EADS INTERNATIONAL COMPLIANCE PROGRAMME 1
I. Case Abstract The topics covered by this business case are the several rules and processes implemented by EADS since the year 2000, aiming at ensuring the groups compliance with its policies and procedures regarding the compliance with national and international rules and regulations relating to the fight against corruption in foreign trade, as well as at ensuring a fair competition for all international business opportunities. This policy addresses the 10 th Global Compact principle Transparency and Fight against Corruption. It is detailed in the EADS Policy and Rules relating to Foreign Trade, which apply to all international operations of the EADS Group entities, and which is intended to detect and prevent bribery risks in international sales. The policy has been published in EADS Corporate Handbook, which is available to all employees through the company intranet. This case study aims at demonstrating the benefits and outcomes resulting from the implementation of this corporate policy. II. Company Profile EADS is a global leader in aerospace, defence and related services. The EADS Group includes the aircraft manufacturer Airbus, the world's largest helicopter supplier Eurocopter and the joint venture MBDA, the international leader in missile systems. EADS is the major partner in the Eurofighter consortium, is the prime contractor for the Ariane launcher, develops the A400M military transport aircraft and is the largest industrial partner for the European satellite navigation system Galileo. Corresponding to the product range, the company is subdivided into five divisions: Airbus, Military Transport Aircraft, Eurocopter, Defence and Security Systems and Space. EADS, an N.V. according to Dutch company law, founded in 2000, employs about 113,000 people at more than 70 production sites, above all in France, Germany, Great Britain and Spain as well as in the U.S.. A global network of 29 Representative Offices 2
maintains contact with the customers. In 2005, the company generated revenues of 34.2 billion. The company s official website is: www.eads.net. III. The Case Story: EADS compliance with the 10 th principle Problem area Doing international business requires being especially vigilant so as to ensure that all companies belonging to a Group always comply with all applicable laws and regulations relating to international sales. For EADS, this is fundamental insofar as the Group, operating in global markets, recognizes its responsibility to always act in accordance with high standards of business ethics and integrity worldwide and must ensure that all of its affiliated companies wherever they operate and whatever activities they conduct never infringe, neither directly nor indirectly (including through consultants, advisors, intermediaries, or the like) any law or regulation pertaining to foreign trade activities. This is all the more significant that the stakeholders of global companies are less and less tolerant with corrupt practices and breach of ethical standards. The days where the only focus of a company was protecting the interests of its shareholders are gone by. Nowadays the protection of the legitimate interests of all the stakeholders is essential for every international corporation, and this not only in order to protect its proper reputation but also in order to participate to a sound development. We as EADS feel responsible for contributing to a sustainable and ethical globalization. Since the entry into force of the Merida Convention as well as European regulations, private corruption is also banished, while the OECD Convention of 1997 did prohibit only the corruption of Foreign Public Officials. These new regulatory constraints have been properly incorporated into the EADS Rules. In order to integrate theses rules, a regular exchange between all the concerned stakeholders simultaneously to a well organized network within EADS is necessary in order to communicate an awareness culture. 3
Key players The Process started with a network of officers nominated in all Business Units to organize and implement a set of policies and procedures intended to ensure that the Group s international operations are properly carried out in accordance with any and all legislation, whether national or international. These policies and procedures also intend to prohibit and sanction corruption and other unacceptable business practices. The officers have diverse profiles. They are chosen in the scope of their understanding of the specific contexts of the subsidiaries they work for. The role of each officer within his/her entity is to enable him/her to be in proximity of the operations in order to understand the different commercial campaigns. The person chosen has to show specific interpersonal skills so as to be able to obtain a fruitful communication with the management of the subsidiary. The number of officers is currently being increased. It is extended to subsidiaries of business units. Specific committees are formed within the different Divisions and Business Units. Their aim is to create an increased collegiality. In the end, the whole process works due to the collaboration between all the EADS Divisions, Business Units and employees. Relationships with international bodies and stakeholders EADS has developed relationships with international bodies such as the OECD, the International Chamber of Commerce (ICC) and the European Union (GRECO). The Anti-Corruption Division of the OECD supports the work of the organization in the fight against bribery in international business by supervising the implementation of the OECD Anti-Bribery Convention signed in 1997. The OECD Guidelines for Multinational 4
