Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 360 - 379)




  360. That is not what the Home Office say. They say the law is entirely adequate which was passed in 1906. You are saying you do not agree with that?
  (Mr Bray) I am just contrasting one opinion with the other. I am not a lawyer to judge. I think it is worth saying on the American experience, there have been relatively few prosecutions under the Foreign and Corrupt Practices Act. This discussion has come up before, it does not mean to say the Act has had no impact. One of the reasons why there have been relatively few prosecutions is that it is actually quite difficult and, as I say, expensive to conduct an international investigation, particularly when the host government is not likely to be co-operative. Therefore, we should not expect a flood of cases. What we will get, I believe, in other jurisdictions, and I hope in ours, is one or two test cases and I think they will have a quite substantial impact on actual practice.

  Chairman: We are not very good at it in our own country. Now Tony Colman is going to talk about corporate governance.

  Mr Colman: If I can take us back to these Codes of Conduct which we discussed earlier. This is obviously a welcome move and is backed by Transparency International and by Corner House. How can we ensure that the Codes of Conduct become a force for change and generate a corruption-free environment rather than being seen as merely window dressing? If I can add two riders on that. First of all, what disciplinary action do you as companies take against individuals that transgress the Code? Could you give us—not naming individuals obviously—examples of what you have done. Secondly, what training programmes do you put in place to ensure compliance?


  361. Mr Stephen Williams, you have Codes of Conduct as well as BP, do you not?
  (Mr Williams) Indeed we do. We have had them in one form or another for a large part of Unilever's history which is now of course 70 years, leaving aside its founder companies. Just a bit of practical background and I will give you some examples of what we do to try and get this into the bloodstream of the organisation which is the most difficult thing obviously with worldwide extensive operations. The Code itself is physically in the possession of, I think, now every one of our employees around the world, which is 167,000-full-time employees. It represents only the tip of a regulatory iceberg in Unilever terms in that it is the key document which is amplified by a very large number of corporate policies which in their aggregate form, if you like, the constitutional skeleton for how we do business around the world which is called the operating framework for our business groups. This governs how we do business from the boardroom to the supermarket. Each year, as part of what we call our positive assurance process, which is again part of the risk management system that we have in the business, each president and in turn each company chairman is expected and has to aver that there have been no breaches to the Code and list any breaches, obviously, that there may have been. To do this he has to interrogate each level of his management and that interrogation goes down to the shop floor. This year, for the first time, we will be requiring every employee to actually sign—in 2001—their own statement that their own operations have not involved any breach of the Code. That positive assurance process then comes back up to the corporate risk committee, which is a board committee, operating out of the Turnbull Recommendations. It is audited by the internal audit function and the process itself is audited by our external auditors. In addition to that there is an obligation on all line managers and their business group leaders to report promptly, which means immediately, all breaches of the Code to the joint secretaries, of which I am one, and also to the chief auditor. That to my knowledge is working well. There is a cascaded system of knowledge of the Code. There is then checking of the Code annually and biannually as part of the positive assurance process. There is sanction when infractions are identified and perhaps one other aspect where we might do a bit more thinking internally is publicity for the sanctions.

Mr Colman

  362. Would you use this Committee as an example of giving publicity then on the sanctions as to what has happened?
  (Mr Williams) It would not be appropriate, as you say, to mention names. Looking at the papers for the last year or two the number of infractions of the Code, roughly a score, a little less last year, a little more the year before, resulted in—looking at the figures before I came here—about eight or nine dismissals each year, some for acts which would fall within the remit of this Committee, others which are, if you like, corruption and fraud visited upon the company rather than upon a third party. The one thing I would suggest, if I was looking at the whole process and how I would seek to improve it—apart from this corruption and the individual sign off which puts the knowledge of this Code wide in everybody's mind every year, you have to sign a document saying "Yes, I understood I did not do any of these things"—is that we need to find a way perhaps to leverage publicity about the sanctions visited which is obviously a local event rather more than we have done in the past.

