BP Global - Press - Raising the bar: business ethics in practice

Thank you very much Chairman and good afternoon ladies and gentlemen.

One of the things we believe in at BP is in keeping commitments, and I'm delighted to see that you all have kept your commitment to participate in this conference through to the end of today. I hope, in the next half hour, that I can repay your stamina by sharing some insights from BP's perspective.

What I propose to do is to divide my talk into three sections - a contextual overview of the environment as it affects our business, a summary of what we've been doing at BP in the 18 months since I became the company's first director of business ethics, and a quick look ahead at things we are progressing for the future.

When framing these remarks I came across a recent comment by the wonderfully-named teacher of ethics at Harvard, Lynne Sharp Paine, who has been on a US panel looking at curbing corporate excesses. She said: "It's striking how many companies involved in scandals had a code of conduct. Most people today are sophisticated enough to know that it's easy to put out a code. What's more important is that it is adhered to."

Ms Sharp Paine went on to observe that companies in the past have shown little interest in monitoring ethical behaviour and that even now few companies attempt a gauge of their ethical behaviour.

Well at BP we have chosen to put ethics high on our agenda. It's not because we have more ethical problems than most large companies. It's not because we're unusually high-minded.......

Rather it's because we think it's the right place to be -for our employees around the world, for our partners, for our industry, for the communities in which we do business, for our reputation and performance today, and for our future tomorrow.

Why it matters: What does a company like BP mean by "being ethical"? Well, our definition has a practical focus but it's underpinned by a belief in honesty, respect for others, integrity and transparency - moral values in other words.

In practice being ethical in a business sense can involve such things as avoiding corrupt business practices such as bribery, secret or misleading accounting practices, excessive gifts or entertainment and respect for human rights, but also things like avoiding harm to people and the environment and avoiding conflicts of loyalty and interest.

Essentially, we regard ethics as a performance issue, to be managed in much the same way as other business performance issues. That is, through clear policy commitments, continuous improvement in delivery, leadership and accountability - all consistent with our fundamental values.

The oil and gas industry has a particular interest in all this, of course. Transparency International's 2002 Bribe Payers' Index rated the industry the third most likely out of 17 commercial sectors to be involved in bribery. One reason might be that the sector is heavily represented in the most corrupt countries as measured by TI. We go where geology takes us rather than where the rule of law is most deeply entrenched.

There are other factors. The industry's size and strategic importance, for example, mean that it is very closely regulated. In many parts of the world individuals enjoy a high degree of discretion in their interpretation of these regulations. Private sector companies' emphasis on results tends to enhance the officials' negotiating position.

In any event our impression is that the ethical challenge facing our industry has grown as investment barriers have fallen and the oil and gas sector has become truly global in the last 10-15 years. And at the same time a climate of distrust has grown up around all big business. Our chief executive, Sir Browne, put it like this in a speech he made at Harvard last year:

"I believe corruption is the real enemy of genuine development - in the poorest countries and everywhere else. Corruption isn't inevitable. If we can combine the leverage of government with a firm and effective refusal by the private sector to tolerate corruption, we can begin to renew trust not just in corporate activity but in the whole development process which comes from globalisation."

In other words, rooting out corruption can be an important component of the renewal of the private sector all over the world. That must be good for business, and it must be good for development, everywhere.

Other drivers for change: But there are other drivers for change which are important signs of the times.

We've heard earlier today about the changing legal environment. At BP we've complied with the US Foreign Corrupt Practices Act for many years.

But now there are other similar anti-corruption initiatives which an international company needs to work within - for example, the OECD convention on bribery in international business transactions which came into force in 1999, the new UK law on transnational corruption which came into effect a year ago, an agreement signed by the Organisation of American States and a Council of Europe monitoring initiative. Not to mention transparency reforms introduced by lending institutions such as the World Bank.

These developments are important to a company like BP because they establish a set of government-mandated markers demonstrating that commercial bribery is no longer acceptable, if it ever was. Effectively, they're sign-posting the slow but sure emergence of a universal standard and approach. The greater the global coverage, the more likely it is that everyone will get the message, so the direction of these moves is very helpful.

