete. It analyses whether the world’s biggest defence companies - 129 companies from 31 countries - are doing enough against corruption. The CI grades companies from A (the best) to F (the worst) depending on the level of public evidence of their anti-corruption systems and processes.
The result? Two-thirds of the world’s biggest defence companies do not provide adequate public evidence about how they fight corruption. This includes companies from all of the largest arms exporting nations, like USA, Russia, Germany, France, the UK and China, who between them are responsible for over 90 per cent of the arms sales around the world. Worse, the Index shows that sixty of them provide little information or none at all. We were expecting a big variation across the global industry, but this is a bigger spread and a worse set of results than we were expecting.
So what? Well, it’s a big ‘so what’. Defence corruption is dangerous, divisive and wasteful.
Governments are tempted to think they can remain unaccountable on defence and security, under the heading of ‘national security’, and go on to misuse their military forces. This is relevant in Egypt, Syria and Pakistan, for example. Worse, buying the wrong equipment – for the sake of the bribes - means soldiers are not properly equipped and so are much more at risk.
It is divisive. Bribes to intermediaries and politicians can accelerate regional arms races. Political elites use the national defence budget to illegally fund their re-election campaigns.
And it’s so wasteful. Governments and taxpayers do not get value for their money; good companies lose business to corrupt companies. Why are countries accepting huge austerity cuts whilst not demanding huge corruption cuts, for example in Portugal, Greece or Egypt? We estimate that the global cost of corruption in the defence sector is a minimum of USD 20 billion per year - this equates to the total sum pledged by the G8 in L’Aquila in 2009 to fight world hunger.
It is hugely in the interest of companies, governments, and taxpayers that the defence industry raises standards globally. I hope the defence industry uses all the evidence in this Index by to improve their practices, embed good practice in preventing corruption, and increase transparency in the sector.
Nevertheless, there is definite improvement going on among defence companies. Two groups of companies were much more open about what they do. Ten of the companies have good or excellent public disclosure of their ethics and anti-corruption systems. The company that had the best disclosure was Fluor Corporation – it was the only one to score in Band A - and the next nine, in Band B, were Accenture, BAE Systems, Fujitsu, Hewlett Packard, Meggitt, Northrop Grumman, Serco, Thales and United Technologies Corporation. Interestingly, half of these – such as Fluor, Accenture, Fujitsu and Hewlett Packard and Serco are not ‘pure’ defence companies – but specialists in other industries that happen also to do a lot of work in defence.
The second open group comprised 34 companies who were ready to open themselves up and disclose their internal processes to us, as well as what they currently have on their website. Whilst we want them to disclose such information publicly as well, this nonetheless provides a deep insight into what companies actually have in place, not just what they currently disclose. Of the 34, 15 moved up to Band A.
Like the former Secretary General of NATO, who presses strongly for zero tolerance of corruption by defence companies, a goodly number of the companies in this study are convinced that it will become a distinct business advantage in the coming decades.
This report is a practical tool that will enable the CEOs of all defence companies to see what they need to do and then do it. In addition, we provide each company with a detailed analysis against each of the questions, which they can use to compare themselves against their peers. This is powerful material for improvement: defence companies can now take a big step forwards to embed zero tolerance of corruption.
But will they do it? I hope so, having spent the last eight years engaging with defence companies and encouraging them to do so. But, as always, it is evidence that convinces: we will monitor what happens, and will repeat this Companies Index in 2014 to see what has changed.
We are also shortly going to launch a similar Index focused on governments – on what Defence Ministries do to minimise the risk of corruption. Bribery, after all, has both a supply side and a demand side, so it is right that we analyse both sides. That Index will be launched in January 2013.
Have a look at the Index and let me know what you think - www.defenceindex.org
This article first appeared on the Trustlaw website