Strategy and direction
Our Group strategy is to deliver sustainable growth in shareholder value by being the premier global defence and aerospace company.
To achieve sustainable growth we must identify and manage long-term risks to our business – including non-financial, operational and reputational risks. As a leading defence company we want to set standards for our industry in the area of corporate responsibility (CR) and aspire to reach the standards set by companies in other sectors. As a global business we must ensure our approach is applied consistently across all of our operations, worldwide.
The Executive Committee met in May 2007 to review our CR priorities. The workshop was supported by PricewaterhouseCoopers (PwC), who provided information on best practice in CR among leading companies. The Executive Committee considered issues that could have a significant impact on the sustainability of our business, either by directly impacting our ability to operate or by affecting our reputation and the level of trust stakeholders have in our Group. Their analysis took into account the views of key stakeholders, including customers, employees and investors.
Ethics and safety were reconfirmed as our CR priorities and those where the Group should aspire to a leadership position.
We recognise that to achieve a leadership position requires continual progress. A programme to address this began in 2007 and will continue through 2008. Key aspects of this are:
- establishing an independent view of best practice for ethical business conduct in both the defence sector and across industry;
- benchmarking safety performance across all industries – not just the defence sector;
- establishing specific objectives on leadership behaviours especially in the areas of ethics, safety and diversity; and
- setting management objectives in 2008 that drive us towards our desired leadership position in the areas of ethics, safety and diversity.
The Woolf Committee was established during 2007 to study and publicly report upon the Group’s ethical policies and processes. We will receive recommendations from the Woolf Committee during 2008, which we believe will assist us in meeting our ethics objectives.
Progress towards a leadership position on safety commenced with a review of BAE Systems’ safety performance. This considered both individual business level performance and benchmarking against aerospace and defence sector companies and across other sectors considered to be best in class. In conclusion, while we can demonstrate overall year on year improvement in safety performance, our underlying business performance is not consistent. While we perform at a similar level to a number of other defence sector companies we are behind the best in class group of companies. We have developed a route to more closely align our performance in this area with those best in class companies. The delivery of the first part of a four year plan to achieve this has been incorporated into the leadership objectives for 2008.
We will focus on improving performance year on year and set challenging objectives that move the Group further towards best practice in these priority areas. To demonstrate our commitment we have increased the proportion of senior executive performance bonuses that are linked to improvements in performance in ethics and safety. In 2008, 12% of the potential bonus will be determined by performance in ethics and safety. The Corporate Responsibility Committee will review progress against our objectives quarterly.
Governance of corporate responsibility
Our corporate responsibility objectives are delivered through our business operations and managed through the Executive Committee. The Corporate Responsibility Committee is responsible for providing oversight, governance and assurance. This includes reviewing and monitoring the processes that the Group uses to manage non-financial risks. The Corporate Responsibility Committee’s report on 2007 activity can be found on the Corporate Responsibility Committee report page.
During 2007 the Corporate Responsibility Committee met five times. The Committee undertook a number of activities which included reviewing and approving the decision of the Executive Committee to prioritise ethics and safety as the key issues for the corporate responsibility agenda in 2008. The Corporate Responsibility Committee reviewed performance data on ethical business conduct, safety and environment. This included details from internal audits, employee surveys and operational assurance statements.
The Corporate Responsibility Committee met with the Woolf Committee to discuss ethics in general and the role of the Corporate Responsibility Committee in relation to the prospective implementation and assurance of activity that may be recommended.
External opinion
External views help shape our approach to corporate responsibility and also influence how we report progress. This year, we asked three experienced corporate responsibility practitioners to review our Corporate Responsibility Report and give their views on our corporate responsibility strategy and intended direction. Participants were:
- Julia King, Vice President Corporate Responsibility, GlaxoSmithKline
- Dawn Rittenhouse, Director of Sustainable Development, DuPont
- Mark Wade, formerly Head of Sustainable Development Policy, Strategy and Reporting, Shell
The panel met in February 2008 and reviewed a draft copy of this year’s Corporate Responsibility report. They made comments and recommendations in three areas: corporate responsibility strategy and governance, reporting, and our approach to assurance.
The panel was supportive of the way corporate responsibility strategy is developed at BAE Systems. They considered that our selected priority areas of ethics and safety rightly reflect the key issues.
The panel recommended that BAE Systems should:
- ensure there is a solid foundation of values on which all employees frame decisions, large and small;
- develop a roadmap including future aspirations and opportunities as well as challenging targets;
- address key issues such as human rights and climate change;
- provide greater understanding of the Group’s processes for preventing bribery and corruption;
- engage with a wider range of stakeholders; and
- align its corporate responsibility reporting with the Global Reporting Initiative guidelines.
The panel’s full statement is included in our Corporate Responsibility Report. We will develop the necessary plans to action these recommendations and report on progress through our website and in future Corporate Responsibility Reports.
Monitoring our performance
We monitor our Corporate Responsibility performance through sector benchmarking to track our performance and help us better manage key environmental and social impacts. In 2007, BAE Systems’ performance level in the Dow Jones Sustainability World Index was similar to our 2006 scoring.
| Dow Jones Sustainability Index | 2007 | 2006 |
|---|---|---|
| Economic factors | 69% | 69% |
| Environmental factors | 90% | 85% |
| Social factors | 71% | 80% |
We are reviewing the reasons for the lower social factors rating in 2007, which include the areas of labour practices, career development and training, and charitable giving. We will address areas for improvement during 2008.
