Britain’s biggest defence company was on the defensive again yesterday, ducking and weaving in the face of new accusations of corrupt corporate practices.

BAE Systems was reported to have funnelled £1 billion to Prince Bandar, Saudi Arabia’s former Ambassador in Washington, to help secure the £43 billion al-Yamamah contract for Tornado warplanes. Vincent Cable, the Liberal Democrat deputy leader, demanded a parliamentary inquiry into these “shocking” allegations.

As usual, BAE responded with a collective wringing of hands. It insisted that it had never acted illegally; it pointed out that the Serious Fraud Office investigation was called off because it was “doomed to failure”; it said it could not go into details of its dealings with Saudi Arabia, because it respected client confidentiality but that all payments were approved by the Government.

You could almost hear a defeatist sigh coming from Mike Turner, the BAE chief executive, who has grown so exasperated at Fleet Street’s treatment of the company that he is convinced it is the victim of a concerted effort to derail BAE’s latest £10 billion contract with the Saudis.

BACKGROUND

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But BAE will continue to be the victim of this negative publicity if it continues to act line one. If it does not take responsibility for its history, it will be overshadowed by it.

For BAE knows full well that its corporate behaviour is not what it was. It has improved. It may believe that it did not act illegally in the past, but it must also be perfectly aware that it did not uphold the highest moral standards either.

An anecdote to illustrate the point: in 1999, Mr Turner, who was then responsible for BAE’s worldwide export business, had a conversation with Dick Evans, then the company’s chairman. They agreed that if BAE was going to push into the US, as planned, the company would have to be whiter than white. That would mean cleaning up the list of advisers, the people who lobby foreign governments on behalf of BAE. And when Mr Evans asked how much this would cost BAE in lost business, Mr Turner replied $1 billion a year. Implicit in this answer was the knowledge that some of BAE’s business practices — in fact, $1 billion worth of business globally — did not pass the smell test.

And yet, BAE has declined to provide its own account of its past behaviour, let alone a mea culpa.

BP has shown the benefits of appointing a blue ribbon panel — in its case, headed by former Secretary of State James Baker — to provide an independent assessment of its safety record in the wake of the Texas City disaster.

BAE has said it cannot set in train a Baker panel of its own for legal reasons. It is still under investigation by the SFO in the UK and forbidden from conducting an internal assessment that would overlap with the Government’s inquiries. More significant than the legal hurdle, though, is the internal, cultural obstacle: the argument within BAE itself.

There are many long-standing BAE staff who throw up their hands at the whole controversy over bribery and corruption. They are understandably horrified at the suggestion that they ever behaved illegally. And they are furious at the suggestion that the company will criticise their behaviour in the past in order to curry favour with the public today.

On the other hand, there are others at BAE who want to go on the front foot, make a break with the past and set new public standards for ethical behaviour at the company.

Mr Turner, it seems, is in the first camp. Dick Olver, BAE’s chairman, is in the second.

And what could BAE do? For a start, it could try defining itself, rather than allow itself to be defined by its critics. It could acknowledge that the company has evolved, that its former behaviour, while not illegal, would not make it proud today. The company could declare the standards by which it operates and, on an annual basis, show its efforts and achievements in meeting them. And it might try to tell the British people that, rather than being a business with nothing to hide, it is a company with much to crow about.

Many people, of course, will never be persuaded. They will see the company as merchants of death who pass on multimillion-pound payments to arms dealers moored on huge yachts in the Med. No one likes war, even less those who profit from it. BAE can never expect to be loved: it is a defence business.

But even those who wish the world were different can see that BAE is one of Britain’s most important companies. It is important economically: it employs 37,000 people in the UK and generates £13 billion in sales. It is important in terms of the UK’s national security. It is important to the intellectual future of Britain, both in terms of engineering and science.

The attacks on BAE’s credibility will continue. The company is under investigation in six countries around the world.

But the fact that it is losing the argument with the public will, in time, damage the business. The Saudi deal will go through — as much as the House of Saud may protest, it will pay for its next batch of fighter aircraft given its concerns about the growing power of Iran and instability in the Gulf. But the debate about corruption will increase the likelihood of political opposition to BAE’s activities in the US. It will undermine the morale of its workforce. And it will sap the goodwill of the British public, the taxpayers that ultimately fund the defence contracts that are BAE’s bread and butter.

BAE Systems is so determined not to admit any fault in its past that it is jeopardising its future.

james.harding@thetimes.co.uk

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