Enterprises provides a global framework for responsible business conduct which aims to help businesses, labour unions and NGOs to meet these new challenges. 1 The ICC has a Commission on Anti-Corruption. Its main tasks are to encourage selfregulation by business in confronting issues of extortion and bribery, and to provide business input into international initiatives to fight corruption. The Chamber produced a corporate practice manual «Fighting Corruption» which aims at guiding businessmen in their new responsibilities. 2 The Group of States against Corruption (GRECO) is a body installed by the European Council in 1999. Its aim is to improve the capacity of its members to fight corruption by monitoring, through a follow-up mechanism, their compliance to international legal instruments in this field. 3 EADS International 4 has also developed various relationships with other stakeholders: - Signature in 2003 of a convention with the French Corruption Monitoring Council, also signed by other French companies (development of relations in diverse fields); - Establishment, with certain companies, of a set of principles regarding anticorruption practices in the aerospace and defence sector (core of the dialogue with the ICC); - Dialogue with the ICC and the OECD anti-corruption working groups; and - Continuous assessment by external qualified advisors of the EADS international business ethics policy; - Contacts with recognised NGOs in the field of anti corruption. 1 www.oecd.org: Fighting bribery and corruption. 2 www.iccwbo.org: Anti-Corruption. 3 www.greco.coe.int/info 4 EADS International is the corporate entity in charge of international development of EADS 5
Actions taken The EADS Rules relating to Foreign Trade policy and procedures entails effective control of international operations, through the conduct and control of appropriate due diligence of international business partners, regular audit and reporting mechanisms and enhanced training sessions within all Business Units. It also sets out appropriate guidelines regarding the acceptance of gifts and hospitality. Policy EADS is active in sectors which are strictly ruled by national and international regulations. The Group is committed to absolute compliance with applicable regulations wherever its entities operate. Fighting against corruption in foreign trade is a major challenge for all international companies. In order to meet this challenge, EADS is fully committed to complying with all relevant national and international legislation, including the OECD Convention of November 1997, as incorporated into the legislation of 35 countries. EADS' International Compliance Program is a corporate policy, applicable to all international operations of EADS and its affiliated companies, intended to detect and prevent bribery and unfair dealing. EADS is often involved in proposals, bid preparations or contract negotiations with governmental authorities because of the nature of its products and services. The Group's policy is to compete fairly and legally for all business opportunities as well as to conduct negotiations and perform contracts when awarded in compliance with all applicable requirements, specifications and contractual obligations. Systems EADS has developed a set of policies and procedures intended to ensure that its international business does not infringe any applicable laws and regulations relating to international trade and that it complies with the applicable standards of business ethics and integrity. The main pillars of these policies and procedures are: 6
Transparency in the selection of its business partners. All business partners engaged by an EADS company have undergone a strict engagement procedure, based on a well defined process: (i) a due diligence aimed at confirming that the prospective business partner is reputable and qualified to work for EADS, (ii) internationally recognized standards (location, credentials, ethical track record, etc.) and (iii) a commitment to abide by the Group policies prohibiting corruption and payment of bribes; "Appropriate remuneration for legitimate services". EADS is very keen to ensure that all payments due and payable to any business partner are justified by legitimate services rendered and do not exceed sound market practices; and Monitoring of the contractual relationships with such business partners (and the related payments) until satisfaction of all contractual duties. Those policies and procedures normally apply to all operations directly or indirectly relating to foreign trade. The Group business partners must respect these policies and procedures. Furthermore, EADS conducts regular audits of all related agreements within the Business Units to verify that the Group policies and procedures are properly implemented and the Business Units are instructed to report on a yearly basis on the implementation of such policies and procedures. 5 Since October 2002, EADS has set up a network of International Compliance Officers ("ICO") representing each Business Unit. The ICOs are responsible for ensuring the correct application of the policies and procedures within the Group. They are also advising as to the best business practices to be followed in order to develop sound international business operations. For instance, they instruct any red flag encountered in the performance of their duties. Another of their tasks is the development of an information data base concerning the evolution of legislations and recommendations 5 Corporate Audit and External Audit. Other monitoring functions are assumed by the financial and the legal direction. 7
pertaining to foreign trade set out by international bodies, such as OECD, FATF 6, WTO, UNO etc. The ICOs also may liaise with these bodies, when required. Actions EADS conducts regular investigations and audits to detect and promote the "best practices" in force within the Group regarding the proper implementation of the Group international business ethics policy, the objective being to disseminate such "best practices" throughout the rest of the Group. The Group issued a leaflet "EADS International Business Ethic Policy For Consultant Agreements: Transparency & Substantiation" in January 2004, which is given to all prospective international marketing consultants. This leaflet summarizes the Group policies and procedures regarding the selection of international business partners. Concerning the selection of these consultants, the Group has a very specific procedure, which consists of the following steps: A pre-selection process consisting in justifying the need to employ a Consultant and identifying potential candidates. In certain regions of the world, the necessity of recourse to Consultants has to be justified even more, in order to avoid the risks of corruption and bribery. The Consultants Profile has to be irreproachable and whenever possible, recourse to law firms is favored, because of the professional ethical duties bearing on legal professions. Transparency is the slogan! The chain of payments and their beneficiary/ies, whether direct or ultimate, must be unmistakable from the beginning. The tasks and duties of the Consultant are clearly stated in the Consultant Application. A fee benchmark is carried out in each Region and a proper data base is kept, in order to provide background information concerning applicable remuneration conditions. Capacity Due Diligence Process: When a potential Consultant is identified, the Initiator starts with a Capacity Due Diligence exercise so as to ensure that the potential candidate meets all the requirements for the consultancy job. In certain 6 The Financial Action Task Force on Money Laundering was established by the G-7 Summit. www.fatf-gafi.org 8
