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1. As at 31 December 2009 – wholly-owned subsidiaries only, excluding employees on long-term absence.

A culture of Total Performance

Corporate Responsibility Report 2009

REAL PERFORMANCE. REAL ADVANTAGE.

BAE Systems plc6 Carlton GardensLondon SW1Y 5ADUnited KingdomTelephone +44 (0)1252 373232

Registered in England and Wales No. 1470151

Website detailswww.baesystems.com

WE WELCOME FEEDBACK ON ANY ASPECT OF OURCR REPORTING AND PERFORMANCE. EMAIL US AT:[email protected]

Welcome to the ninth annualBAE Systems CorporateResponsibility (CR) Report.

CR is an integral part of BAE Systems’Total Performance approach. TotalPerformance is about every aspect of theway we do business: Customer Focus,Financial Performance, ProgrammeExecution and Responsible Behaviour.

To reflect this, we aim to increasinglyintegrate our reporting of financial andCR performance in the Annual Report.

This report covers the Company’s CRactivities in the 2009 calendar year. Itfocuses on our strategy and performancein key areas of responsible businessconduct, safety, environmental sustainability,workplace and community. The report alsoincludes case studies from our businesses

around the world that demonstrate ourapproach in practice.

More information on CR and how ourbusiness works is available online atwww.baesystems.com/corporateresponsibility/.

AssuranceIndependent assurance of this report isprovided by Deloitte LLP (see page 20)on the following basis:

– Limited assurance of the CR Reportcompilation process;

– Limited assurance of selected group levelbusiness conduct, safety, and diversityperformance data;

– Reasonable assurance of selected grouplevel business conduct performance data(see page five); and

– Reasonable assurance of our statementon business conduct made under theheading ‘Responsible Business Conduct’

on pages five to eight, excluding the tableheaded ‘Dismissals for reasons relatingto unethical behaviour’ on page five whichhas been subject to limited assurance.

Scope and dataThe data and performance measuresin this report cover the period January –December 2009 with the exception ofenvironment data which covers the periodJanuary – December 2008. Qualitativeinformation and quantitative data forthe report are provided by individualsacross our business. Quantitative datais recorded on centralised systems,and content and data are reviewed athead office.

Unless otherwise explained, the data inthis report cover the Company’s majoroperations globally, excluding thoseacquired or divested during the year.

Overview: Introduction – BAE Systems: A snapshot for 2009What we do Inside flapOur markets Inside flapMessage from the Chief Executive 1CR Committee Chairman’s statement 4

Responsible business conduct 5Safety 9Environmental sustainability 12Workplace 14Community 18Performance summary 19Assurance statement 20

OVERVIEW

0

200

400

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09080706

557 554

789

562

95% 86%

% Employees trained and briefed% Written acknowledgement received from employeeson Code of Conduct

70

80

90

100

110

09080706

88,600

97,500

106,400 106,900

INTRODUCTION

BAE Systems: A snapshot for 2009

IN THIS REPORT

YOUR FEEDBACK

KPIFOR MORE INFORMATION ON OUR KPIS SEEOUR ANNUAL REPORT 2009 PAGE 26

LOST WORK DAY CASE INCIDENT RATE(PER 100,000 EMPLOYEES)

CODE OF CONDUCT1 EMPLOYEE NUMBERS

KPI KPI

FOR MORE INFORMATION ON OURAPPROACH TO CR AND HOW OURBUSINESS WORKS VISIT:WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

FOR MORE INFORMATION ON OURPERFORMANCE SEE OUR ANNUALREPORT OR VISIT:WWW.BAESYSTEMS.COM/AR09/

FURTHER INFORMATION

BAE Systems is a global defence, security and aerospace company with 106,9002

employees worldwide. The Company delivers a full range of products and servicesfor air, land and naval forces, as well as advanced electronics, security, informationtechnology solutions and customer support services. In 2009 BAE Systems reportedsales of £22.4 billion (US$36.2 billion).

6,100Employees4

AUSTRALIA

Get the latest information online:www.baesystems.com

VISIT WWW.BAESYSTEMS.COMFOR THE LATEST INFORMATION ON:– PERFORMANCE– INVESTOR PRESENTATIONS– CORPORATE RESPONSIBILITY

INTERACTIVE FEATURES ENABLEYOU TO:– CUSTOMISE THE HOMEPAGE– VIEW THE BAE SYSTEMS MOBILE SITE– SIGN UP FOR RSS FEEDS– SIGN UP FOR EMAIL ALERTS

Annual Report 2009– Accessible in pdf or interactive format– Search the Annual Report for key information– Download our corporate reporting literature– Links to further informationwww.baesystems.com/ar09/

Corporate Responsibility Report 2009– Accessible in pdf or interactive format– Search the Report for key informationwww.baesystems.com/cr09/

FOR ADDITIONAL CORPORATE RESPONSIBILITY INFORMATION: WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

Production of this reportThe printer is an EMAS certified CarbonNeutral®company and itsEnvironmental Management System is certified to ISO14001. 100%of the inks used are vegetable oil based, 95% of press chemicals arerecycled for further use and on average 99% of any waste associatedwith this production will be recycled. The papers contain 50% recycledfibre and 50% virgin fibre. The pulp for each paper is bleached usingan Elemental Chlorine Free (ECF) process. The paper is FSC certified.

BAE SYSTEMS ONLINE

OUR MARKETS

Our home markets are those countries where we havedeveloped or are seeking to develop a significant andsustainable industrial base. Export sales from ourhome markets are an important element of our strategy.Approval from the relevant home market governmentis sought before we execute potential defence businessopportunities with an overseas government.

A formal export licence or other authority is alwaysrequired before any defence products can be suppliedto an overseas customer, and before technical informationis released to them. In addition, our Pursuit of ExportOpportunities Policy stipulates that we apply ourown standards for evaluating both defence andcivil export opportunities.

43,700Employees4

UNITED STATES

600Employees4

SOUTH AFRICA

The Electronics, Intelligence &Support (EI&S) operating groupdesigns, develops, producesand services systems andsubsystems for a wide rangeof military and commercialapplications.

Electronic SolutionsInformation SolutionsPlatform SolutionsSupport Solutions

Land & Armaments (L&A)designs, develops, produces,supports and upgradesarmoured combat vehicles,tactical wheeled vehicles,naval guns, missile launchers,artillery systems, munitionsand law enforcement products.

Global Combat SystemsGlobal Tactical SystemsSecurity & SurvivabilityUS Combat SystemsProducts Group

Programmes & Support (P&S)primarily comprises theGroup’s UK-based air, navaland security activities.

Military Air SolutionsBAE Systems Surface ShipsSubmarine SolutionsDeticaIntegrated SystemTechnologies

International comprisesthe Group’s businesses inSaudi Arabia and Australia,together with a 37.5%interest in the pan-EuropeanMBDA joint venture, andshareholdings in Saab ofSweden and Air Astana.

CS&S InternationalBAE Systems AustraliaMBDA (37.5% interest)Saab (20.5% shareholding)Air Astana (49% shareholding)

InternationalProgrammes& Support

Land &Armaments

Electronics,Intelligence& Support

Number of employees

32,0002,3

Number of employees

19,8002,3

Number of employees

33,2002,3

Number of employees

19,7002,3

2. Including share of equity accounted investments.3. Excluding HQ and other businesses.

4. Excluding the Company’s share of equity accounted investments.

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/EIS/

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/LANDARMAMENTS/

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/PROGRAMMESSUPPORT/

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/INTERNATIONAL/

OVERVIEW

WHAT WE DO

4,900Employees4

SAUDI ARABIA

40,400Employees4

UNITED KINGDOM

1,500Employees4

SWEDEN

FOR MORE INFORMATION ABOUT BAE SYSTEMS VISIT:WWW.BAESYSTEMS.COM

Main operating locations Main operating locations Main operating locations Main operating locations A new home marketin 2009

INDIA

BAE Systems Corporate Responsibility Report 2009 1

Wewant tobe recognisedasacompany committedto developing a culture of Total Performance,focusing not just onwhat we do but also howwedo it. Total Performance is about every aspectof thewaywe do business; Customer Focus,Financial Performance,ProgrammeExecutionand Responsible Behaviour.

The good operating performance of BAE Systemsin 2009 reflects the good progress the Companyhasmade in recent years,developing thebusiness within a well-defined and consistentlyimplemented strategic framework (see page 2).That strategy underpins the Company’s aim todeliver sustainable growth in shareholder valuethrough a commitment to Total Performance forall its customers.

Over the past year the Executive Committee haslooked at what our Values should be to supportdelivery of our strategy. Trusted, Innovative andBold are our Values. These will guide us in theconduct of our business and support the highstandards we expect from our employees.

We have also committed to being as open aspracticable with external stakeholders – this willincrease the trust they place in us and yield anenhanced reputation.

Developing a culture of Total Performance,whichincludes delivering our Corporate Responsibility(CR) priorities through Responsible Behaviour,is embedded in our Group Strategic Framework(see page 2).

