We want to be recognised as a company committed to developing a culture of Total Performance, focusing not just on what we do but also how we do it. Total Performance is about every aspect of the way we do business; Customer Focus, Financial Performance, Programme Execution and Responsible Behaviour.
The good operating performance of BAE Systems in 2009 reflects the good progress the Company has made in recent years, developing the business within a well-defined and consistently implemented strategic framework (see Our Strategy). That strategy underpins the Company’s aim to deliver sustainable growth in shareholder value through a commitment to Total Performance for all its customers.
Over the past year the Executive Committee has looked at what our Values should be to support delivery of our strategy. Trusted, Innovative and Bold are our Values. These will guide us in the conduct of our business and support the high standards we expect from our employees.
We have also committed to being as open as practicable with external stakeholders – this will increase the trust they place in us and yield an enhanced reputation.
Developing a culture of Total Performance, which includes delivering our Corporate Responsibility (CR) priorities through Responsible Behaviour, is embedded in our Group Strategic Framework (see Our Strategy).
Focus on responsible business conduct
We remain firmly committed to becoming recognised as a leader in responsible business conduct and in January 2009 we launched a Code of Conduct.
The Code encapsulates the principles and standards of business conduct we expect of employees wherever they work globally. As well as setting out our standards, the Code provides all our employees with practical guidance on how to deal with ethical dilemmas that may arise, and represents an unequivocal public statement of what we stand for, and how we do business.
We intend that regular training will form part of our ongoing commitment to continuous improvement in responsible behaviour. We have embedded Responsible Trading Principles into the Company’s central system of governance (the Operational Framework). These Principles require us to ensure that all trading is to be undertaken in accordance with our Company Values and, together with our Code of Conduct, they underpin our business activity.
We have also spent much of 2009 reviewing and updating the Operational Framework to address the 23 recommendations in the Woolf Committee’s report. In January 2010 we launched a revised Operational Framework with a new Group Strategic Objective which is underpinned by the new Values and updated policies and processes to ensure we are rigorous in applying high standards of business conduct across all aspects of our operations.
On 5 February 2010, the Company announced a global settlement with the UK Serious Fraud Office and the US Department of Justice, which concluded the lengthy investigations commenced by those two authorities in 2004 and 2007 respectively.
Details of the settlement are mentioned below. The Company very much regrets and accepts full responsibility for these past shortcomings. These settlements enable the Company to deal finally with significant legacy issues. In the years since the conduct referred to in these settlements occurred, the Company has systematically enhanced its compliance policies and processes with a view to ensuring that the Company is as widely recognised for responsible conduct as it is for high quality products and advanced technologies.
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our strategy
The BAE Systems’ Vision set out in our Group Strategic Framework (GSF) is ‘to be the premier global defence, security and aerospace company’. To achieve this Vision, we have set ourselves the Mission ‘to deliver sustainable growth in shareholder value through our commitment to Total Performance for all our customers’. Our Group Strategic Objective of Total Performance in all that we do will be delivered through Customer Focus, Financial Performance, Programme Execution and Responsible Behaviour. Total Performance is underpinned by our Values – Trusted, Innovative and Bold. Total Performance and our Values are the fundamental elements of our culture.
Strengthening our safety culture
The safety of our employees and those using our products is critical to our business and a fundamental responsibility. I was deeply saddened by the tragic loss of one of our employees in Australia during deployment of communications equipment. We are reviewing the cause of this accident and co-operating fully with the regulatory investigation.
We have also reviewed the independent report, published in October 2009, into the loss of Nimrod XV230 over Afghanistan in 2006. The Company remains absolutely committed to safety as a priority. We deeply regret the loss of life resulting from this accident and our thoughts continue to be with the families and friends of those affected by this tragedy. We have also appointed Dr Chris Elliott FREng, a leading systems engineer and barrister, to support and advise a review of the Company’s approach to product safety across all its sectors in the UK.
We continue to drive improved performance across the Company. To this end, our Operating Groups are making progress against a five-level Safety Maturity Matrix, with the goal of reducing incident rates to a level comparable with best performing global companies by the end of 2011.
Over 60% of our major manufacturing sites have achieved Level 4 in the matrix by the end of 2009, demonstrating strong senior leadership on safety and comprehensive risk-based management systems. We have achieved a 29%improvement in our lost work day case incident rate from 2008 which equates to a 33% improvement in the gap to our target of best in class. This reflects the focus applied by the businesses during 2009 to safety and in particular reflects a strong performance at our US sites.
Our approach to CR
At BAE Systems, we take the same rigorous approach to CR as we do to any other aspect of the way we do business. This ensures we embed CR in people’s day-to-day jobs and drive continual improvement.
Key performance indicators on our CR priorities are reported to the Executive Committee on a quarterly basis and reviewed alongside financial and programme data as part of our Quarterly Business Review process.
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GLOBAL SETTLEMENT WITH US AND UK AUTHORITIES
On 5 February 2010, the Company announced a global settlement with the UK Serious Fraud Office (SFO) and the US Department of Justice (DoJ), which concluded the lengthy investigations commenced by those two authorities in 2004 and 2007 respectively.
Pursuant to the agreement with the DoJ, the Company agreed to plead guilty to one charge of conspiring to make false statements to the US Government relating to certain regulatory filings and undertakings. The Company agreed to pay a fine of US$400m and make additional commitments to the DoJ concerning its ongoing compliance. Under the agreement with the SFO, the Company agreed to plead guilty to one charge of breach of duty to keep accounting records in relation to payments made to a former marketing adviser in connection with the sale of a radar system by the Company to Tanzania in 1999. The Company agreed in relation to this matter to pay an agreed penalty of £30m comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania.
The Managing Director Corporate Responsibility, Raj Rajagopal, supports line leaders in driving the CR agenda. He reports directly to me. This year the global CR team, under Raj’s direction, has supported Operating Groups in implementing our 2009 CR objectives. The team has also supported the work of the Woolf Implementation Programme. Responsible business conduct activities moved to the CR team in January 2010.
We strengthened the capability of the CR team by recruiting new senior team members, focusing in particular on responsible business conduct, diversity and inclusion, and environment. During the year, the CR team undertook extensive engagement to increase awareness and understanding of our CR agenda both within the Company and among external stakeholders.
We established a global CR Forum in 2009, led by Raj, to support our Operating Groups in delivering the Company’s CR agenda. The CR Forum helps to develop awareness and understanding of CR among our employees, exchange best practice across our Company and drive sustainable improvements across our CR focus areas.
Progress against CR objectives is reviewed quarterly by the CR Committee, chaired by non-executive director Andy Inglis (see his statement). CR is also subject to internal and external assurance processes.
Our Executive Committee is visibly leading the CR agenda, personally undertaking safety audits and briefing employees on business conduct and our Code of Conduct. 12.5% to 13% of their potential annual incentive is allocated according to the Company’s achievement of key performance objectives for responsible business conduct and safety. For 2009, an average of 12.3% of the potential annual incentive was paid to Executive Committee members.
In addition to our priorities in responsible business conduct and safety, we continue to focus on improving diversity and inclusion across the Company. In 2009, we established a global Diversity & Inclusion Working Group, and piloted the use of a Diversity & Inclusion Maturity Matrix to assess our progress in this area. The matrix will be rolled out across the Company in 2010.
We continue to believe our strategy is well founded and our commitment to Total Performance for all our customers provides a platform for an enhanced reputation and for our mission of delivering sustainable growth in shareholder value.
Ian King Chief Executive
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