INDIVIDUAL REPORT

Table of Contents
Introduction:...............................................................................................................................3
Governance:...............................................................................................................................3
Ethics:.........................................................................................................................................5
Risks;..........................................................................................................................................8
Conclusion:..............................................................................................................................10
Introduction:
BAE system was incorporated in the year 1999 by merging Marconi Electronic Systems and
the General Electric Company subsidiary’s defense electronic and naval shipbuilding.
Recently BAE System became the seventh largest company in the defence equipment sector
with a $25 billion turnover (Defense News, NA). The company manufactures products and
systems that deliver capability to the military, secure critical information, and help in national
security (BAE system, 2023). The company generates 42% of sales from the US market
which is the highest. Moreover, significant sales are generated from the UK, Saudi Arabia,
and Australia. Thus the company is providing service all around the globe with the help of
99,800 employees.
The company developed, and implemented, a governance and ethical framework not only to
comply with statutory requirements but also to carry out the operation in the most possible
ethical and legal manner. Similarly, a risk framework is developed and implemented by a
company to identify risk and to take corrective steps to mitigate the risk in time to prevent
financial and reputational losses that may arise due to the materialization of risk. This report
consists of the evaluation of governance, ethical, and risk framework to identify whether it's
working as it is intended to work in the operational environment of the company.

Governance:
Corporate governance refers to the set of rules and organizational structures established and
implemented to run business operations correctly (Naciti, Cesaroni, and Pulejo, 2022). Thus
it has direct influence and control over the business operation of the company. Effectiveness
and efficiency of corporate governance are measured using the characteristics of governance
like discipline, Independence, transparency, Accountability, Fairness, Responsibility, and
Social responsibility.
BAE system stated in its annual report that it aims to achieve sustainable long-term success
by generating value for shareholders with other stakeholders, ensuring that its operation does
not have an adverse impact on the environment and communities in which the company
operates. The company tries to achieve the same by following all the seven characteristics of
governance. The company has provided all the reports like audit reports, remuneration
reports, nomination reports, governance reports, and sustainability reports to assure their
stakeholder that all operations of the company are carried out in an established good
framework.
Primafacie it looks like the company is fully governance compliant. However, the case is
different as there is some evidence that depicts that the company lacked transparency and
social responsibility aspects of governance. In today's era concept of transparency is widened
and it is not limited to implementing all actions and having all documents to support the
decision. However, Transparency is taking more proactive and comprehensive disclosure
instead of stating governance policies (Fung, B., 2014). Hence transparency is letting know
the truth to all the stakeholders, social responsibility refers to the obligation of the company
towards the well-being of the human capital in all aspects of life (Sahut, Peris-Ortiz, and
Teulon, 2019). Thus social responsibility is not limited to meeting statutory requirements but
it goes beyond and refers to direct or indirect investment in human capital.
Thus the company must disclose all the facts to its stakeholders that have an impact on
themselves to remain compliant with transparency. Even though, the company discloses half
the information to its stakeholders. The company disclosed the names of countries with which
it has business ties but it did not disclose the fact that more than 50% country of the clientele
has a poor corruption perception index ( Gilchrist, K 2024). CPI refers to the perceived level of
corruption in the countries (Transparency International, 2021). A high CPI index depicts low