Focus on responsible business conductWe remain firmly committed to becomingrecognised as a leader in responsible businessconduct and in January 2009we launched aCode of Conduct.

The Code encapsulates the principles andstandards of business conduct we expect ofemployees wherever they work globally. As wellas setting out our standards, the Code providesall our employees with practical guidance on howto deal with ethical dilemmas thatmay arise,andrepresents an unequivocal public statement ofwhat we stand for,and howwe do business.

We intend that regular trainingwill formpart of ourongoing commitment to continuous improvementin responsible behaviour. We have embeddedResponsible Trading Principles (see page7) intothe Company’s central system of governance(the Operational Framework). These Principlesrequire us to ensure that all trading is to beundertaken in accordance with our CompanyValues and, together with our Code of Conduct,they underpin our business activity.

We have also spent much of 2009 reviewingand updating the Operational Frameworkto address the 23 recommendations in theWoolf Committee’s report. In January 2010 welaunched a revised Operational Framework witha new Group Strategic Objective (see page 2)which is underpinned by the new Values andupdated policies and processes to ensure we arerigorous in applying high standards of businessconduct across all aspects of our operations.

MESSAGE FROMTHE CHIEF EXECUTIVE

–Wewant to be recognisedas a company committedto developing a culture ofTotal Performance

–ResponsibleBehaviour isembeddedaspart of ourCompanyStrategy

–We remain firmly committedto becoming recognisedas a leader in responsiblebusiness conduct

Ian KingChief Executive

Total Performance –not just what we do,but howwe do it

OURSTRATEGY

2 www.baesystems.com

OVERVIEWMESSAGE FROM THE CHIEF EXECUTIVE CONTINUED

of communications equipment. We are reviewingthe cause of this accident and co-operating fullywith the regulatory investigation.

We have also reviewed the independent report,published in October 2009, into the loss ofNimrod XV230 over Afghanistan in 2006.The Company remains absolutely committed tosafety as a priority. We deeply regret the loss oflife resulting from this accident and our thoughtscontinue to be with the families and friends ofthose affected by this tragedy. We have alsoappointed Dr Chris Elliott FREng,a leadingsystems engineer and barrister, to supportand advise a review of the Company’s approachto product safety across all its sectors in the UK.

We continue to drive improved performanceacross the Company. To this end,our OperatingGroups aremaking progress against a five-levelSafetyMaturityMatrix,with the goal of reducingincident rates to a level comparable withbest performing global companies by theend of 2011.

On5 February 2010,theCompany announcedaglobal settlementwith theUKSerious FraudOfficeand theUSDepartment of Justice,which concludedthe lengthy investigations commenced by thosetwo authorities in 2004 and2007 respectively.

Details of the settlement arementionedonpage3.TheCompany verymuch regrets and accepts fullresponsibility for these past shortcomings. Thesesettlementsenable theCompany todeal finallywithsignificant legacy issues. In the years since theconduct referred to in these settlements occurred,the Company has systematically enhanced itscompliance policies and processeswith a view toensuring that the Company is aswidely recognisedfor responsible conduct as it is for high qualityproducts and advanced technologies.

Strengthening our safety cultureThe safety of our employees and those usingour products is critical to our business anda fundamental responsibility. I was deeplysaddened by the tragic loss of one of ouremployees in Australia during deployment

Over 60% of ourmajor manufacturing sites haveachieved Level 4 in thematrix by the end of 2009,demonstrating strong senior leadership on safetyand comprehensive risk-basedmanagementsystems.We have achieved a 29% improvementin our lost work day case incident rate from2008which equates to a 33% improvement in the gapto our target of best in class. This reflects thefocus applied by the businesses during 2009to safety and in particular reflects a strongperformance at our US sites.

Our approach to CRAt BAE Systems,we take the same rigorousapproach to CR as we do to any other aspectof the way we do business. This ensures weembed CR in people’s day-to-day jobs and drivecontinual improvement.

Key performance indicators on our CR prioritiesare reported to the Executive Committee on aquarterly basis and reviewed alongside financialand programme data as part of our QuarterlyBusiness Review process.

Our Values

Our culture depends on all of ouremployees living our Values of Trusted,Innovative and Bold. The behaviouralattributes that support our Values are:

Trusted:Wedeliver on ourcommitments.We are honest and takeresponsibility so that we can be reliedupon. In our organisation,everyone’scontributionmatters.

Innovative:We create leading-edgesolutions by valuing the imaginationandexperiencewithin our organisation.Weempower teamsandwork togetherto turn our ideas and technologiesinto solutions.

Bold:We constructively challengeand take the initiative,operatingwith tenacity and resolve.We acceptchallenges andmanage risk andset ourselves stretching goals.

OurMission is to deliver sustainable growth in shareholder value throughour commitment to Total Performance for all our customers

OurVision is to be the premier global defence, security and aerospace company

Integrated Business Plans

Our Group Strategic Objective is Total Performance through

OurValues are Trusted, Innovative and Bold

Strategic Actions

Grow our EI&Sbusiness both

organically and viaacquisitions andimprove ourefficiencies

Implement our globalland systems strategyand deliver on ourefficiency and

rationalisation plans

Establish in the UKsustainably profitablethrough-life businessin air, land and sea

Grow our homemarkets in the

Kingdom of SaudiArabia,Australia

and India

Implement our globalinitiatives in Security,

Readiness &Sustainment andUnmanned Aircraft

Systems

CustomerFocus

ProgrammeExecution

FinancialPerformance

ResponsibleBehaviour

Continue to developour global markets

Our Strategy

TheBAESystems’ Vision set out in ourGroupStrategic Framework (GSF) is ‘to be the premier global defence,security and aerospace company’.To achieve this Vision,wehave set ourselves theMission ‘to deliver sustainable growth in shareholder value throughour commitment to TotalPerformance for all our customers’. OurGroupStrategicObjective of Total Performance in all thatwedowill be delivered throughCustomer Focus,Financial Performance,ProgrammeExecution andResponsibleBehaviour. Total Performance is underpinnedby our Values – Trusted, InnovativeandBold. Total Performanceandour Values are the fundamental elements of our culture.


across our Company and drive sustainableimprovements across our CR focus areas.

ProgressagainstCRobjectives is reviewedquarterlyby theCRCommittee,chaired by non-executivedirector Andy Inglis (his statement on the year’sactivities is on page4). CR is also subject tointernal and external assurance processes.

Our Executive Committee is visibly leading theCR agenda,personally undertaking safety auditsand briefing employees on business conductand our Code of Conduct. 12.5% to 13% of theirpotential annual incentive is allocated accordingto the Company’s achievement of key performanceobjectives for responsible business conductand safety. For 2009,an average of 12.3%of the potential annual incentive was paidto Executive Committeemembers.

In addition to our priorities in responsiblebusiness conduct and safety,we continue tofocus on improving diversity and inclusion acrosstheCompany. In 2009,weestablisheda globalDiversity & InclusionWorkingGroup,andpiloted

the use of a Diversity & InclusionMaturity Matrixto assess our progress in this area. Thematrixwill be rolled out across the Company in 2010.

Wecontinue to believe our strategy iswell foundedandour commitment to Total Performance for allour customers provides aplatform for an enhancedreputation and for ourmission of deliveringsustainable growth in shareholder value.

Ian KingChief Executive

TheManagingDirector Corporate Responsibility,Raj Rajagopal,supports line leaders in driving theCR agenda. He reports directly tome. This yearthe global CR team,under Raj’s direction,hassupportedOperating Groups in implementing our2009CRobjectives. The teamhas also supportedthework of theWoolf Implementation Programme.Responsible business conduct activitiesmovedto the CR team in January 2010.

We strengthened the capability of the CR teamby recruiting new senior teammembers, focusingin particular on responsible business conduct,diversity and inclusion,and environment. Duringthe year, the CR team undertook extensiveengagement to increase awareness andunderstanding of our CR agenda both within theCompany and among external stakeholders.

We established a global CR Forum in 2009, led byRaj, to support our Operating Groups in deliveringthe Company’s CR agenda. The CR Forum helpsto develop awareness and understanding of CRamong our employees,exchange best practice

Responsible Behaviour

2009CR priorities– Responsible business conduct– Safety

FORMORE INFORMATIONONOURCROBJECTIVES SEE PAGES 5 AND9

FORMORE INFORMATION ABOUT:–MANAGINGCORPORATERESPONSIBILITY

– OUR PRIORITIESVISIT:WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

On 5 February 2010, the Companyannounced a global settlement with theUK Serious Fraud Office (SFO) and theUSDepartment of Justice (DoJ),whichconcluded the lengthy investigationscommenced by those two authoritiesin 2004 and 2007 respectively.

Pursuant to the agreement with the DoJ,the Company agreed to plead guilty toone charge of conspiring tomake falsestatements to the USGovernmentrelating to certain regulatory filings andundertakings. The Company agreedto pay a fine of US$400mandmake

additional commitments to the DoJconcerning its ongoing compliance. Underthe agreement with the SFO, the Companyagreed to plead guilty to one charge ofbreach of duty to keep accounting recordsin relation to paymentsmade to a formermarketing adviser in connectionwith thesale of a radar systemby the Company toTanzania in 1999. TheCompany agreed inrelation to thismatter to pay an agreedpenalty of £30mcomprising a fine to bedetermined by the Court with the balancepaid as a charitable payment for thebenefit of Tanzania.

