BAE Systems is Europe’s largest defense contractor and the largest foreign player in the U.S. defense market. Despite (or perhaps “because of”) its global presence, the company remains a troubling enterprise because of its business profile and its lack of transparency with respect to its global arms dealing in the third world. These factors make this company as risky investment from a human rights perspective.
Profile
BAE’s offerings include avionics, military aircraft, armored vehicles, air-defense systems, missiles, artillery locators, communications and navigation systems, radar, ships, space systems, and aerospace electronics. The company’s fighter aircraft include the Harrier, Hawk, Tornado, and the next-generation Eurofighter Typhoon. BAE operates in the U.S. through BAE Systems, Inc. In 2006 BEA divested its 20% stake in Airbus when it sold its shares back to EADS.
Recent News
The High Court in London recently ruled that it was unlawful for the Serious Fraud Office (SFO) to end an investigation into the allegations that BAE bribed Saudi officials to secure contracts that formed part of the Al Yamamah programme between the UK and Saudi governments. The government is appealing that verdict and taking its case to the House of Lords on July 7-8, with an autumn verdict expected. Two BAE board members have been detained as part of the ongoing investigation.Days before the UK government went to court, the company promoted chief operating officer Ian King to chief executive.
Human Rights
In January BAE Systems Australia was granted an exemption from racial discrimination laws to be able to prevent some employees with dual nationality from working on top-secret projects with United States contractors to meet U.S. demands. At South Australia’s Equal Opportunity Tribunal, BAE argued that it would have to move its Adelaide headquarters and sack hundreds of workers if its application was not approved. The Equal Opportunity Commissioner fought the application, arguing that business interests should not override human rights. The ruling affects citizens of countries including China, Iran, Syria and Sudan. The Equal Opportunity Commissioner says she accepts the tribunal finding. BAE Australia is now making plans to seek employment exemptions elsewhere in the country.
Geographic Risk
The company has strong positions in each of its six home markets: Australia, Saudi Arabia, South Africa, Sweden, the U.K., and the U.S. BAE operates in more than 100 countries including: Algeria, Austria, Bahrain, Brazil, Brunei, Bulgaria, Canada, Chile, China, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, India, Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Libya, Malaysia, Mexico, Netherlands, Norway, Oman, Poland, Qatar, Romania, Russia, Singapore, Slovakia, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, and Vietnam.
The company operates in the following countries on the AFL-CIO Country Watch List: Bahrain, Brunei, China, Egypt, Libya, Kazakhstan, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, and Vietnam. These countries either lack labor legislation that recognizes fundamental worker rights or have labor legislation that is not enforced.
Labor Relations Record
BAE workers are represented by Amicus, the International Association of Machinists and Aerospace Workers, the Confederation of Shipbuilding and Engineering Unions, and the Transport and General Workers Union. In the UK, BAE employees are represented by GBM (Britian’s General Union) and the T&G section of Unite the Union. In the U.S., workers are represented by International Association of Machinists and Aerospace Workers, the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, and the Communications Workers of America.
BAE Systems at Brough (UK) has been de-selected from the United Emirates bid to build the Hawk trainer aircraft resulting in the loss of 450 jobs at the Brough site. GMB is in discussion with the company to try to mitigate the job losses.
A top firm of actuaries has shown that company’s such as BAE Systems have pension schemes worth two or three times as much as the company.
BAE has come under scrutiny from the Canadian Union of Postal Workers pension fund because of its involvement in a joint venture to produce nuclear missiles.
Hundreds of shipyard workers in Scotland face the threat of temporary layoffs as BAE Systems, which owns the Govan and Scotstoun yards, struggles to balance its wage bill with a shrinking naval order book. The two main shipbuilders involved, BAE Systems and VT in Portsmouth, are expected to form a single joint venture company, which will pave the way for the construction of the Royal Navy’s two new aircraft carriers – a GBP 4.2 billion project to start and safeguard or create up to 10,000 UK jobs in the medium to long term. (source: The Herald (Glasgow), May 21, 2008)
Moreover, BAE is to axe almost 600 jobs at two of its UK military factories, as reported in the Birmingham Post (April, 2008). The losses are due to the scaling down of work on the Nimrod at Woodford and a slowdown in orders for Hawk trainer jets at Brough.
The company is also considering job cuts in its Hagglunds division that could result in loss of 200 jobs.
Corruption Risk
The company is accused of making bribery payments to the Saudi authorities in the 1980s and 1990s. 
Investigations into the alleged payments to secure contracts are still pending. In May, Sir Nigel Rudd, chairman of UK airport operator BAA, a unit of Spanish construction and infrastructure group Ferrovial, was detained by the US Department of Justice as part of the investigation. Rudd is a non-executive director at BAE. Mike Turner, BAE’s chief executive, also chairman of BAA, as well as deputy chairman of Barclays Bank was also detained.
In addition to the pending Saudi bribery lawsuit, BAE faces a lawsuit that alleges an executive used confidential information about a competitor’s supplier to get an unfair advantage when the two companies bid for a U.S. Army contract to make tactical vests. The competitor (Point Blank Body Armor) hasn’t yet specified the amount of damages it’s seeking and BAE believes the lawsuit is “without merit.”
BAE continues to be investigated by the UK’s Serious Fraud Office over claims it paid bribes to secure its air traffic control system deal in Tanzania, which cost Dar es Salaam around $40 million. The company also faces criminal investigations in a number of international capitals including Washington DC, Prague, Berne and Budapest as well as Johannesburg and Dar es Salaam.
Forbes reports that an independent committee organized to recommend reforms urged BAE to publish a global ethics code and to reinforce anti-bribery measures. Lord Woolf, the former UK Lord Chief Justice, conducted an inquiry into the firm’s affairs, and concluded with a report on May 6, 2008. The Guardian (London) however pointed out that Lord Woolf himself was appointed by BAE Systems to conduct the review and that its terms of remit specified the inquiry was not to look at past activities or allegations concerning secret payments to middlemen through offshore accounts to secure contracts. It said that Lord Woolf stood accused of “producing a whitewash for a company desperate to improve its public image.”
Assessment
In light of the rampant human rights abuses inherent in the defense industry, BAE is not acceptable for inclusion as a socially responsible investment. The slew of pending corruption allegations against the company as well as its operation in several countries deemed sensitive by the AFL-CIO raises troubling questions.
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