On the 17th January aero-engine maker Rolls-Royce announced a settlement with the Serious Fraud Office (SFO), US Department of Justice (DoJ) and Brazilian authorities over past bribery and corruption in the company to win orders. The company will be paying £670 million plus interest over the next few years under Deferred Prosecution Agreements (DPAs) so as to avoid prosecution.
Current CEO Warren East had this to say: “The behaviour uncovered in the course of the investigations by the Serious Fraud Office and other authorities is completely unacceptable and we apologise unreservedly for it. This was unworthy of everything which Rolls-Royce stands for, and that our people, customers, investors and partners rightly expect from us. The past practices that have been uncovered do not reflect the manner in which Rolls-Royce does business today. We now conduct ourselves in a fundamentally different way. We have zero tolerance of business misconduct of any sort.”
The settlement was possible because of the fact that Rolls-Royce has fully co-operated with the authorities recently. However in the High Court, where the settlement was approved, Lord Justice Leveson indicated that Rolls-Royce knew about the corruption in 2010 and did not notify the SFO. It was described as “egregious criminality over decades, involving countries around the world, making truly vast corrupt payments” which apparently resulted in it making more than £258 million of illegal profits”.
In addition to these bribery problems, the company has only recently disclosed that the reported profits should really be lower because they have been claiming profits on future maintenance contracts which were probably imprudent – see a previous blog post on that issue here: https://sharesoc.wordpress.com/2016/11/16/rolls-royce-accounts-adjustments-were-they-prudent/
I suggest these questions could be good ones to put to the directors of the company at its next AGM:
- When did the Chairman (Ian Davis) and former CEO (John Rishton – left July 2015) learn about the corruption problems and why were they not reported to the SFO promptly? Or even by the previous CEO Sir John Rose who departed in March 2011?
- Is any attempt being made to reclaim bonuses paid on past profits that were bolstered by these dubious activities and the imprudent accounting from the former CEOs or other directors and management, and the costs that have now been incurred as a result?
- What has been the role of the current Chairman Ian Davis in these matters (he joined the company in 2013). Did he conceal the bribery or disclose it? The captain of a ship usually takes responsibility when it runs into an iceberg, but he is still there. Should he have resigned (although clearly the problems arose way earlier)? Note: having seen the Chairman perform at previous AGMs where I thought his and the CEO’s answers to my questions were somewhat devious, I had this to say “the Chairman seemed to think this meeting was more about a public relations exercise for small shareholders than answering real business questions with plain answers“. See the full report here. Will the next AGM be any better?
There are certainly lots of questions about these problems which have yet to be answered.