GLOBAL SETTLEMENTWITH US ANDUKAUTHORITIES


CRCOMMITTEE CHAIRMAN’S STATEMENT

–Monitored progressagainstWoolf CommitteeRecommendations

–Assisted the Board inoverseeing the developmentof strategy and policy onsocial, environmental andethical matters

Andy InglisCRCommittee Chairman

MembersCorporate Responsibility CommitteeMembers5:

– Andy Inglis (Chairman)– Sir Peter Mason– Ravi Uppal

Responsibilities– Assisting the Board in overseeing thedevelopment of strategy and policy onsocial, environmental and ethical matters.

– Keeping under review the effectiveness ofthe Company’s internal control policies andprocedures for the identification,assessment,management and reporting of reputational risksincluding health and safety,workplace policies,environmental impact and business ethics.

–Monitoring and reviewing the role andeffectiveness of the Company’s Internal Auditfunction in relation to CR andmonitoring thedevelopment of the capability and capacityof Internal Audit to perform its role with regardto CR assurance,and in particular, ethicalbusiness conduct.

– Reviewing audit and assurance reportsproduced by the CRAssurer (an independententity appointed to act as an externalassurer of the Company’s CR reporting) andassessingmanagement responsivenessto recommendations in such reports.

– Overseeing and supporting key stakeholderengagement on social, environmental andethical issues.

–Making proposals to the RemunerationCommittee regarding appropriate CR relatedperformance objectives for Executive Directorsand, in due course,providing its assessmentas to performance against such objectives.

– Reviewing the Company’s arrangementsfor employees to obtain further advice onethical issues or raise and report concerns,in confidence,where theremay be possibleimproprieties. This included the Company’sEthics Helpline.

the Company’s Operational Assurance Statement(OAS) process – ahalf-yearly self assessmentprocess bywhich businessesand functional headsreport on their compliancewith theCompany’sgovernance requirements and identify key risks.

Responsible Business Conduct – during theyear the Committeemonitoredmanagement’sprogress against themilestones set for theimplementation of the recommendations intheWoolf Report. In addition, the Committeemonitored the roll out of the Company’sCode of Conduct across the Company.

CR Assurer – the Committee reviewed a reportfrom theCRAssurer,Deloitte LLP, dealing with theassurancework they undertook on the Company’s2008Corporate Responsibility Report.

Ethics Helpline – during the year the Committeereviewed the operation of the Ethics Helplineand details of the issues raised during the year.

CR Report – the Committee reviewed andapproved the Company’s 2008 CRReport.

Terms of Reference – the Committee reviewedits terms of reference and recommended thatcertain changes bemade to align its futureactivitiesmore fully with the recommendationsin theWoolf Report.

OVERVIEW CONTINUED

5. Sir Nigel Rudd was amember of the committee up to 18November2009. Sir Peter Mason was appointed to succeed him as amemberwith effect from the same date.

–Monitoring the implementation of theWoolf Report and ensuring that theCode of Conduct is regularly reviewedand reflects best practice for such codes.

– Ensuring the CR Report includes anexamination of responsible businessconduct within the Company.

The full terms of reference of the CorporateResponsibility Committee can be found on theCompany’s website or can be obtained from theCompany Secretary.

ActivitiesThe principal activities undertaken by theCommittee during 2009were as follows:

CRObjectives – the Committee agreedmanagement objectives at the start of theyear dealing with the following three corporateresponsibility relatedmatters:

– responsible business conduct– safety– diversity and inclusion

Atmeetings held during the year the Committeereviewed progress against these objectives.

Actual performance against themeasuresagreed for the 2009 objectives was determinedby the Committee at the end of the year and arecommendation wasmade to the RemunerationCommittee as to the level of bonus payable toExecutive Directors as a consequence of this.

The Committee has agreed CR relatedmanagement objectives for 2010.

Non-Financial Risk Review – the Committeereviewed the output from theCompany’snon-financial riskmanagement process andthe status of themitigation actions for therisks identified.

Internal Audit – the Committee received reportsfrom the head of the Company’s Internal Auditfunction covering CR related audit workundertaken during the year. He also providedthe Committee with details of the output from


RESPONSIBLE BUSINESS CONDUCT

– Senior leadership each to lead two employee focus/engagement sessions todiscuss the global Code of Conduct and ethical issues.

– Deliver the 2009Woolf Committee implementation planmilestones and obtainindependent external assurance of this.

– Employee sample survey on selected ethics questions to be carried out in thefourth quarter of 2009. Results to show an improvement relative to the 2008survey results.

We believe that achievingleadership standards ofresponsible business conductcontributes to strong businessperformance,builds trust andenhances our reputation.

In late 2009,a representative sample (approximately 10%)of employees worldwide were invited to participate in asurvey on the Company’s approach to responsible businessconduct. The survey covered the six questions related toresponsible business conduct included in our biennial fullemployee opinion survey,which will next be held in 2010.

Overall,41% of the sample responded. Results confirmthat almost all respondents were aware of ethical standardsexpected of themwith 75% of respondents believing thatthe Company demonstrates clear ethical standards.

Whilst these results are very positive, there are still areas forus to focus on and improve,particularly around employeesfeeling confident to speak up and challenge the way thingsare done.

Employeesmade 870 enquiries to our Ethics Helpline in2009 to request information and advice or raise concernsconfidentially about business conduct. Procedures arein place to ensure ethical concerns are investigatedand the findings are reported to the Ethics ReviewCommittee or for BAE Systems Inc. to the EthicsExecutive Oversight Committee.

The increase in the number of enquiries reflects theCompany’s continued focus on awareness and trainingrelating to business conduct following the roll out of theCode of Conduct in 2009.

The increase in dismissals reflects both the applicationof our responsible business conduct standards and theincrease in employee dismissals data integrated intoour HR systems following business acquisitions.

The Company’s target was to brief and train 100% ofemployees7 in position before 31October on the Codeduring2009.TheExecutiveCommittee considers its targetto have been substantively met and actively continuesto ensure that the remaining employees complete theCode of Conduct programme.

2009 OBJECTIVES Achieved

95% 86%


50

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216

260297

485

0

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09080706

410327

507

870

Accountingchargespractices

Companyethicalpractices

Conßictsofinterest

Employeerelationsandconduct

Internationalbusinessissues

Contractcompliance

Managementpractices

Securityandmisuseof assets

Guidanceandadvice

Environmental,Health andSafety

Procurement,trade andmarketing

Quality ormanufacturingissues

0

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100

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119

43 30

228

1

261

12 12 2

3810

114

EMPLOYEE ENQUIRIES TO ETHICS HELPLINE

2008 favourable 2009 favourable Change fromQuestion score6 full survey score6 sample survey 2008 score

I have confidence that if I raised an ethical issueat work it would be addressed 67% 73% +6

I believe I could report instances of dishonestor unethical practices without fear of reprisal 63% 70% +7

The culture of BAE Systems is one whereemployees are treated with fairness and respect 62% 71% +9

I believe BAE Systems demonstrates clear ethical standards 73% 75% +2

I think it is safe to speak up and challenge theway things are done in BAE Systems 54% 57% +3

I am aware of the ethical standards that theCompany expects ofme 94% 97% +3

CODE OF CONDUCT DISMISSALS FOR REASONS RELATING TOUNETHICAL BEHAVIOUR

FORMAL ETHICS ENQUIRIES FROM EMPLOYEES

EMPLOYEE SURVEY

6. Favourable score relates to the total of responses given as Agree or Strongly Agree.7. As at 31 December 2009 – wholly-owned subsidiaries only,excluding employees on long-term absence.

KPI

KPIFORMORE INFORMATIONONOURKPIS SEEOUR ANNUAL REPORT 2009 PAGE 26

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2009PerformanceWeare at the half way point of our three-yearprogramme to implement theWoolf CommitteeRecommendations.We have completed anumber of essential activities,as explainedbelow, to support our commitment tobecoming a recognised leader in responsiblebusiness conduct.

The 2009milestones for the Programme,which focused on reviewing and strengtheningcompany processes and policies and roll out ofthe Code of Conduct,have all been substantivelyachieved. The Board Charter has been amendedto include the Board’s responsibilities forensuring high standards of responsible businessconduct across the Company. The remit of theCRCommittee has been extended to include itsresponsibility for oversight and reporting againstthose standards. All relevant policies andprocesses have been agreed by the ExecutiveCommittee and incorporated into the Company’scentral system of governance, the OperationalFramework,at the beginning of January 2010.

We communicated our response to theWoolfCommittee Recommendations internally during2009.We shall now progressively communicateexternally explaining our approach and thechanges that we aremaking.