  363. Could you give us examples of the local events which countries have scored?
  (Mr Williams) If you give me a moment I will look up my piece of paper. From my recollection Vietnam was one. I can come back to this in a second if you want to move on, Chairman.


  364. Dr Hinkley, does Mr Williams really explain what goes on in BP as well or would you like to add anything?
  (Dr Hinkley) Yes. I would like to say there are a lot of parallels with our approach. There are a couple of things I would add though. Let me just say there is, first of all, very similarly, this downward cascade of the policy through all parts of the company. The document you received was one that we have just published in this way and it is distributed through the company. We do try and embed it in the normal line management processes so it is seen as integral to business management rather than some kind of parallel process. It is reinforced in various ways. For example, in the House Magazine we had an article on this subject last November. We run workshops for people, training events for people, and we run a network which includes the internal audit function where the practices are shared. We try and learn from our experience and do better at these things. We then also have an annual certification process which Internal Audit co-ordinates and I present the outcome of that to our ethics committee, which is a board committee that oversees this policy. Through that we have encouraged all our staff not just to report things which are outwith the policy but also to talk about issues which concern them. If they have ethical concerns of any kind we want them surfaced so they can be discussed amongst management and dealt with. Then, of course, there is a last resort that anybody breaching policy is liable to disciplinary action and in extremis people can get fired.

Mr Colman

  365. Can you give us any examples, again not individuals names, of what you have done?
  (Dr Hinkley) A common one which is not specific to any one country but one that we have come across periodically is where an individual suffers a conflict of interest where, in fact, they have done something or acted on behalf of the company and derived some personal benefit from it. We are very keen, as you saw through the Code, that when people do have a conflict of interest it is declared, they operate in the company's interest, and any personal interests are put aside and ring fenced in some sort of way. The frequency of these things is very similar to Unilever's experience here. We are talking about a handful of situations through the year and through time. This is not something that is very frequent but in those rare instances we will take appropriate action.

  366. You would publicise this in the local area?
  (Dr Hinkley) It is well known through the line processes I think that is how it is transmitted within BP.

  367. You would not allow it—to continue the question—in a situation where local courts would be able to take up, if you like, the prosecution of the individual?
  (Dr Hinkley) If there is a legal issue involved in this, and sometimes there is and sometimes there is not, then of course local legal processes may take over. We are operating within the Code of this policy and this policy goes beyond in some cases compliance with law alone.

  368. Would you be able to disclose, perhaps not today, in a further paper to us, examples of the actions that you have taken in terms of disciplinary action in which countries and what sort of range of level of employee?
  (Dr Hinkley) We can probably provide some further information on this.[3] We do not systematically collect statistics on this as some companies do. We have examples of this which we can give further background on.

  369. Mr Williams has found his paper now.
  (Mr Williams) I have found one anyway. This is the report for 2000 of the infractions and actions taken within the general remit of your area of inquiry. I would say there are probably five examples—Thailand, Philippines, Korea, Indonesia and China—where dismissals have followed upon identified infractions.

  370. Could you say the countries again?
  (Mr Williams) China, Thailand, Philippines, Korea and Indonesia where staff have been dismissed as a result of corruption of this kind. In terms of publicity, we would as a matter of corporate policy obviously press charges if they were relevant and we always do if there is a fraud against ourselves. Perhaps it is incumbent upon organisations in terms of stiffening the understanding of how important this is and how seriously it is taken that we make sure it is understood in the organisation that these actions are taken. It is often a long way from Latin America to South East Asia and it is up to us to make sure that news travels.

Mr Khabra

  371. If one day the big companies decide "Enough is enough, we are not going to offer any bribery to anybody at all" would you tell me what are the implications for business? How much would you lose? In that situation how would you practically be able to do your business there?
  (Mr Welton) I think, Chairman, the first implication for a company that I could think of is that you would cease trading in certain countries. It is, indeed, action that we as a company have taken because we found that it was impossible for us to operate within our business ethics in those particular countries. It is something that we constantly make judgments on. Our processes are very similar to BP's and Unilever's in the way they have been articulated but they also include the process for bottom up review of the trading situation in certain locations from day to day, week to week. If they become critical such that that sort of policy would affect us trading in a country we would withdraw from that country. That is the first effect. I think longer term it has a beneficial effect because actually companies that are able to behave and do behave in what I would call an ethical manner are largely more efficient companies anyway. It tends to be the weaker that are susceptible to giving and receiving bribes. We believe long term the stronger companies will benefit from the better environment, may I call it.


