Balfour Beatty, serious fraud and a culture of deception

This morning’s news is that the construction company Balfour Beatty has been fined £2.25 million through the Serious Fraud Office’s (SFO) new powers to recover property obtained by unlawful conduct.

After investigating internally, Balfour Beatty reported itself to the SFO. It seems that a subsidiary body had carried out unlawful conduct after agreeing a contract with an Egyptian company seven years ago. The subsequent SFO investigation found no evidence of financial benefit made by any individual employee and established that most of the people involved had left the firm some time ago.

It seems that the documents prepared in connection with the contract were inaccurate and a number of payment irregularities were discovered. The company reported the matter to the SFO and under the terms of a consent order before the High Court agreed to a settlement payment of £2.25 million along with a contribution towards the costs of the proceedings.

Far more important, in many ways, is what has been done to prevent the same thing happening again. Essentially, the firm undertook to tighten compliance systems and to conform to external monitoring.

The SFO praised Balfour Beatty’s transparent and responsible approach in self-reporting the issue and said it was satisfied the current management had demonstrated its desire to address necessary issues. In a press statement this morning, a company spokesperson said; “Balfour Beatty’s policy is that all of its business should be conducted ethically and the highest standards of integrity are explicitly required from all of its businesses and employees.”

Now, this is all very well, but I have serious doubts as to the effectiveness of these measures, and simply saying that the current management wants to address the issues doesn’t reassure us that it has done so, or that whatever it does will be effective. Essentially, a group of people, involved in this major contract, colluded with one another to benefit the company (but importantly not themselves). People do not usually put themselves at risk without a personal incentive. If it is not directly financial or material then it usually revolves around a perceived threat to their ongoing employment. In such cases, either an isolated bully is involved or the culture of the organisation encourages this kind of thinking.

This case had gone for several years (perhaps five or more) before it was investigated and reported. Even if there had been tighter compliance systems, they only ensure compliance to a system, they do nothing to prevent the behaviour in the first place.

If payment irregularities had happened that will be prevented in the future by ‘external monitoring’, then surely the same external financial controls are in place today as were in place five years ago? So how are they going to be more effective now?

I’m sorry, but this sounds far more like a need for a serious reexamination of the firm’s culture, the relationship between the leadership team and the culture, and some fairly incisive action to inculcate a far more open, honest, and trust-based one.

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