Code of ConductThe Code of Conduct, launched in January2009,defines the principles and standardsof responsible business conduct we expect

of employees.We intend that the Code willbe reviewed regularly to ensure it continues tomeet best practice,with the first review beingconducted during 2010.

The Code of Conduct was communicated toemployees in 2009 through team briefings.The briefings were designed to cover how theCode of Conduct applies to employees intheir daily work lives and aimed to create anenvironment where employees feel they canspeak up,ask questions and raise any issuesrelating to responsible business conduct.Employees were required to undertake eitheronline or classroom-based training on theCode of Conduct (see case study above).Approximately 91,000 of our employees inour wholly-owned businesses were briefed andtrained in 2009, representing approximately95% of our workforce8. These results includeour Surface Ships business (approximately7,000 employees) which joined the Companyon 30October 2009.

Employees were also asked to formallyacknowledge that they understood and wouldcomply with its requirements. By the end of2009 approximately 86% of the workforce8had provided their written acknowledgement.In addition to our wholly-owned businesses,asat 31 December 2009,we had 1,300 employeesin joint ventures that are essentially underthe control of BAE Systems (‘controlled jointventures’). We intend that these businessesare operated in alignment with our governance

GoalBAESystems is committed tobecomingarecognised leader in responsiblebusinessconduct.

StrategyEstablishing a clear understanding and sharedcommitment to responsible business conductis an important element in our commitmentto developing a culture of Total Performance.To support this commitment,during 2009wereviewed and updatedmany of our policies andgovernance procedures.

We believe visible leadership is essential toembed a culture of Total Performance andresponsible business conduct among employeesat all levels andwherever they work in theworld.Our Values,Code of Conduct andResponsibleTrading Principles,are being communicated toemployees through briefings, training and ongoingengagement by senior leaders. Given the keyrole of our Executive Committee,12.5% to 13%of their potential incentive allocationwas basedon achieving our responsible business conductand safety objectives in 2009.

TheWoolf Committee – an external, independentcommittee appointed by the BAE Systems Boardand chaired by LordWoolf, former Lord ChiefJustice of England andWales, reported itsfindings inMay 2008. The Company establisheda three-year programme in 2008 to implementthe Committee’s 23 recommendations on howBAE Systems could achieve a leadership positionin responsible business conduct.

Know the CodeOur objective in 2009was to ensure that our employees wereaware of the Code of Conduct and understood how it appliedto their day-to-day working lives. During 2009we trainedapproximately 91,000 employees8working in awide rangeof roles inmany countries around theworld using a range oftrainingmaterials.

As an example,ourMilitary Air Solutions business in the UKusedmobile IT training facilities to enablemanufacturingemployees without access to computers to take the onlinecourse in their normal place of work.Where appropriate,employees were trained through classroom sessions,duringwhich theywere encouraged to takepart in interactivecase studies.

Many employees took our online course,which clearlyexplains the key aspects of the Code of Conduct. The courseguides staff through a series of animated scenarios whereemployees are facedwith typical ethical dilemmas andincludes a test to confirm understanding of the Code.

RESPONSIBLE BUSINESS CONDUCT CONTINUED

8. As at 31 December 2009 – wholly-owned subsidiaries only,excluding employees on long-term absence.

Responsible business conduct isfundamental to the success of ourCompany. We do not compromiseon the way we conduct business andconsistency of this approach is keyin defining BAE Systems’ reputation.

Wehave aCodeof Conduct that sets outthe standards towhich every employeeis required to work to. In addition,BAE Systems has four ResponsibleTrading Principles that underpin allour business activity. These are:

1.We understand and support ourcustomers’ national security andother requirements;

2.We assess carefully our products andservices with the objective that neitherBAE Systems nor our customers areexposed to significant reputational risk;

3.Wework to BAE Systems’ Values in allthat we do; and

4.We are as open as practicable aboutthe nature of our business.

RESPONSIBLE TRADINGPRINCIPLES


system. As at 31 December 2009 some 65% ofemployees in these businesses had been briefedand trained on the Code of Conduct,with 65%having signed their formal acknowledgments.

Activity continues to ensure that the remainingemployees complete the Code of Conductprogramme. Refresher training will begin in 2010.We have also updated our policy to ensure thatbreaches of the Code of Conduct are subject todisciplinary procedures.

The Company is not in a position to require ournon-controlled joint ventures or suppliers to adoptour specific standards (including operating anEthicsHelpline) in their business activity. However,it is our aim that there is clear understandingand a shared set of Values governing howwedo businesswith our joint ventures.We intendto assess the approach taken by joint venturesand key suppliers as part of our programme.

In 2010,weplan to provide our top1,000supplierswith a copy of our Codeof Conduct and theywill beencouraged towork to equivalent standards.

GovernanceAs already explained,we have reviewed ourOperational Framework to enhance policies toaddress theWoolf Committee Recommendations.This includes the development of a set ofResponsible Trading Principles (above).These,along with the Code of Conduct andour new Company Values,underpin all ourbusiness activities.

In 2009,our Internal Audit teamworked withThe GoodCorporation to devise amethodologyto assess Responsible Business Conduct andNon-Financial Risk as part of all internal audits.We intend that the revisedmethodology will beimplemented during 2010.

We shall review all policies every three yearsto ensure they remain current and reflect thestandards expected of a global company.

DecisionmakingOur newand revised policies, including our ProductTradingandPursuit of ExportOpportunitiespolicies,require us tomake informed assessments andresponsible decisions about the nature of ourproducts and the business opportunities wechoose to pursue. Productsmust be assessedagainst four criteria: the typeof product, its intendeduse,theenduser and,for exports,the countryof sale.

The revised policy on offset (agreements withexport customers to generate work or createcapability in their country) requires us to ensurethat robust procedures are in place for assessingand committing to such agreements.

In the settlement reachedwith theUSDepartmentof Justice (DoJ) in February 2010 in connectionwith its investigation commenced in 2007,the Companymade commitments to theDoJconcerning theGroup’s ongoing regulatorycompliance, including the appointment of anindependent corporatemonitor for a period of

up to three years tomonitor the Company’scompliancewith such commitments.

In 2007wecreated aBusinessDevelopmentAdviser CompliancePanel (the ‘Panel’) for thereviewandassessment of adviser appointmentsincluding for business development,security andoffset advisers. All appointments of lobbyists arerequired to be reviewedby thePanel,other thancertain domestic USappointmentswhich aresubject to separate legislative controls. ThePanel,which is required to advise theCompany astowhether it should proceedwith an adviserappointment, is chaired by independent thirdpartieswhoare partners from leading law firms.Our revised process for the appointment,selectionandmanagement of adviserswasdescribed by theWoolf Committee as leading-edge practice. Alladvisers added to theCompany’s adviser registerin 2009were appointed in accordancewith a newglobal adviser policy introduced from1 January2009,with the exception of a limited number ofUSadviserswhowere already being assessedbefore the introduction of the newglobal adviserpolicy. However, this limited groupof USadviserswere also assessedby thePanel whichrecommended their appointment.

In accordance with the settlement reached withthe USDoJ referred to above, the independentcorporatemonitor shall serve as an ex-officionon-votingmember of the Panel and themandateof the Panel shall be expanded to include reviewof certain othermatters relating to internationalbusiness development.

.


Our policy on lobbying governments and otherbodies has been revised to require all thoselobbying externally on BAE Systems’ behalf tocomply with our Code of Conduct. From2010a report on lobbying activitiesmust be providedto the CR Committee.

Our updated Gifts and Hospitality Policy sets outclear requirements for employees including limitson the giving and receiving of gifts and hospitality,together with recording of these activities. Wehave also amended our Company Giving Policyto give clear guidance on all Company donations.

Our Facilitation Payments Policy states thatemployees are prohibited frommaking facilitationpayments irrespective of whether or not they arepermitted by local laws and requires employees todecline and report any request for such payment.

“We are committed tobecoming recognised asa leader in responsiblebusiness conduct.”Ian KingChief Executive

The Code of Conduct, launched in January 2009,defines the principlesand standards of business conduct we expect of employees wherever theywork globally.

All line leaders and functional directorsare required to submit to the ChiefExecutive the level of implementationof core policies in their areas ofresponsibility through the twice yearlyOperational Assurance Statement. Incases where a policy is judged not tobe fully implemented a plan is requiredsetting out themilestones to fullcompliance. The objective agreed for2010 is that by December all of themilestones have beenmet and anyfuturemilestones are on track to bemet.

RESPONSIBLE BUSINESS CONDUCT CONTINUED

FORMORE INFORMATION ABOUT:– CODEOF CONDUCT– THEWOOLF REPORTVISIT:WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

2010OBJECTIVESWorking to improve industry standardsBAE Systems is amember of both the AerospaceIndustries Association of America and theAerospace and Defence Industries Association ofEurope,which agreed commonGlobal Principlesof Business Ethics for the Aerospace andDefence Industry in October 2009.

We are actively working with the UK defenceindustry to promote the adoption of responsiblebusiness practices and wewelcome thepublication of a draft Bribery Bill. The Bill aims toprovide a comprehensive scheme to deter briberyoffences enabling courts and prosecutors torespondmore effectively to bribery in the publicand private sectors within the UK or abroad.

