CORRUPTION SCANDALS SHOW WHY LEADERS SHOULD HIGHLIGHT ETHICS Rolls-Royce leadership knew about potential corruption in 2010 but decided not to notify authorities, according to a court ruling. The revelation raises questions over the conduct of Sir John Rose, once hailed as Britains leading industrialist, who headed the group as chief executive from 1996 to 2011. Sir John could not be reached for comment. In January, Rolls-Royce agreed to pay 671m to the authorities in the UK, the US and Brazil. In return, the company will not face criminal prosecution for corruption, false accounting and failure to prevent bribery. The agreement followed a four-year investigation by the UKs Serious Fraud Office into the engine-makers conduct over three decades. The investigation and its outcome was a humbling moment for one of the UKs leading companies. 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 Rolls-Royce stands for and what our people, customers, investors and partners rightly expect from us, Warren East, Rolls-Royce chief executive, said when the investigation had been concluded. Rolls-Royce said that as a result of the investigation, it was no longer using any of the intermediaries implicated in the corrupt practices. The investigation into the company uncovered corrupt behaviour in Indonesia, Thailand, India, Russia, Nigeria, China and Malaysia. The case, which is still continuing with the investigation of individuals, raises important questions. How can companies ensure they behave properly while still meeting sales targets, especially in industries where bribery and payments to intermediaries are common, even when they are illegal? For Rolls-Royce, the answer lies in various specific remedies. The company has introduced a staff training programme on its policies on bribery, gifts, hospitality and lobbying. It has reduced the number of intermediaries it uses around the world, and says those it has kept understand what is expected of them. It has also set up a 24-hour ethics hotline, which is available to staff worldwide. The reason employees behave badly is usually more complicated, however. It is often a combination of financial incentives, desire for status among colleagues and peer pressure that pushes employees to cross ethical lines, says Alison Cottrell, chief executive of the UKs Banking Standards Board, a private sector body set up to improve banks behaviour. [They think] because everyone is doing it, it must be right. Whatever doubts people have about what they are doing subside if they notice not only that the practice is the norm, but it is encouraged by those at the top. People who are new to an organisation, and who might be surprised at dubious-looking behaviour, come to assume it is acceptable. If it is wrong, the thinking goes, someone would have put a stop to it? Boards and leaders must make firm decisions. They need to start with the values: how they want to do their business, says Philippa Foster Back, director of the Institute of Business Ethics. When it comes to financial targets, the board needs to say, We will not reach the numbers at any cost. The problem is that investors and financial analysts are watching those numbers, ready to punish companies that do not reach them. What can be done about that, especially if competitors have no difficulty in hitting theirs? Conversations between companies and investors still need some work, Ms Foster Back says. Theres still a focus on the numbers. She advocates more open discussion between companies and investors. Companies must explain when they have to walk away from an opportunity because it is contrary to their ethics policy. But if companies are to avoid scandal, the message from the top needs to reach people lower down, who must be prepared to speak out if they see something dubious happening or if they are asked to do something they find uncomfortable.

QUESTION THREE [35] Rolls-Royce leadership knew about potential corruption in 2010 but decided not to notify authorities, according to a court ruling But if companies are to avoid scandal, the message from the top needs to reach people lower down. 3.1 In light of the statement above, discuss some of the leadership traits and characteristics that are necessary in reinforcing the correct message and value systems to employees throughout the organisation. (15)

3.2 Discuss the behavioural and contingency approaches to leadership and provide a rationale for its appropriateness in business. (20)

QUESTION FOUR [15] The investigation into the company uncovered corrupt behaviour in Indonesia, Thailand, India, Russia, Nigeria, China and Malaysia. Taking the finding above into consideration, conduct a SWOT analysis for Rolls Royce.