corruption and vice-versa. Thus, the company lacked transparency in presenting information
to its stakeholders. Thus it can be concluded by not disclosing the truth to stakeholders the
company fails to apply the transparency in governance system.
Similarly, the company fails to remain compliant with social responsibility by doing business
with countries with lower Corruption Perception Index (CPI) like Somalia, Venezuela,
Burundi, Iraq, Turkmenistan, etc. Business with these countries is against the welfare of
society as these countries have high instability and providing ammunition to these countries
may result in destruction to the human life of the people of the country to which ammunition
was supplied but also the life of the other countries as the motive of these countries is not to
protect itself but to gain unlawful advantage from others forcefully. Thus, the company
indirectly harms human life for the shake of profit which is against the concept of social
responsibility.
The company is required to comply with the UK Corporate Governance Framework 2018 as
the company is listed on the London Stock Exchange. They comply with the same and
provide full disclosure related to the strategic rationale and appropriateness of directors'
remuneration, engagement with shareholders and workforce, and comply with the provision
of 40 etc. The company conducts shareholder voting to set director remuneration. Similarly,
the company engaged with shareholders through a remuneration committee and met major
shareholders to seek their views before making potential changes. Moreover, the company
engaged with employees of the company through various virtual meetings, conferences, and
briefings as well as in person. Additionally, the company developed six core principles to
comply with Section 40 of the UK Corporate Governance Code 2018 in 2023. These six
factors are clarity, risk, simplicity, proportionality, predictability, alignment to culture. Thus it
can be concluded that the company has complied with the UK corporate governance code
effectively and efficiently.
Moreover, for strong effective, and efficient corporate governance, the presentation of
diversity of the population on the board is required. It means the board should consist of
people of all gender, race, and color in the board in the same proportion as exist in the
country's population to include the perspective of all groups to ensure the well-being of all
groups of people (Islam, R., French, E. and Ali, M., 2022). Company around the world ensures
the same by appointing directors of different gender, cast, race, and color to the board. The
company has also appointed 9 men and 6 women to the board out of which 13 belong to the
white British community while only one director belongs to the black community (BAE
system 2023). Prima facie it depicts that boards consist of members from all groups of
society. However, the presentation of a member on board is not in line with their presentation
in the population. The population of the UK consists of 50.57% of women and 49.43% of
men while in the board only 36% of members are women while 64% of members are men
(UK gov, 2023). It depicts that the presentation of women on the board is comparatively very
low compared to its presentation in the population while men have a higher presentation on
the board compared to its presentation in the population. Resultantly it can be concluded that
the board is dominated by men. However, the percentage of the black community on board is
7% which is in line with its proportion in the population.
Additionally, the company should ensure that powers are not concentrated in the hands of a
few directors of the board. If directors become members of various committees in the
company then that director gets the power to influence various decisions of the board.
Thereby board decisions may become biased. In the company, few directors are members of
more than three committees like Dames Elizabeth Corley and Nicole Piasecki members of
four committees of the company (BAE system, 2023). Dames is a member of the Audit,
Innovation and Technology, Nomination and Remuneration committees while Nicole
Piasecki is a member of the Environmental Social and Governance Committee Innovation
and Technology, Nomination and Remuneration committees (BAE system, 2023). Apart from
this two directors Cris Girg and Ewan Kirk are members of three committees and the
remaining directors are members of two committees. Thus it can be concluded that the two
directors of the company Dames Elizabeth Corley and Nicole Piasecki have more power
concentration concerning other directors which does not depict good governance practice.