BAE Systems, together with other leadingmulti-nationals, is supporting a new Centre forLaw and Ethics at University College London.The Centre,established in October 2009,aimsto promote debate on business ethics and helpcompanies promote an ethical corporate culture.


SAFETY

– Senior leaders each to undertake three safety audits,and flow-downtraining and requirement to conduct safety reviews to two levels belowthe Executive Committee.

–Minimumof Level 3 on the SafetyMaturity Matrix,with 60% ofmajormanufacturing sites progressed to Level 4 by the end of 2009.

– Incident rate in 2009 to show at least a 10% improvement over 2008 and,for sites with significantly worse than best in class statistics, improvementtargets to be set consistent with achieving best in class in 2011.

– Incident rate targets to be set by businesses at a level reflecting theprogress required to achieve the 2011 target of best in class.

The safety of employees andthose using our products iscritical to our business and animportant responsibility. Effectivesafetymanagement throughidentifying,managing andmitigating safety risks is akey element of developinga Total Performance culture.

The actual number of major injuries has increased during2009,but the normalised rate (major injuries recordedper 100,000 employees) has decreased. This reflects theincreased size of the Company,demonstrating an overallimproved trend.

Further to the incorporation of Surface Ships as awholly owned business in 2009,2008 data for majorinjuries recorded has been rebased to include their2008 accident data. This exercise has been undertakento allow comparable data for 2009.

Further to the incorporation of Surface Ships as a whollyowned business in 2009,2008 data for major injuriesrecorded per 100,000 employees has been rebasedto include their 2008 accident data. This exercise hasbeen undertaken to allow comparable data for 2009.

TheCompany targeted a10% improvement in the gapbetween2008performanceand the best in class target of100per 100,000employees. The targeted improvementwasexceeded in2009; the improvement in lostwork day caseincident rate from2008was29%,which equates to a33%improvement in the gap to our target of best-in-class. In 2009our incident rate reduced to562 recorded injuries per100,000employees.

KPIFORMORE INFORMATIONONOURKPIS SEE OURANNUAL REPORT 2009 PAGE 26

Themain causes ofmajor injury in 2009 across the companycontinue to be slips, trips and falls on the same level,accounting for 44% of recordedmajor injuries. Several ofour businesses have launched campaigns to tackle theseincidents by, for example,encouraging employees to ‘spot it,report it’ – to act when they see potential hazards. Othercausesofmajor injury include falls fromheight (18%),struckbymoving, including flying/falling object (13%) and injuredwhile handling, lifting or carrying (8%). Root cause analysisof types of incidents will be carried out to identify commonglobal issues and solutions.

2009OBJECTIVES Achieved

Slips, trips or falls on the same level 34 44%

Fall from height 14 18%

Struck bymoving, including flying /falling object 10 13%

Injured while handling, lifting or carrying 6 8%

Contact withmovingmachinery 4 5%

Strike against something fixed or stationary 4 5%

Exposure to,or contact with,a harmful substance 2 3%

Road Traffic Accident 2 3%

Exposure to fire 1 1%

2009 CAUSEOFMAJOR INJURIES RECORDED (NUMBEROF EMPLOYEES INJURED)

0

200

400

600

800

09080706

557 554

789

562

LOSTWORKDAY CASE INCIDENT RATE(PER 100,000 EMPLOYEES)

0

25

50

75

100

09080706

47 48

7671

MAJOR INJURIES RECORDED(PER 100,000 EMPLOYEES)

0

25

50

75

100

09080706

40 44

6977

MAJOR INJURIES RECORDED

KPI

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equates to a 33% improvement in the gap toour target of best in class. In 2009 our incidentrate reduced to 562 recorded injuries per100,000 employees.

All our Operating Groups are setting targets toreduce the rate of safety incidents in line withachieving best in class performance by the endof 2011.

In previous reports,wehave useddays lost towork-related injuries per 100,000employees asour key safetymetric. This year,wehavemoved toreporting the lostwork day case incident rate per100,000employees (referencedas incident ratewithin theSafety objectives) to focus on the causesof accidents and to enablemoremeaningfulcomparisonwith other companies.Whilewecontinue tomonitor and reportmajor injuriesand causeofmajor injuries recorded,wehavediscontinued reporting total recorded injuriesto all employees,as this figure is not so readilycomparablewith other companies.

There were five reportable safety incidents and15 safety enforcement notices during 2009arising from incidents and targeted inspections.Wemaintain goodworking relationshipswith ourregulators andwork with them to address theseissues as they arise.

FatalityWeare deeply saddened to report the deathof one of our employees during deploymentof communications equipment in Australia.We are reviewing the cause of this accident andco-operating fully with the regulatory investigation.

Response to Haddon-Cave report on loss ofNimrod XV230Following the publication of the independentreport by Charles Haddon-CaveQC into the lossof Nimrod XV230 over Afghanistan in 2006,

2009 performanceEach Operating Group confirmed that theminimum standard of safety across their line ofbusinessmet SMMLevel 3 requirements. Thismeans that they have in place systems alignedwith Occupational Health and Safety AssessmentSeries (OHSAS) 18001 to address themajorityof safety issues; that they have a safety riskregister; and that there is systematic trainingfor most employees in safety roles.

Over60%ofmajormanufacturingsiteshaveachievedLevel 4by theendof2009,making thestep-change toaproactiveand integratedapproachtosafetymanagementacross their operations.Level 4 includesstrongdemonstrable seniorleadershiponsafety,comprehensive risk-basedmanagement systems,a complete register ofsafety risksandOHSAS18001certificationatmanufacturingsites. Internal Audit, in conjunctionwith senior safetymanagers,confirmed suchachievement of Level 4 through audits at 30majormanufacturing sites globally.

Our Internal Audit teamworked with responsiblebusiness consultancy The GoodCorporation ona number of joint audits. The findings from thesewill be used to further incorporate best practiceinto our SMMaudit framework.

Visible leadership raises safety awareness anddrives behavioural change among employees. Itincludes safety briefings, training and site auditsby senior managers. In 2009,all members of ourExecutive Committeemet their objective withrespect to conducting reviews. In addition,manyof the senior management population,as wellas othermanagers (below senior leaders) wererequired to participate in audits to enhance theirsafety knowledge.

We have achieved a 29% improvement in our lostwork day case incident rate from2008which

GoalOur goal is to ensure consistently good safetymanagement across the Company in theshort term and to drive performance to a levelcomparable with the best performing globalcompanies by the end of 2011.

StrategyIn 2008,we put in place a four-year safety planoutlining the steps required tomove towardsleadership in safety performance. Ensuring acommon understanding of our safety goals isa priority, particularly given the diverse natureof our businesses, the different regulatoryenvironments we operate in and the rangeof safety risks wemustmanage.

A five-level SafetyMaturityMatrix (SMM) is usedto drive continual improvement and tomonitorprogress across our Company (see diagramonpage11). By 2011,our target is for all ourmanufacturing sites to achieve Level 5 (bestin class). SMMcriteria are reviewedannually toensure they continue to reflect safety best practice.

Safety was included in the Executive Committee’stop 10 objectives for 2009 and, together withresponsible business conduct,made up 12.5%to 13% of their potential incentive allocation.A Senior Safety Steering Group has beenestablished comprising senior safety leadersfrom each Operating Group, the Head of SafetyAssurance and the DeputyManaging DirectorCorporate Responsibility. Safety is included inthe key performance indicators of our quarterlybusiness reviews to the Operating Group Boardsand to the Executive Committee.

It is essential that our products can be handled,transported and used safely. Product SafetyWorking Groups have been established in theUK and US to drive progress in our businessesand promote best practice across the Company.

BAE Systems’ ship repair sites in the US are developinga safety programmeaimed at creating an accident freeworkplace and to achieve level 5 on the Company’sSafetyMaturityMatrix (SMM).

As a first step,an independent safety audit wasconducted tomeasure the sites’ performance againstBAE Systems’ SMMand identify areas for improvement.

Following the audit, safety risk assessment andmitigation processes were strengthened and a numberof safety goals and objectives set. The sites are alsofocusing on creating a safety culture among employees.Key to this is a new safetymanagement statement. Thishas been endorsed by seniormanagers and displayedprominently at all sites to remind employees that safetyis always the first priority.

Compulsory safety training was introduced for allemployees andmanagers. Safety performance isincluded in the personal development review processformanagers. Regular employee safety surveys areused to helpmanagers understand attitudes to safetyand identify areas for improvement.

Three of the four ship repair sites achieved level 4on the SMM in2009. Additionally,Norfolk,SanDiego,San Francisco andHawaii achievedOHSAS18001certification. Safety performance across USShipRepairsites produced a57percent improvement comparedto 2008 in the lost workday case incident rate.

SAFETY CONTINUED

Focus on safety at US shipyards


IncreasinglyInformed

IncreasedTrust andAccountability

SMM1 (PATHOLOGICAL)Safety is not important to us.

SMM2 (REACTIVE)Safety is important,andwe do alot every timewe have an accident.