We've also heard today about more immediate, market-led proposals for reform - events like the high-profile corporate scandals of the past couple of years, and trends like the spread of ethical investing, the development of value-based indices such as the FTSE4Good and the greater emphasis being put by the market on corporate governance and corporate social responsibility.

To which we would add influence from stakeholders - customers, shareholders, communities, non-governmental organisations - who are increasingly outspoken on the subject of "ethical" corporate behaviour. Plus the views of employees who more than ever want to feel good about the companies they work for and by so doing aid recruitment, motivation and staff retention.

The fact is that open behaviour and transparent reporting are widely valued throughout the modern world. Businesses that recognise this and behave accordingly are swimming with the tide, not against it.

A global environment: So that's the wider context as we define it in BP - increasing pressure all-round on large and small companies to be more accountable for their actions and more ethical in their behaviour.

Of course this pressure varies from time to time, place to place and industry to industry. But one thing we've learned at BP is that in the era of globalisation there are no hiding places. The context may vary, but the underlying approach has to be consistent. This is the only way in the modern world.

Today BP operates to global standards - the same standard of technology, safety, environmental protection and ethics - wherever we do business. Be it China or Azerbaijan, Angola or the United States, Indonesia or the UK. It's true of our operational behaviour and it's true of our ethical behaviour.

Our policy commitments: We've codified this approach in a set of policy commitments which are the basis on which we conduct our business.

These commitments were defined in 1997 and have been updated to reflect evolving expectations, whilst always keeping the same intent. They're included in a booklet called "What we stand for..." and focus on five areas. Ethical conduct is one. Let me quote key pledges in that section:

we will respect the rule of law
we will not participate in, or condone, corrupt or unacceptable business practices such as bribery
we will support the principles in the UN Universal Declaration of Human Rights
we will expect the same commitments from third parties acting on our behalf

Putting words into action: So, that's an outline of the BP context. The goal is clear - to conduct our business with integrity, by working to the commitments we set for ourselves, recognising the changing external environment.

But words are cheap. Actions always speak much louder. How has BP set about putting these commitments into practice?

Well, the first thing to emphasise is that we've built on the past. We didn't suddenly discover ethical behaviour in 1997. What has changed, as I suggested before, is the context. The bar is constantly being raised, externally and internally.

Let me concentrate on the last 18 months because this the period that coincides with my time as director of business ethics. But first I should say that between 1997-2001 BP was tripling in size through nine major takeovers and mergers.

We went from being a company of 56,000 employees focused on the UK, North America and western Europe to one of 117,000 employees working in about 100 countries, with a similar number of nationalities employed, at least 11 million customers each day and a management structure built around more than 100 largely-autonomous business units.

Clearly, the complexity of our business, its scope and scale, has changed beyond recognition in a very short period. With this dramatic change has come growing pressure for more consistency - of culture and behaviour, standards and approach.

That's where I came in. I've worked for BP for 24 years largely on the exploration and production side and mainly in operational and commercial roles. My background is entirely practical.

That's important to us in translating commitments into action. BP is a can-do company that puts a big premium on operating in a practical way and getting things done. So my focus has been applying my personal experience in our business to promote action in support of business integrity.

As I've indicated, the core tools were in place in 2001. We'd defined our values. We have a hybrid approach - a mixture of a values-led approach supported by a strong compliance process. It is critical to have a shared set of values, and then to leave individuals free to make their own judgements within a framework set by a few clear rules. Boundaries are important, but we believe our staff need to instinctively do the right thing or be able to discuss it openly with others, and not to have to look up the answer in a rule book. We are all aware of recent breakdowns in corporate governance despite the detailed rules in place in those companies.

We also had a supervisory structure in place starting right at the top. One of the most important committees reporting to the Board at BP is the Ethics and Environmental Assurance Committee. Beneath it we had clear leadership and accountability - critical factors where ethics are concerned - with ethical conduct defined as a strategic issue and more recently reflected in my appointment as Director of Business Ethics.

At the same time, we had a growing culture of transparency and consultation at many levels across the company.

John Browne has called BP a quasi-democracy. Of course we have hierarchies and leadership groups. But in today's empowered e-world trying to control the flow of information from the top down or trying to force 100,000 views into a straitjacket is about as sensible as trying to turn back the tide.

