Rolls-Royce Holdings plc – Annual report – 31 December 2017
Who we are and how we behave matters to our people and our stakeholders. We have made fundamental changes in recent years to place ethics and compliance at the heart of everything we do.
We have a Global Code of Conduct (the Global Code) that applies to all employees of Rolls-Royce, its subsidiaries and controlled joint ventures, wherever they are located. Breaches of the Global Code are not acceptable and will result in the Company taking action. This may include disciplinary action up to and including dismissal. In 2017, there were 65 employees (2016: 38 employees) whose employment ended for reasons related to breaches of the Global Code.
The Global Code sets out principles that underpin our values and the way we do business. It also provides guidance on how to apply these in everything we do. 100% of managers completed a certification exercise during the year, confirming their commitment to the Global Code. We encourage all employees and stakeholders to raise ethical questions or concerns, without fear of retaliation. For employees, we provide four main channels for them to speak up, including a 24hr Ethics Line and network of 84 local ethics advisers around the world.
Anti-bribery and corruption
The Global Code includes clear statements regarding our zero-tolerance approach to bribery and corruption.
This year we revised our anti-bribery and corruption related policies, standards and guidance and brought them together into one comprehensive Global Anti-Bribery and Corruption Manual. This provides a framework for our anti-bribery and corruption programme and clearly sets out the responsibilities that apply to all employees, including requirements to conduct due diligence on customers, suppliers and other business partners.
Our anti-bribery due diligence includes screenings, interviews and obtaining in-depth due diligence reports from specialist providers, depending on the level of risk that a particular third party presents.
In addition to our all-employee ethics training, we have introduced training workshops for senior managers and any other roles that are likely to be exposed to situations where there is a risk of attempted bribery and corruption.
We remain committed to protecting and preserving the human rights of our employees, those working in our global supply chain, and those who may be impacted by our business operations.
Our commitment to human rights, including our position on forced labour, involuntary labour, child labour, and human trafficking, is outlined in the Global Code, as well as our Global Supplier Code of Conduct and Global Human Rights policy. We have taken an integrated approach to minimising the risk of slavery and human trafficking taking place in our supply chain or any part of our business. Adherence and due diligence associated with these policies is embedded within our operating system and processes across our global functions, including human resources, ethics and procurement.
More information on our approach can be found in our anti-slavery and human trafficking statement, available at www.rolls-royce.com.
Ethics in our supply chain
We spent over £8.7bn in our external supply chain in 2017. Our suppliers and partners are vital to our success, so we are committed to working collaboratively with them to maintain the highest ethical standards.
At the end of 2017, all our suppliers had agreed to adhere to our Global Supplier Code of Conduct, or a mutually agreed alternative. This sets out the minimum behaviours and practices we expect our suppliers to demonstrate based on our own Global Code and related policies, including our Global Human Rights policy and Global Anti-Bribery and Corruption Manual.
This year, we have introduced further monitoring and assessments prioritised by the potential level of risk the supplier may present. To date, 67% of prioritised suppliers have completed a self-assessment questionnaire which aims to understand how suppliers are adhering to the principles set out in the Global Supplier Code of Conduct within their own operations. We are now working with these suppliers to collaboratively agree plans to address any gaps that may have been identified as part of our supplier management frameworks.
For more information see Safety & Ethics Committee Report, pages 104 to 109.
Safety & Ethics Committee Report (extract)
Ethics and compliance
Following the DPAs, much of the Committee’s focus in the year has been on overseeing the Group’s work plans to meet its continuing obligations to the regulators, and monitoring progress in implementing the recommendations put forward by Lord Gold in his reports. Lord Gold himself attended most Committee meetings during the year and updated the Committee on how he has been overseeing and supporting this work, as well as reporting on his particular areas of focus and activities. This included a review of processes for the granting of commercial concessions to customers, and attending employee focus groups and other internal events to understand views from the workforce on ‘speaking up’ and on the Group’s culture in the area of ethics and compliance.
The Committee has also taken a keen interest in hearing from the leaders of some of the businesses as to how ethics and compliance are being embedded into the Group’s culture in practice. We scheduled two additional Committee meetings, which took place in April and October, to provide more time for status updates and discussion of these topics.
We discussed the need for the business leadership to continue to drive the right behaviours, as well as having the right processes, so that individuals are accountable for their own actions and feel able to speak up. To help us understand how this was progressing, we received separate updates from the president and the chief compliance officer of the Civil Aerospace business, and from the chief financial officer and general counsel & head of integrity at Power Systems. It was noted that the businesses operated globally across territories that had different levels of maturity and sophistication regarding ethics and compliance, and this could present challenging situations for employees such as field service engineers who work in remote locations. A programme of compliance verification visits to selected sites had been introduced to check the effectiveness of training and levels of awareness, so that any gaps could be promptly addressed. We heard about specific examples of areas for improvement being identified and addressed either through additional training or improved communications, processes or controls. Overall we were assured that the leadership teams, supported by the central ethics and compliance function, were setting the ‘tone from the top’, by expressing clearly and regularly the high standards expected and encouraging employees to speak up.
At each of our meetings during the year, we received an update from the General Counsel on the Group’s continuing dialogue and cooperation with regulators and government agencies. We also received reports and briefings from the chief compliance counsel on ethics and compliance matters generally.
In the 2016 Annual Report, we reported on the significant reduction in the number of advisers used by the Group over recent years, and the stringent vetting process for any new engagements. We kept the level and nature of adviser engagements under review in 2017, and were notified of any claims received during the year from any advisers who had been terminated in the past. We noted the careful approach taken with regard to termination of certain Power Systems’ advisers to ensure that customers were not exposed to gaps in capability for safety-critical work.
We kept the resourcing and capabilities of the compliance team under review, both centrally and within the businesses. We were satisfied that the responsibilities of the director of risk, who left the business during the year, had been assumed either by the general counsel or the chief compliance counsel through an orderly transition process. We recognised the need for the compliance team to remain appropriately balanced between roles in the central team and within the businesses. We were therefore supportive of the recruitment of the new director of ethics and compliance at Power Systems, and the proposed addition of a number of new roles. We also recommended that likely resourcing requirements for the compliance function in the longer term be considered.
Another area of interest for the Committee, and for Lord Gold, during the year was the coordination of training, disciplinary processes and the employee communications strategy to help drive the desired culture. We received briefings from the Group HR Director and members of her team, with input from the chief compliance counsel, on activity in this area. The Committee recognised the need to balance the drive to embed accountability for behaviour with considerations of employees’ legal rights to privacy, but encouraged the team to explore ways to show the workforce real examples of consequences for breach of the Global Code or group policies, or for failure to complete mandatory training.
We examined proposals to refresh the Global Code in 2018. The current Global Code was first introduced in 2013 and we agreed that a comprehensive review was therefore timely. The new Global Code will also be supported by new training modules designed to bring it to life in a simple, understandable and relevant way, focusing on behaviours. We look forward to seeing progress on this in 2018. We were also pleased to see this approach to providing a simplified and more concise document being applied in the consolidation of several group policies into one simple manual for employees.