Ethics:
Ethics refers to beliefs or moral principles about what is right or what is wrong. It helps in
dealing with a group of people to decide whether their behavior is right or wrong ( Nel, L.,
2008). Thus ethics helps people make the right response in a situation where the best action is
not determinable. Similarly, corporate ethics refers to the execution of appropriate business
policies at the workplace to controversial issues such as discrimination, bribery, insider
trading, corporate governance, etc. (BAU, 2024).
The company implemented an ethical and compliance framework to ensure ethical behavior
by all employees, suppliers, partners colleagues, etc. which depicts that the company is
following Multiple stakeholder obligations. The company has considered the ethical needs of
all the stakeholders and makes everyone part of an ethical policy by implementing various
ethical policies like a code of conduct for employees, advisers policy for an appointment,
payment to a third party engaged in assisting third-party sales, gifts, and hospitality policy to
governs giving and receiving gifts, conflicts of interest policy to resolve conflicts between
employees, facilitation payment policy designed to ensure that payment for facilitation not
paid and encourage employees to eliminate facilitation payment practice (BAE system 2023).
These policies not only enhance ethical values in the employees but also the stakeholders
outside the company. For example, the facilitation payment policy encourages employees and
third parties to work ethically. Moreover, this policy helps in focusing all the actions of the
company which helps in shaping the society. Therefore the company follows the shape of
society's ethical practice.
Similarly, the company has implemented other policies like finance policy, Community
Investment Policy; Finance Policy; export control policy, Fraud Prevention Policy; Lobbying,
Procurement Policy Political Donations, and Other Political Activity policies. These policies
are formulated keeping the long-term shareholder interest into account. The long-term,
shareholder interest focuses on long-term profitability and this can be achieved only when the
company sustains its position in the market ( Johnston, A. and Morrow, P., 2015). The
sustainability of the company depends equally on the ethical policy with the financial policy
as this policy prevents the company from the consequences of compliance failure of laws and
regulations and fraud activities. Resultantly it saves the company from heavy financial losses
by preventing heavy fines from regulatory bodies. It not only prevents financial losses but
also reputational losses.
Moreover, the company engaged in various corporate social responsibility activities like
education and skills to inspire young people to choose careers in technology, science,
mathematics, and engineering, supporting local communities, and supporting the armed
forces. It also helps the company maintain long-term shareholder interest by creating a
reputation in the market.
The company implemented an anti-corruption program to ensure adherence to relevant laws
and regulations. Moreover, the company regularly tests its effectiveness and efficiency
through internal and external oversight. Additionally, the company receives employees' and
third parties' feedback on the same. The company also provides training to employees to
encourage them to be ethical. In line with this company established an ethical concern
channel. Over this channel, the employee can raise their problem and get guidance or
complain over the telephone, e-mail, online, or third-party helpline number.
During 2023 the company received 1531 enquiries which is 28% higher than the previous
year 2022. Out of which 761 inquiries advice was given and 770 investigations were
conducted. Out of the investigated matter 244 cases were answered, 332 cases required no
answer, and 194 cases were under investigation (BAE system 2023). The reporting of these
cases within the organization depicts that the company established an ethical concern channel
prima facie operating effectively and efficiently. Resultantly, the ethical cases against the
company should decline.
However, even after the implementation of the ethical framework, numerous fraud and bribe
cases were going on in the company. It depicts that there is a lack in the ethical framework
and it is not sufficient to prevent ethical misconduct. For example, in the year 2003, the
Gaudian newspaper exposed the systematic bribery by the company to win contracts around
the world. In the given case BAE system is alleged to have given bribes to the Saudi Royal
Family to make an AL-Yamamah contract between the UK and Saudi Arabia (Pegg, D. and
Evans, R., 2024). This case is a clear violation of the ethical facilitation policy. It is clear
evidence of ongoi ng corruption activities in the company.
Similarly, in the year 2010, the company pleaded guilty to conspiring fraud against the United
States by impairing lawful function and making false statements about the Foreign Corrupt
Practice Act compliance program, and violence of the Arms Export Control Act. In this case
company paid a fine of $400 million for its criminal conduct which is one of the largest fines
ever levied by the US against any business house (Office of Public Affairs, 2010). As a
remediation measure BAE system formulated an independent compliance monitor to operate
in a honest, transparent, and responsible manner in the future. However, the chain remains
continues.
In recent years Central Bureau of Investigation of India filed a case against the BAE system
to secure the Indian arms deals of £100 mn to secure 66 Hawk jets sales in 2004. In this case,
two arms dealers BAE System and Rolls Royce influenced the Indian officers to approve the
deal (Kaushik, K., 2023). Although the BAE system states that the company has signed an
integrity pact to depress the influence peddling and claims that the company has operated
with the legal framework and complied with all relevant laws of export control and
regulations of countries in which the company is operating. Moreover, in all cases, the
company always states that it is fully complying with all the laws. However, the case is not
the same.
Based on all these bribery cases against the company it can be concluded that at a lower level
may have an ethical framework working effectively but at a higher level ethical framework
has no control as all these deals are closed by high officials and they focused only on earning
high revenue and making profits. Thus it can be concluded that the operation of the company
is not ethically carried out.