countries identified by international organizations as corrupted countries, enhanced due diligence is required. Subsequently, the Consultant is obliged to sign or to complete a representation form (which binds the Consultant to respect the provisions of the OECD Convention as well as any other applicable legislation dealing with these issues), a questionnaire form as well as a Declaration stipulating that the duties are made in consistency with any applicable local legislation. The process is cross-checked by an interaction between different instances. 7 consultants are invited to attend specific training sessions when deemed appropriate. The In addition, the Group has also developed a comprehensive training policy for its staff so as to disseminate an "awareness" culture within all Business Units. All employees dealing with international business attend such training sessions. In 2005, around 52 training sessions took place within each Business Unit, sometimes with the attendance of third parties (prosecutors, representatives of international bodies, lawyers, etc.), in order to communicate the corporate values and policies to all concerned. The topics presented during these training sessions concern for example: What happened since 1997 and the adoption of the OECD Convention? The Evolution of Regulations Alleged Corruption in Foreign Trade: Recent samples reported by the Press The EADS Program dealing with the prevention of corruption The Golden Rule: Know your Consultant The Group's ICOs meet periodically to share concerns and best practices. An annual ICO Conference has been organized since 2003 involving more than 100 people implicated in foreign trade business and operations. The ICO Conference of December 2005 was held in Paris with 114 participants from 22 Business Units. The issues discussed during the conferences round tables are for example: 7 EADS International, the Companies Development and Selection Committee (CDSC), the Business Unit Representative, the Business Unit Head of ICP, the ICP Officer. 9
Audit/Reporting/Substantiation of Consultant Files Training and confidentiality of information Due Diligence of Consultants Role and responsibilities of the Business Units dedicated officers concerning the international compliance program How can the processes still be improved? How to limit bureaucracy in implementing our processes? EADS also issues on a regular basis Group-wide internal bulletins "ICO information letters" focusing on the evolution of the regulatory environment of foreign trade and highlighting information reported by the international media regarding the fight against corruption worldwide. These bulletins are intended to complete and update the information given to EADS employees during the training sessions. The topics presented in these booklets vary between: Information on UNO or OECD conventions against Corruption Information on the Global Compact Initiative Updates on the International anti-corruption Legislation TI Corruption Perception Index Country Profiles concerning corruption and legislation Regional anti-corruption initiatives Real World examples about issues concerning corruption and bribery Interviews of different stakeholders who are involved in the corporate policy International Compliance Program Conference Round Table Report 10
Outcomes and Impacts The compliance programme is a prevention programme. Therefore most of the impacts and outcomes are non-quantifiable ones. Even though, some of the actions taken are measurable: 2005 2004 2003 Consultant files audited 96% 93.10% Not available Number of ICO information letters 3 3 2 issued Number of training sessions held by ICO 52 20 12 EADS has just updated its policies in order to take into account the experiences of the past three years. The revision includes the recommendations done by the corporate audit department and takes profit of the dialogues with the international bodies. Another measurable impact is that until now, no corruption scandals have challenged the integrity of the Group. But the most important is that the mentalities have clearly changed. The Consultants who work with EADS know that in order to work for us, they have to be transparent. The whole program is a success, because it has encouraged a daily exchange between the Headquarters, Divisions and Business Units. The only question to ask is whether the programs bureaucracy should be decreased in order to enhance its success. In the short term, the International Compliance Program has minimized the risks of corruption cases happening. But what s even more important is that in the long term, it obliges the people to think about and participate to sustainable growth as well as to involve the countries in the globalization process in a positive way. 11
Conformance with the Global Compact Performance model The EADS policies have been designed to support and implement EADS long-term vision and strategy in terms of CSR. They give guidance for day-to-day business and are in accordance with EADS underlying values. Status and lessons learned EADS realizes how important it is to work beforehand in the path of prevention and to fight against corrupt practices. Therefore the implementation of the compliance program was an important step to take. EADS has observed with vigilance what has been happening in the past years in the international company landscape and is drawing its conclusions from these cases on a continuing basis. The Group is conscious about the fact that even after having taken steps to avoid it, the risks still exist. Therefore EADS is determined to relentlessly continue and even improve its efforts in the sense of a good compliance. 12