In any case, much that we do today - especially in the environmental, social and ethical sphere - is verified independently. We undertake some huge public consultation exercises before we begin projects. For example, at a local level in West Papua we are building an LNG plant to supply clean gas to China and other countries, which will help displace coal. In order to deliver this project, the Tangguh project, very extensive consultation with the Tanah Merah community resulted in a resettlement agreement that goes beyond previous benchmarks, by seeking to leave the community with higher incomes and living standards than before the project occurred. At a broader level, we willingly take part in international public policy discussions like this one at which we are often challenged and made to rethink our position.

Challenge is also built into our internal structures. In fact feedback is a crucial element in raising ethical standards in any organisation.

Today staff in BP are encouraged to speak out. In the old days ethics was a kind of formal, box-ticking activity. But now we're trying to make it far more pro-active by giving people the space to raise issues. We don't want a quiet life.

The recent focus: What we've been concentrating on these past 18 months is finding the best way of creating a supportive environment for ethical behaviour by our people worldwide. I'd highlight four developments:

We've set up processes and regional networks to deal with ethical dilemmas that sometimes confront us.

we've devoted a lot of time and money to supporting and coaching staff about our ethical expectations
we've revamped the annual ethics certification exercise to make it a central part of our drive to improve ethical performance across the company
and we've introduced two important policy reforms - new commitments to make no political contributions from corporate funds anywhere in the world, and to prohibit facilitation payments by any BP company or employee worldwide, directly or indirectly

To give you a bit more substance, first, process.

Our main initiative has been the formation of eight Regional Ethics Committees to reinforce the focus on ethical conduct and review ethical dilemmas.

Each of these RECs is headed by a senior executive. Its remit is to ensure a consistent approach, provide team leaders with guidance, gather, review and share information, and provide assurance to BP's most senior executives on the application of our standards.

RECs have been in action for less than a year. But they've had a galvanising impact. Just to take one of them - that covering the China Region. Probably the most beneficial achievement there has been the development of a series of real-life case studies that have been used to illustrate policy and share knowledge. An example would be how to handle a request from a government official for BP to fund an overseas trip to understand our operations. We'd try to think carefully about if this would be setting up an obligation or unfair advantage concerning future government approvals.

The REC has certainly helped us towards our goal - that is, creating an environment in BP China that supports open conversation and disclosure of business ethics issues.

What we're trying to do is to spread the notion that good behaviour is an integral part of good performance. Or to put it another way - poor ethical practice costs the company money and hinders performance. To get the message across, in 2002 we've held some 570 ethics workshops all around the world. We've also developed e-learning tools which have been completed by some 7000 team leaders, and numerous legal seminars and briefings for third party and contractor personnel.

As for the annual certification exercise covering every one of BP's 100+ business units all over the world, this process has just concluded for 2002.

This was a very practical assurance exercise designed to unearth specific local concerns, patterns of behaviour, regional and global trends and so on. A number of issues have been highlighted such as our procurement processes are sometimes not as fair and open, or well-controlled as we'd like..... our approach to gifts and entertainment is not always consistent..... we can improve our relationships with third parties to help uphold standards in all dealings related to our business.... and we need to continue to work hard to uphold human rights in areas where security forces are engaged, such as Indonesia, Colombia and the Caspian. It's been a big step forward in internal transparency, which will help us keep up with the bar as it gets raised.

New commitments: On the two major policy reforms last year - the bans on political contributions and facilitation payments - we've been encouraged at how they've been received, internally and externally. We hope others will follow suit.

Companies have a very important role in society and we certainly intend to go on stating our views and encouraging the development of ideas. But we've come to believe that we mustn't confuse this role with that of others. Intervening in partisan politics, we feel, is a sure way of undermining the legitimacy of the political process.

As for facilitation payments - small sums paid to officials and others to encourage them to provide goods and services to which you are entitled - I'm glad to report significant progress. These payments are allowable under US law, however an article in The Economist last year effectively said these are bribes in a different form.

After the policy change was announced internally, exactly one year ago today, each business systematically examined the areas where such payments might be occurring, for example to get the police to enforce the law in India, or payments to get retail sites approved in Mexico, or to the vehicle licensing authorities in Vietnam. The payments identified have now been stopped. In most cases, there has been no negative impact on the business - in a few cases, things take bit longer to get done.