SMM4 (PRO-ACTIVE)Wework on problems that we still find.

SMM5 (BEST IN CLASS/GENERATIVE)Safety is howwe do business aroundhere – it is a precondition to our work.

Years 2007 2008 2009-2010 2011

EngagementIntegrationAccountabilityOwnership

ExpectationsPride

ResponsibleFully committed

The abovematrix has been adopted from the Royal Dutch Shell plcmodel. See our website for further details on whatachieving each level means in practice.WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

BAESystems has appointedDr Chris ElliottFREng,a leading systems engineer and barrister,to support and adviseNigelWhitehead,FREng,GroupManagingDirector Programmes&Supportwhowill undertake a review of the Company’sapproach to product safety in the UK.

The review will examine current policies,processes,governance,actions and behaviours

associated with product safety and will beconducted by a senior team of six people,with relevant qualifications and experience.The teamwill work to help develop and enhancethe Company’s approach to product safetyand,where appropriate,understand how otherindustries have addressed comparablematters.

Safety Exemplarmodel halvesMilitary Air Solutions incident rateInOctober 2009Military Air Solutions (MAS)wasawardedthe ‘BestHealth andSafetyAchievement inManufacturingAward’ from the Institution ofOccupational Safety andHealth (IOSH). Thiswas in recognition of their developmentof an ‘Exemplar’ safety culture,describedby IOSHas “a veryimpressive,comprehensive andwide-reachingprogramme”.

MAS is committed to achievingworld class safetyperformance. TheSafety Exemplarmodel is aimedatpromotinga culture inwhich eachandevery employee viewssafety as an integral part of their role. To support theSafetyExemplarmodel a communications campaignwas run toengageemployeesand reinforce theneed for zero toleranceof unsafeworking conditions andpractices. The focusedcampaign included face to face training,development ofonlineWebPages,theproductionofDVDs,thedelivery ofsafety briefings and road shows,anduseof onlineweeklybriefs andmonthly articles for theMASFrontlineNewspaper.

Continue the progress towards a worldclass level of safety performance:– All businesses and BAE Systemscontrolled sites of over 150 personnelto attain level 4 of SMM,and thosecurrently at Level 4, to show, throughaudit, progress towards achieving ourtarget to achieve level 5 by end 2011

–Deliver at least 20% improvement inLostWorking Days incident rate fromyear 2009 level.

SAFETYMATURITYMATRIX

FORMORE INFORMATION ABOUT:– OUR APPROACH TOSAFETY–OURSAFETYMATURITYMATRIX EXPLAINEDVISIT:WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

2010OBJECTIVES

SMM3 (CALCULATIVE)We have systems in placetomanage all hazards.

EducateAwareness

Personal/Companycommitment


GoalWeaim to improve the environmentalperformance of our products and operations.

StrategyOur global Environment Policy states ourcommitment to reducing our impact on theenvironment andminimising the through-lifeimpacts of our products.This is also includedin our Code of Conduct.

Environmental impacts including greenhousegas emissions,material and solvent usage,waste products and emissions to theatmosphere,are identified andmanagedthrough our Environmental ManagementSystems (EMS). Our EMS are certified toISO 14001 ormeet its principles. Wemonitorupcoming legislation and share best practiceacross ourmarkets.

2009 performanceDuring 2009,our primary focus at a global levelwas on energy use.We continued tomonitorand report our energy use and business travelon a Company-wide basis.

For the third year runningwehave commissionedThe Coefficient Company to calculate our 2009global carbon footprint and to help improve ourdata collectionmethods. This analysis, togetherwith the 2009 energy use data, is scheduled tobe completed by the end of June 2010.

The Coefficient Company produced andprovided an analysis of our 2008 global carbonfootprint. Our carbon footprint has increasedsince 2007 for two principal reasons. Firstly,we have improved the coverage and accuracy

Reducingour impact on theenvironmentandassistingsuppliers todo thesame,helpsus to improveoperationalefficiency,reducecostsandensure compliancewith legal and regulatoryrequirements. Productenvironmental performanceisalsoof increasing interesttoour customers.

The reported increase in the Company’s carbonfootprint in 2008 reflects improvements in datacollection and acquisition activity.

The Coefficient Company has been commissionedto calculate the Company’s 2009 carbon footprint,the results of which were not available at the dateof this report.

Scope 1 emissions are fuels brought onto siteincluding gas,coal, oil, aviation fuel, LPG and fueloil. Scope 2 emissions is electricity. Businesstravel includes domestic, short and long haulflights,executive cars and hire cars.

ENVIRONMENTAL SUSTAINABILITY

– Energy use and related CO2 emissionsincreased in 2008 due to improved datacollection and business acquisitions.

– Seven of our sites participate in theEuropean Union Emissions tradingscheme. In 2009we transferred21,830 tonnes of carbon.

– Efforts to reduce energy use in ourbusinesses this year included anew £1million partnership with theUniversity of Central Lancashire todevelop intelligent energymanagementsystems at BAE Systems’ UK sites.

HIGHLIGHTS

0

300

600

900

1200

0807

920

1,190

TOTAL CO2 EMISSIONS(THOUSAND TONNESCO2)

0

100

200

300

400

0807

249

203

Programmes & SupportLand & Armaments

InternationalElectronics, Intelligence & Support

344

102

352385

270

117

TOTAL CO2 EMISSIONS BYOPERATINGGROUP(THOUSAND TONNESCO2)

0

200

400

600

800

0807

232

552

139

315

752

125

Scope 1 emissions Scope 2 emissionsBusiness travel

TOTAL CO2 EMISSIONS BY SCOPE(THOUSAND TONNESCO2)


of our energy and business travel data acrossthe Company. Improvements in data have beensupported by our work towards preparing forthe UK Carbon Reduction Commitment andthe Australian National Greenhouse & EnergyReporting Scheme.

Secondly,acquisition of new businesses during2008 have brought with them associatedemissions, increasing our overall footprint.

Fluctuations in our use ofwater,waste and volatileorganic compounds are heavily influenced byprogramme status. We continue tomonitorandmanage these data at site and facility level,but no longer aggregate data at a Group level.

Seven of our sites participate in the EuropeanUnion Emissions Trading Scheme (EU ETS). In2009we had a surplus of EU ETS allowanceswhich allowed us to redistribute them to addressdeficits within our businesses. Thismeant we didnot have to purchase any additional allowancesatmarket prices. In 2009we transferred 21,830tonnes of carbon.

Efforts to reduce energy use in our businessesthis year included a new £1million partnershipwith the University of Central Lancashire todevelop intelligent energymanagement systems.Our EI&SOperating Group’s new Advanced EnergySolutions line of business is developing solutionsto help customers adopt secure,efficient andcost-effectivemeans of producing,distributing,storing,managing,and controlling energy. This ispart of a wider investment by the Company in theresearch,development and integration of smart,secure,and sustainable energy solutions,including renewable energy technologies.

In the UK an Environmental SustainabilityFramework was piloted to help our businessesplan for medium and long-term risks andopportunities associated with issues suchas climate change,material scarcity and risingenergy prices. The framework covers operationaland product impacts,and our supply chain,andwill be rolled out across the Company.

Construction and refurbishment projects frequentlyincorporate green design features (see casestudy above).

Product stewardshipOur Product EnvironmentWorking Groups inthe UK and US focus on assisting the linesof business in complying with environmentallegislation and transferring best practiceacross the company. A product environmentmanagement handbook and e-learning coursewere launched in 2009 and these are supportedby a Company-wide intranet site.

Supply chainSuppliers are expected tomeet product safetyand environmental standards. BAESystemsis a signatory to theUKMinistry of Defence’sSustainable Procurement Charter and hascommitted to improve standards in the defencesupply chain by educating suppliers,establishingperformancemeasures and sharing best practice.

Our Sustainable ProcurementWorking Grouphas published guidance to help employeescarry out supplier sustainability risk and impactassessments. These cover supplier performanceon safety and health,environment and businessconduct as well as employee awareness and

stakeholder dialogue. Assessments will becarried out as part of our supplier managementprocess from2010. Sustainability training isbeing developed in partnership with the UK’sChartered Institute of Purchasing and Supplyand the US Institute of SupplyManagement,and will be launched in 2010.

In 2009we participated in the UK Supply ChainCarbon Disclosure project with our indirectsuppliers (companies who supply goods andservices not related to our products). Thisimproved our understanding of their climatechange strategies, carbon reduction initiatives,datamanagement and reporting systems.

In light of the global recession,we assessedthe financial health of strategically importantsuppliers. A database of vulnerable suppliershas been compiled,and is available to allOperating Groups. Flexible payment terms andadvance ordering are being introduced whereappropriate, to help vulnerable suppliers ensurebusiness continuity.

