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Wednesday
Oct312012

Ranking the defense industry’s anti-corruption policies and systems

A few weeks ago, Transparency International UK’s (“TI-UK”) International Defence and Security Programme published the 2012 “Defence Companies Anti-Corruption Index.”

The index provides an in-depth look at the ethics and compliance programs of 129 of the world’s biggest defense contractors.  Most of the companies included in the study are ranked as the top 100 defense companies in the world. In addition, to ensure a “truly global range of companies,” the study also included companies from other countries (not represented in the top 100) with actual or estimated revenue of at least $100 million.

The index looks at what these particular contractors are doing to prevent corruption—it is not a ranking based on perceived levels of corruption. It is, as TI-UK explains, “an analysis of what the 129 biggest defence companies around the world do and fail to do to prevent corruption.”

I spoke to Mark Pyman, the Program Director of the TI-UK International Defence and Security Programme, who said that biggest takeaway from the study is that two-thirds of the world’s biggest defense companies do not provide enough public evidence about how they combat corruption. He hopes that the index will help raise defense industry standards with regard to their ethics and compliance programs.   

The study ranked companies based on their responses to 34 questions designed to asses the companies’ ethics and anti-corruption programs. The companies were then “placed into one of six bands, from A to F, based on their scores.” The 34 questions cover what TI-UK regards as the basic pillars of an anti-corruption program: 1) Leadership, governance, and organization; (2) Risk assessment; (3) Company codes and policies; (4) Training; and (5) Personnel Helplines.

In addition to these factors, the study also stressed the importance of transparency into the companies’ anti-corruption systems. Companies were ranked once based on the amount of “readily available public information to assess companies against the 34 questions,” and a second time based on additional internal information that 34 of the 129 companies provided to TI-UK. This additional information provided insight into the anti-corruption programs that these 34 companies actually have in place—not just what they disclose publicly. Thus, for example, while companies like Bechtel, Boeing, Lockheed Martin, and Raytheon were ranked in band “C” based on publicly disclosed information, they moved to band “A” after sharing internal information about their anti-corruption systems and practices.    

While TI-UK believes that information relating to a company’s anti-corruption policies and procedures should be made publicly available “as a matter of good practice and public accountability,” many companies do not provide this information publicly (or chose not to share it separately with TI-UK) because, among other reasons, they have concerns regarding the protection of their confidential information. 

In addition to the rankings, Pyman also highlighted an exciting feature of the study: a collection of examples of good practices from the study’s participants. Not only does this resource serve as important benchmarking tool, it also provides detailed information that will enable other companies to “improve their ethics and anti-corruption compliance systems.” Pyman also indicated that the next index will be published in approximately 2 years. It will be interesting to see if there are any changes in the company rankings and whether the index has influenced changes in the defense industry that TI-UK advocates—increased transparency and improved anti-corruption systems.

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Jessica Tillipman is a senior editor of the FCPA Blog. 

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