Whilst there's still more to do especially regarding third parties acting on our behalf, we are convinced that the long term gains in terms of trust and the stability of our business far outweigh short term setbacks such as new business lost or delayed. Now some people say why bother with so-called 'petty corruption'. Well my view is that facilitation payments are at the bottom of the corruption pyramid. If we achieve the right approach on the small issues, then people will instinctively do the right thing when a more complex or material issue arises. I was also very pleased to hear a couple of weeks ago that several US congressmen are drafting a proposed amendment to the Foreign Corrupt Practices Act to include prohibition of facilitation payments. Clearly this is a welcome move.

Looking ahead: turning now to talk about where we hope to go from here.

The first thing to say is that there is no absolute best practice in this area. And no one seriously expects to eliminate corruption completely, at least in the near future. So we'll continue to search for new ways to improve our ethical performance.

It's a never-ending process. We set standards but we don't do this in isolation, we don't believe these standards will last for ever and we don't pretend we're perfect - to ourselves or to outsiders. The moment a group of human beings does that is the moment it is likely to fail.

As I said before, we believe that we must continue to encourage internal and external transparency to promote ethical behaviour and achieve good corporate governance. One example of this, later this year, will be the launch of a new scheme to encourage staff to raise concerns, relating to ethics, safety, people issues, environment and finance. The scheme which involves the use of confidential phone lines and e-mail will operate to the same standard everywhere across the globe, and be overseen by respected ombudspersons in each region.

Very fashionable, you may say, with three female whistle-blowers chosen as Time magazine's "Persons of the Year" for 2002.

In reality, we started working on this change in early 2002 after realising that feedback of this sort is critical in uncovering employee concerns before they erode values and damage reputation. It will also allow us to respond to legislation in the US which will make it mandatory for companies to institutionalise such mechanisms in relation to accounting - the Sarbanes Oxley Act.

Externally, we'll also be working closely with others. There are plenty of examples but one I'd highlight is the work we've been doing with other companies and governments to explore options for making revenue flows from the extractive sector more transparent. By showing where the money is going, we believe that this will help all stakeholders achieve the common goal of increased trust and hence long term development. In Azerbaijan, using a website accessible by literally anyone with access to the internet, we have made available;

all Production Sharing Agreements governing the revenue sharing and bonus payments from oil and gas production
the inter-government and host government agreements describing the commercial aspects of our various pipeline projects in Azerbaijan, Georgia and Turkey
the Environmental and Social Impact Assessments associated which each part of the various projects

This is a genuine 'first' in the extractive industries and comes with very strong support from the leaderships and governments of Turkey, Georgia and Azerbaijan themselves.

Conclusions: of course there is an element of self-interest in all this. The more law-based societies there are, and the more they flourish, the wider the investment choices we will have and the more likely it will be that we can perform profitably.

But self-interest simply is not the only motive for ethical behaviour. Business is built on relationships and nothing is more powerful than a relationship built on trust. Such trust is almost impossible to build in a corrupt environment.

We know that ethical dilemmas in business are not going to go away soon. Three of BP's five "growth nodes" are in ethically challenging parts of the world as defined by Transparency International's corruption index.

At the same time public scrutiny around our operations continues to grow - the latest example being the efforts of campaigning groups to prove ethical breaches in the consultation exercise BP initiated for the Baku-Tbilisi-Ceyhan pipeline linking the Caspian and Mediterranean seas.

Mistrust and misrepresentation of this sort are always likely to dog large projects. There is simply too much poverty and enmity around for it to be otherwise. BP is a key player in today's interdependent world, and we acknowledge that to succeed we need to take intelligent commercial risks whilst maintaining high ethical standards.

So to sum up, ladies and gentlemen, the acceptable behavioural standards for businesses will continue to be raised. The response needs to be practical with a progressive set of tool and techniques. In the end, if we can demonstrate consistent clarity, accountability, honesty and respect for people wherever we operate, business will prosper, opportunities for growth will increase, and all involved will experience the satisfaction of having contributed to human progress.

Thank you very much.