Examination of Witnesses (Questions 360
- 379)
TUESDAY 9 JANUARY 2001
MR DAVID
PHILLIPS, MR
IAN WHITE,
DR REG
HINKLEY, MR
MIKE WELTON,
MR STEPHEN
WILLIAMS AND
MR JOHN
BRAY
Chairman
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?
Chairman
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.
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.
Chairman
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.
Chairman
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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