Corruption Inquiry Tarnishes Rolls-Royce Luxury Cache’

To consumers, Rolls Royce is synonymous with luxury cars. But, the company also happens to be the world’s second largest aircraft manufacturer, and is now the target of investigations by the United Kingdom’s Serious Fraud Office (SFO) and the United States’ Department of Justice (DOJ) amid corruption suspicions. Rolls Royce’s fate will be of interest to military leaders and corporations around the world, as the company’s engine’s and systems run deep in most countries’ military arsenals and corporate air fleets.

Cruel Irony

The timing of this news couldn’t be more ironic, coming on the heels of an announcement Monday that Rolls Royce was the winner of the inaugural ‘continual excellence’ award in Britain’s Most Admired Companies (BMAC). The new award recognized Rolls Royce as one of the most consistent performers on the list of most admired British companies and a spokesman for the award’s sponsor said Rolls Royce is, “…synonymous with quality and renowned for their sustained commitment to excellence.”

A Company With Broad Ties

Rolls Royce 2011 sales were up 4% at about 11 billion British Pounds Sterling, which is about $17 billion at today’s currency exchange rate. The company’s customers include over 500 airlines, 4,000 operators of corporate and utility aircraft and helicopters, 160 armed forces, more than 4,000 marine customers (including 70 navies) and energy customers in more than 80 countries. In North America alone, Rolls-Royce has over 9,300 employees, more than 7,700 of which live in the U.S. Also within the U.S., Rolls Royce operates 15 facilities for manufacturing, assembling or product testing.

U.S. May Pose Biggest Challenge in Probe

While the charges stem from rolls Royce’s operations in China, Indonesia and other international territories, the company’s biggest worries could end up being in the United States, as the DOJ has never taken violations of U.S. bribery statues lightly and has levied hefty fines in similar situations in the past. As recently as 2010, the DOJ fined British defense contractor BAE $400 million as a result of lying about payments to intermediaries in international markets.

CEO Responds in Typical Fashion

In an attempt to dampen the negative press related to recent charges, Rolls Royce CEO John Rishton said, “This is a company with exceptional prospects and I will not accept any behavior that undermines its future success.” The company has hired a law firm and said it would appoint a “senior independent figure” to lead the review of the company’s procedures, but how independent could they be with their bill being paid by Rolls Royce. The charges being aimed at the company allege corruption and bribery in a number of markets including China and Indonesia, but John Rishton insists, “…neither I nor the Board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance.”

Mixed Signals

Recently announced results of a study of 129 defense contractors and their efforts to prevent corrupt practices, conducted by Transparency International showed Rolls Royce achieved a level of diligence that was considered only moderate, leading some to think the current scandal should come as no surprise.

Between the Transparency International study and the BMAC there were certainly mixed signals in the press with respect to Rolls Royce’s stance on corruption. Only when the investigations are concluded, will the evidence show what actually happened, so stay tuned to what the DOJ and FSO investigations turn up.