(Figure 1: Enquiries handled during the year)

Risks;
Risk refers to the probability of loss in the future due to uncertain events ( Burt, B.A., 2001).
The impact of this risk may vary from negligible to catastrophe. Thus, identifying this risk
beforehand is necessary to ensure business continuity. Therefore, each organization designs
and implements a risk framework to identify and manage the risk to reduce its impact. The
company divided the risk management framework into two categories (BAE system 2023).
The first category is Risk Challenge monitoring and reporting which includes the board,
Audit committee, Environmental, Social, and Governance committee, and executive
committee. In this category Board is responsible for overall risk management while other
committees are responsible for operational assurance statements. The second category is Core
Business Process which includes Chief Executive’s Business Review, Quarterly Business
Review, and integrated business plan. Chief Executive Business Review financial, non-
financial, and operational issues quarterly within business and forthcoming events. Quarterly
Business Review Management performance of group business quarterly against their
objectives and milestones while an integrated business plan reviews long-term strategy and
five-year plan for each business.
This risk framework helps in identifying risk, analyzing risk for impact and probability on
business, evaluating risk to prioritize risk, and taking corrective steps to mitigate the impact
of risk on the business (Drata, NA). Resultantly it helps in developing business continuity
plans for disaster situations.
The following are risks faced by the company as per Annual Report 2023:
1. Dependency on government customers and their Defence Budget: 94% of sales of the
company are related to defense equipment. It directly depends on the defense
spending of the government which is difficult to predict as it fluctuates with changes
in policy, geopolitical conditions, budgetary constraints, etc. Lower spending on
defense by the government may have a material adverse impact financial condition of
the company.
2. Contract Risk Execution and Supply Chain: The Major portion of the company
revenue comes from fixed-price contracts. Generally, these contracts are for longer
periods. Thus estimation of actual cost may exceed the projected cost due to inflation
in the price of materials and labor. Moreover, the revenue gets impacted by the
delivery of services by supplier or subcontract as services of supplier or subcontract
get impacted due to inflationary pressure or material shortages. These technical
problems result in the cancellation, suspension, and termination of contracts thereby
company faces losses.
3. Laws and Regulation: The company operates in an extensively regulated environment
across the jurisdiction of various countries, Thus subject to legal risk. It includes risks
related to intellectual property, trade control, data control, government grants, public
health and safety, etc. These laws are subject to frequent changes thereby compliance
cost increases. Moreover, a breach of any law may lead to the suspension of export
privileges, etc. Additionally, the company has to face legal proceedings if a third
party is harmed by the conduct of the company. Hence legal risk not only impacts the
financial operation but also impacts the reputation in the market.
4. The outbreak of Contagious Diseases: It has an adverse impact on the company's
operation and supply chain due to the suspension of business activity around the
globe. Although the likelihood of such an incident is rare whenever it occurs it has a
severe impact on business.
5. Climate change and environment: The increasing changes in environmental laws
expose the company to unplanned capital and operational costs which adversely
impact its financial position. Moreover, breaches of these laws result in heavy fines
and penalties Resultantly company has to face substantial cost and reputational costs.
6. Health and Safety: Employees work in challenging locations with hazardous
materials. Thus employees perform high-risk activities. Thus there is an inherent risk
of harm always. If adequate safety measures are not provided then the company may
have to face civil and criminal prosecution for damage to employees which again
results in financial and reputational loss.
7. Cyber Security Risk: This risk originates internally and externally and it may have a
potential impact on production, operation, misappropriation of data, corruption,
intellectual property, infrastructure, etc. Thereby the company has to face financial
loss, operational loss, and reputational loss.
8. People: The people are key to the success of the company. The loss of key people in
the company and the inability to find the right people at the right time adversely affect
the ability of the company to achieve its strategic goals and business plans. Moreover,
it also adversely impacts the timely delivery of contractual commitments therefore,
the financial position of the company gets impacted negatively.
9. Acquisition Risk: It refers to the risk of not achieving the desired benefit from
acquisition. It includes the risk of entering into new markets, diversion of
management attention, failure of acquired business as intended, and unidentification
of issues during due diligence. It may have an adverse impact on financial
performance, operation, impairment of goodwill, etc.
10. International markets: The company operates in several countries like Australia, the
US, the UK, and Middle Eastern countries etc. Thus the company is highly sensitive
to political and social changes, economic downturns, inflation, civil disturbance, and
political instability in any of these countries. This risk has a material adverse impact
on business operations and financial conditions.
 (Figure 2: Risk Framework)
Risk Heat Map:
Risk heat map refers to two-dimensional arrays that depict the severity of the risk based on
risk impact and probability of risk (Monat, and Doremus, 2018.). The risk register of the
company is as follows:
S. No. Risk Event Likelihood Business Impact

1 Dependency of the company on government Frequent Significant

customers and defense budget.
2 Risk of not completing the contract on time due Occasional Significant
to failure in execution and problems in the
 supply chain.
3 Risk due to changes in laws and regulations. Occasional Moderate
4 Risk of outbreak of contagious diseases. Remote Significant
5 Risk of climate and environmental changes. Frequent Moderate
6 Risk of health and safety. Probable Moderate
7 Cyber security risk Frequent Significant
8 Risk of retaining and recruiting the right Probable Moderate
people.
9 Risk of not obtaining the desired benefit from Occasional Significant.
acquisition.
10 Risk of international market condition. Frequent Low

(Figure 3: Risk Heat Map)

The risk heat map depicts that Risk 1: is dependent on government customers and Risk 7:
Cyber security risks are required to be stopped, Risk 5: risk of health and safety requires
urgent action. While other risks require immediate action.

Conclusion:
The company has well crafty designed governance, ethics, and risk framework to ensure
correct, ethical, and risk tolerable operations of the organization. Moreover, all the possible
laws and regulations related to these fields are complied with. Even, though there are several
conditions cases, or scandals which indicate that governance and ethical frameworks are
effectively and efficiently complied with only on paper. However, it drastically failed in the
operating environment. The reason for the failures is to earn high revenue and profits by
securing more long-term contracts with countries all around the globe, to achieve the same
unethical paths chosen by the company. Moreover, these failure depicts that the framework
has no control over the higher authority of the company. Additionally, the risk framework has
identified risks related to all areas. Based on these identification the impact of each risk on
business is identified based on likelihood and consequences so that the risk measures can be
taken based on severity. Thus, It can be evaluated based on the report that the governance and
ethical framework of the company fails to prevent corruption activities in the company.
However, the risk framework works effectively.
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