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MORNING MEETING: BAE LAID BARE BY SCATHING REPORT

Lord Woolf's report was revealing - but how many of BAE's competitors would follow suit?

Wednesday May 7,2008

By Peter Cunliffe, Deputy City Editor

AT FIRST GLANCE, Lord Woolf’s report, published yesterday, into the ethical standards at our biggest defence contractor, BAE Systems, looked scathing.

After a 12-month investigation, he made 23 suggestions about how the company could tighten up its practices.

They include publishing an independent audit of ethical conduct, a policy forbidding “facilitation payments”, a rigorous procedure for hiring advisers, and developing a code of ethical conduct.

But his report was short on specific examples of unethical behaviour and was careful to specify that while BAE had failed to pay sufficient attention to ethical standards in the past, its current standards were “close to high”.

Its reputation was badly tarnished by the long-drawn-out Serious Fraud Office probe into its dealings with Saudi Arabia going back 20 years. It always denied any wrongdoing, but when Tony Blair called off the SFO in 2006 it left the whole issue dangling. A decision one way or another might have been better for BAE.

For those who believe the entire arms industry is morally corrupt anyway, the fact that BAE has committed itself to implementing Woolf’s proposals will be no consolation.

But here we have a world-class British company that has agreed to a public debate about its ethics.

How many of its foreign competitors would be prepared to do the same?

The City is betting that the Bank of England will leave interest rates unchanged on Thursday at 5 per cent.

But pressure is growing on the Bank as key parts of the economy, not least the housing market, start to feel the strain.

Economists such as Roger Bootle of Deloitte expect rates to fall as low as 3.5 per cent by the middle of next year.

Most think the next cut will not be until June.

After the experience of Bovis, reported opposite, which is similar to that recently reported by rival Persimmon, the question for the Bank is: why wait until then?