FORMORE INFORMATION ABOUT:– ENVIRONMENTAL POLICYANDMANAGEMENTVISIT:WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

New buildings keep the environmentinmindNew office andmanufacturing sites are designed to reduceenvironmental impacts and running costs. The low-energybuildings at our Samlesbury sitemakemaximumuse ofdaylight whilstminimising solar gain and use night-timecooling and natural ventilation to reduce use of air-conditioning. Energy efficient heating systems, includinga biomass boiler,and lighting controls,ensure wemeeta requirement that 10%of the energy needs of newdevelopments come from renewable sources. The sitecurrently uses awind turbine to power the new site entrancebuilding; the feasibility of larger-scale wind solutions are alsobeing assessed.

In the US,buildings at Quantico,Virginia and SanDiego,California achieved LEED (Leadership in Energy andEnvironmentalDesign)Gold certification. Quanticowas the

first company building in the US to receive LEED CommercialInterior Gold certification. The buildings sharemany of thefeatures employed at Samlesbury. At SanDiego,10%ofbuildingmaterials came from recycled sources and 50%ofconstruction waste was diverted from landfill. Water savingfeatures use 40% less water while the building uses 25%less power for lighting than is required under California law.

InAustralia,building upgradesat EdinburghParks inAdelaideuseanumber of environmental features suchas solar panelsto supply energy for hotwater. BAESystemsAustralia hasinvested inSMARTmetering to gather detailed data onenergyuseandgreenhousegas emissions to help itmeet reportingrequirements introducedby theAustralian government.


Wework toensure thatBAESystemshas the rightemployeeswith the right skillsto serve customers in all ourmarkets,nowand in the future.Thisactivity is being deliveredagainst a backdropof skillsshortages in someareasof our industry,and intensecompetition for scienceandengineering graduates inmanyof our homemarkets.

Diversity data during 2009 remained consistent with 2008figures. During 2009we conducted a number of activities todevelop our inclusion agenda including launching a globalDiversity & InclusionWorking Group,piloting a Diversity &InclusionMaturity Matrix and reviewing our OperationalFramework to ensure it reflects the Company’s commitmentto inclusion and to ensure it encourages the behaviours andculture needed to underpin our Code of Conduct.

Ethnic diversity data is currently collected in the Kingdomof Saudi Arabia (KSA),South Africa, the UK and the US. Dueto legislation in Sweden we cannot report ethnic diversitydata for this business.We do not collect ethnic diversitydata for our businesses in Australia or India.

WORKPLACE

– Senior leadership to participate in a workshop to develop the inclusion agendafor their business. Senior leaders to lead two events with employee groups todevelop action plans to address culture,barriers and improvements.

– Executive Committee to review the Operational Framework and supportingpolicies and processes to identify potential improvements required to developamore inclusive culture. Any changes to be included in the updated July 2009version of the Operational Framework.

– Senior leadership to develop one personal objective on inclusion during thefirst half of 2009 for implementation in the second half of the year.

2009OBJECTIVES Achieved

0

10

20

30

40

60 years and older

50-59years

36-49years

26-35years

25 years and younger

8

19

37

28

8

2009AGEDIVERSITY (%)

0

25

50

75

100

TotalUSUKSouth Africa

59

41 97

3

74

26

85

15

White Non-white

2009 ETHNIC DIVERSITY(% IN SOUTH AFRICA,THE UK AND THEUS)

11

3059

Saudi National White EuropeanOther

2009 ETHNIC DIVERSITY(% IN KSA)

Australia KSA South Africa Sweden UK US Total

0

20

40

60

80

100

84

16 100

83

17

82

18

84

16

72

28

80

20

Male Female

2009GENDERDIVERSITY (%)

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GoalOur goal is to recruit and retain employeeswith the skills and capabilities we need tomeet changing customer requirements.

StrategyAn inclusive workplace where all individuals arevalued and respected,encourages innovationand supports the retention of skilled employees.It also increases our attractiveness as anemployer to potential recruits. Greater diversityis supported by expanding our recruitment andsuccession planning processes to includetalented people from a variety of backgrounds,experiences and perspectives,and throughtraining,mentoring and employee networks.Diversity and inclusion objectives are included inthe performance objectives for senior leaders.

Training and leadership programmes help us todevelop the capabilities needed in a changingmarketplace and to support all employees toreach their full potential. We invest in the skillsof our next generation of employees through oureducation and early careers programmes. Regularinternal communication keeps employees in allcountries and locations, involved andmotivatedand contributes to productivity.

2009 performanceDuring 2009we held a number of workshopsattended by senior management and functionalgroups to develop our inclusion agenda.

Our Operational Framework was reviewed toensure it reflects the Company’s commitmentto inclusion,and to ensure it encourages thebehaviours and culture needed to underpinour Code of Conduct. Senior leadership each

committed to a personal inclusion objective,such asmentoring,supporting women’s networkevents and leading focus groups withminorityemployee groups.

A Global Diversity & InclusionWorking Group waslaunched in 2009, to coordinate our approach todiversity and inclusion. A five-level Diversity &InclusionMaturity Matrix has been developed.This establishes a consistent global benchmark,helping our Operating Groups to chart theirprogress frommeeting regulatory requirements(Level 1) to creating a culture that embracesdiversity as a source of competitive advantage(Level 5). During 2010 each Operating Groupwill set targets against thematrix reflectingtheir different stages of development.

Examples of other activities during 2009 todevelop our inclusion agenda included a studyto establish if there is a ‘glass ceiling’ within theP&SOperating Group in the UK that preventswomen in executive jobs from progressingtomore senior roles. The outcomes andrecommendations for action were approvedby the P&SBoard. The areas of focus includestructured career plans, rolemodels,home lifecommitments, flexibility and networking. Our USbusiness has been working on improving femaleandminority representation at senior level. In2009we achieved 19% female and 10%minorityhire/promotion rates at senior level againsttargets of 20% and 10%, respectively.

Capability developmentOur Total Performance emphasis extends totraining. Our Code of Conduct training is part ofan employee training and development approach

which helps us ensure responsible behaviour,keep up with changing technology,andmeetour customers’ needs frommanufacturing tothrough-life care.

‘Developing You’ training programmes buildemployees’ professional skills in line withcustomer requirements.

Many training programmes are run in partnershipwith academic and industry partners. In Australia,for example, the Professional DevelopmentProgramme for Engineers is run in collaborationwith Engineers Australia. Participants undergo astructured training programme,gaining practicalexperience in a range of roles. During 2009,over100 graduate engineers and 87 senior engineersparticipated in the programme gaining Charteredstatus in recognition of their expertise.

Our Operating Groups take a strategic approachto training. For example,Submarine Solutionshas run an Enterprise Skills ManagementProgramme tomapworkforce skills and identifytraining priorities.

LeadershipTraining, coaching andmentoring are availableto leaders and aspiring leaders to support themin their performance and career goals. The TotalPerformance Leadership (TPL) framework aims tostrengthen leadership capabilities in line with ourstrategy. Leaders are assessed against financial,project and behavioural measures, for examplesafety performance and roll out of the Code ofConduct,and their performance is reflected inremuneration. The TPL framework provides aset of tools for matching individual’s skills andpotential with objectives identified by the

Challenging stereotypesIn the UK, less than 2%of engineeringapprentices and 13%of engineeringgraduates are female.

Military Air Solutions (MAS) teamed upwithMacclesfield College in the North of Englandto support a series of events at local schoolsto spread themessage that girls can havea career in engineering too. The programmeaims to raise girls’ awareness of engineeringas a career choice and increase the numberof female applicants for engineeringapprenticeships or studying engineeringat higher education. It is hoped the projectwill have a direct impact on the number offemales that apply to theMASApprenticeTraining School in the future.

An intensive,week longprogramme for girls atthree schoolswasdeliveredbyMASemployeeambassadors and female engineers.


WORKPLACE CONTINUED

Integrated Business Plan,as well as feedbackfrom employee surveys and customer reviews.

Improving diversity in leadership is a priority.In 2009 our Diversity & InclusionWorking Groupheld an event on promoting diversity through ourleadership programmes.We reviewed a numberof senior andmiddlemanagement programmesin our homemarkets to improvemanagers’awareness of diversity. We also reviewed oursuccession planning process to explore howwecan increase the diversity of our leadership pool.

In the US,our L&AOperating Group launchedaWomen’s Leadership Network to provideleadership and development support for highpotential female employees as part of its diversityand inclusion strategy. It is one ofmanyWomen’sNetworks operating across the Company. Also intheUSwe sponsored The Leadership Conference,held by TheWomen’s Center inWashingtonD.C. tofoster diversity and professional growth.

Education and early careersEducation programmes in our homemarkets aimto interest young people in science andengineering,and tackle perceptions thatengineering is amale career choice. In the UK,our schools road show is in its fifth year,while inthe USwe continue to be a strategic partner withFIRST (For Inspiration and Recognition of Scienceand Technology) to encourage youth excitementfor Science,Technology,Engineering andMathematics through robotics competitions.

Following the 2008 employee opinionsurvey the Executive Committee agreedfour performance improvement prioritiesin response to the feedback fromemployees. These were:1. Our personal performance objectivesshould be clear andmeasurable;

2.We properly recognise people for doinga good job;

3. Business changes that affect us arecommunicated in a timelymanner sowe are all well informed and able toperform effectively; and

4. Our working culture enables everyoneto demonstrate high standards ofbusiness conduct and to speak up andchallenge inappropriate behaviour.