  372. Mr Phillips?
  (Mr Phillips) I have to make the point that we have also ethical policy and procedures in place that militate against corrupt practice. I think the most effective thing—we talked about it in the context earlier of making a complaint—if you are asked for a facilitating payment in customs, internally certainly whistle blowing—and we encourage it—is probably one of the most effective means of recording and reporting corrupt practice.

  373. Whistle blowing?
  (Mr Phillips) Yes.

Mr Colman

  374. I was going to ask whether Mr Welton in the same way as Dr Hinkley and Mr Williams has any details of disciplinary action he has had to take against individuals in your employ because they have transgressed your own Code of Conduct?
  (Mr Welton) Yes, I think probably similar to the other two, the vast majority of those actions have been corruption against our company rather than corruption of government individuals. The action has pretty well universally resulted in dismissal.

  375. The examples of that by country?
  (Mr Welton) We have examples in Hong Kong, Dubai, Turkey and, indeed, in the UK. Obviously because we have a bigger UK business we probably have more instances in the UK than anywhere else in the world.

  376. Have you pursued those individuals through the courts in the UK?
  (Mr Welton) Yes, we have. The difficulty that we have experienced in the courts in the UK has led us in general to pursue that less than we might have expected to because in one of the big instances that we pursued it it took six years to actually get to court by which time the whole thing had diminished in people's minds, etc, and it is very discouraging to expose yourself to that sort of long term issue. That was singularly unfortunate as far as we were concerned.

  377. Perhaps you would give us a separate note on that issue.[4] Quickly going on to the role of the internal audit and external audit which Mr Williams mentioned. Is there a situation where in many of the developing countries where you operate your external auditors are auditing to much lower standards than perhaps would be audited for your parent company? A number of allegations have been made about that in terms of that being one of the reasons for the East Asian financial problems in 1998/99. Do you see a situation where, in fact, your external auditors are very soft in terms of criticising and perhaps refusing to pass accounts for your subsidiaries abroad because they have not complied, in fact, with what you would see as your international Code of Conduct? Could I ask Mr Williams who particularly mentioned this.

  (Mr Williams) Yes. I do not believe—I would be appalled if it was the case and I do not believe it is the case—that our auditors are applying a soft standard to our overseas operations. The evidence from my experience in the business is that we are not. We do not pay them to apply soft standards, we pay them to apply a universal standard. We pay them to be objective and rigorous in evaluating how we are performing our own obligations.

  378. When they see this line which says "facilitating payments", which is going to be there, what do they comment on that?
  (Mr Williams) This keeps coming back. One likes to define one's terms. I made it perfectly clear that Unilever will not countenance bribery, it will not countenance corruption. The only modest exception to that—marginal exception to that—is within this definition of facilitating payments which is a rather broad definition to some people but a very narrow one to us. I made it perfectly clear that the seven or eight criteria which have to be met mean that this is not actually a method or an instance of obtaining business advantage. Our reputation for 70 years around the globe has been I trust and I believe one of incorruptibility. That is how we have managed to survive as long as we have around the world. It is not always to our immediate commercial advantage to adopt the policies that we do adopt but we have been remorseless throughout our history in adopting them.

  Mr Colman: Can I say—and declare an interest—I worked for Unilever in East Africa and West Africa, at that time there was no code of conduct as such but in fact the level of bribery was virtually nil indulged in by Unilever.


  379. I think Mr Williams is answering your question by saying that there is no such line in his profit and loss account entitled "facilitating payments". Is that right?
  (Mr Williams) Yes.

3   See Evidence p. 198. Back

4   See Evidence p. 196. Back

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