Operating Groups agreed improvementaction plans to address these priorities.Plans are regularly reviewed by theExecutive Committee. Progress in2009 for the four areas includes:1. Operating Groups continue toimprove performance objectives.In particular,mid-year personaldevelopment reviews are used asan opportunity to refine objectives;

2. Efforts across the Company toimprove linemanager communicationof formal recognition processes,and the introduction of rewardtools at local levels to recogniseemployee achievements;

3. Operating Groups are continuing toimprove communication from seniorleaders on business changes; and

4. The roll-out of our Code of Conduct hasfocused on creating an environmentwhere employees feel they can speakup and raise any concerns (see page 6).

Closing the gender skills gapSubmarine Solutions’Women’s Network provided animportant contribution to amajor report by the UK’s NationalSkills Forumon ‘Closing the Gender Skills Gap’. The reportmakes 27 recommendations to the UK government onwaysto remove the barriers faced bywomenwhowish to developtheir careers and improve their skills. It drew on interviewswith employers and employees,as well as parliamentary,policy, trade union and other groups.

CBI FirstWomanAwardFor the second successive year a Submarine Solutionsemployee haswon the prestigious CBI FirstWomanAwardforManufacturing. The award recognises workplaceachievementsmade bywomen,particularly thosewho haveencouraged others to follow their success.The 2009 prizewinner,Construction Capability Manager,Helen Barratt(above), follows in the footsteps of Operations ChangeManager,RosalindMurray,whowon the award in 2008.

RESPONDING TO EMPLOYEE FEEDBACK


Other examples from across the Company areas follows:

– Concept2Creation in Australia,encouragesunder 16s to work with teachers and companyemployees to develop a product or service.Participating schools have reported an increasein the number of pupils studying physics as aresult of taking part. Australian employees alsoact asmentors in the Young AchievementAustralia Business Skills Programme.

– In South Africa the Company supports theeducation of children fromdisadvantagedbackgrounds as part of the South Africangovernment’s initiative to create amoreequitable society. This includes sponsoring atownship secondary school in Johannesburg andproviding bursaries and paid work placementsfor 18-24 year oldswho have been accepted tostudy engineering at University.

– BAESystems is a lead sponsor of the Big Bangevent, the UK’s largest ever national science,technology and engineering fair for young peopleand teachers,attended by over 6,500 people.Our sponsorship will continue to 2011 as partof a £1mpartnership with the Royal Academyof Engineering, to support training for scienceteachers and fund science and engineeringafter school clubs.

The Company partners with universities todevelop courses thatmeet the needs of ourindustry and provide placement opportunities

for undergraduates. As a partner in thedevelopment of the UK government’s newDiplomain Engineering for 14-19 year olds, the Companyis helping to ensure the programme addressesemployers’ needs and puts students in a strongerposition when they enter the jobmarket.

We invest in recruiting anddeveloping youngpeople throughour graduate andapprenticeshipprogrammes. In theUK352newgraduatesjoined theCompany in 2009andweare oneofthe biggest recruiters of engineering apprentices,employing283newapprentices in theUK in2009.The vastmajority were engineering positions.In theUK,ourGraduateDevelopment Frameworkprovides four placements over two-years.Wealso offer a Financial LeadershipDevelopmentProgramme for graduates in finance.

Graduates can take advantage of targetednetworking opportunities and can gain furtherqualifications through professional institutions.In the UK, for example,opportunities exist forgraduates to becomeChartered Engineers or amember of the Chartered Institute of PersonnelDevelopment. In Australia,we are workingin conjunction with the University of SouthAustralia to develop an accredited trainingand education programme.

Employee engagementGood communication contributes to productivity.Our Operating Groups hold regular meetings,consultations and surveys to keep employees

engaged and informed. For example, in 2009,Integrated System Technologies held briefingsto review its performance and strategy. Our nextCompany-wide biennial employee survey will beconducted in 2010.

We have constructive relationships with tradeunions across the Company and consult withthem on business developments which benefitboth the Company and employees. In the UKwehave well established, frequent and extensiveconsultations with trade unions at all levels. Inthe US, local sitemanagement teams and unionleaders work together on issues that affect theworkforce. Our local approach and cooperativeworking relationships are productive in resolvingissues,avoiding conflict, improving the workingenvironment and helping the Company achieveits objectives.

Develop a global working climate whichembraces Diversity and Inclusion:– create a plan to deploy the Diversity &InclusionMaturity Matrix (D&IMM) byend Q1 andmeet the 2010milestonestowards desired end state to beachieved by year end 2015.

2010OBJECTIVES

We remain committed to bringing social and economicbenefits to the Kingdomof Saudi Arabia (KSA) throughour Saudisation programme. 80%of our training is geared todevelopingSaudi employees formanagement,administrative,technical and other qualified positions. Local employeescurrently fill 59% of our positions, significantly ahead ofthe Saudi government’s legal requirement of 30%.

A significant part of our business in KSA is the provisionof support and training for the Royal Saudi Air Forces to

support the Saudi aerospace industry. Over the past34 years BAE Systems has contributed to the trainingof thousands of pilots,aircrew,ground based officersand technicians.

In 2010a number of improvements are planned to ensureour leadership training and development programmes formanagers in KSAare tailored to the individual’s needs.Weare also launching a high-level senior talent developmentprogrammetopromoteSaudinationals in seniormanagement.

Developing our employees


on record. Employees at a communicationsfacility in rural Victoria found themselves at thecentre of response efforts. They worked closelywith emergency services to supply andmaintainlife saving radio communications used toco-ordinate response efforts with fire crews.

Employees provided support configuring andmaintaining trailer mountedmobile radio stationsused to boost signals between distant emergencyteams. The extraordinary scale of the firesmeantteammembers found themselves performingtasks outside their day-to-day responsibilities,such as escorting a refuelling vehicle to remotegenerators needed tomaintain vital emergencyservices including local television and radiobroadcasting facilities. The Company donatedover £165,000while our employees raised anadditional £80,000 for the Australian Red Crossto help those in need. Employees were allowedspecial paid leave to help with the clear-up.

In the UK,employees volunteered their time todecorate residents’ rooms at Sue Ryder Carehomes and organised collections for items tobe sold at Sue Ryder Care shops.

Employees were also involved in several projectswith the Royal British Legion in the build-up toRemembrance Day. Between August and October2009,employees from sites across the countryvisited the Royal British Legion Factorymakingover 46,000 poppies. Some sites organised theirown ‘poppy factories’ for employees tomakepoppies and our Submarine Solutions businessvisited local schools in order to talk aboutRemembrance Day and set the children achallenge tomake poppies.

In the US, the Company and its employeessupported a range of initiatives to help troops,their families and veterans. Activities included:

–SponsorshipofNewJersey’s largest homecomingparadesinceWorldWar II for troops returningfrom Iraq. Twenty employees fromourElectronicSolutionsbusinesshelpedorganise theevent.

– In Texas,Electronic Solutions provided videoteleconferencing technology to enable parentsserving overseas to watch their childrenperforming in a livemusical production andtalk to them after the show.

– InWashington DC,employees donatedschool supplies for children fromwoundedmilitary families.

– In 2009 employees frommore than 12 sitesparticipated in EI&S’s Operation Noble Cause,sending care packages to troops and raisingmore than £3,000 through fundraising events.

– The Company sponsored organisationsincluding theWoundedWarriors Project andTeamRiver Runner that support and helprehabilitate injured personnel.

Support for charitiesandcommunity organisationshelpsfoster good relationshipswiththecommunitiesnear our sitesin thecountries inwhichwework. Providingopportunitiesfor employees to volunteer andfundraise for charity contributesto jobsatisfactionandapositiveworkingenvironment.

GoalOur goal is to support charities thatmakeapositivecontribution to the communities inwhichwework.

StrategyWeare committed to working effectively withcharitable partners to benefit our customersand the communities near our operations. OurCompany Giving Policy focuses on supporting thearmed forces, veterans and their families as wellas education projects with a science,engineeringand technology focus.

The Companymakes donations to local,national and international charities and othernot-for-profit organisations.

Charity Challenge is our Company-wide employeefundraising and volunteering programme. In theUK,USandAustralia,employees elect partnercharities for 18month periods.During2008/2009our partner charitieswere Leukaemia Foundation(Australia),SueRyder Care (UK),andAmericaSupports You (US).

2009 performanceOur total community investment (includingour education programmes,see page 16) was£13.8million in 2009. This wasmade up ofdonations in time,cash and in-kind.

Employees continued to support our CharityChallenge partners throughout the rest of the year.

In Australia,employees volunteered to assist withthe running of the annual ‘Light the Night’ eventdesigned to acknowledge and give hope to peopleliving with Leukaemia.

In 2009 the Australian state of Victoriaexperienced the worst and deadliest forest fires

COMMUNITY

FORMORE INFORMATION ABOUT:– CHARITY CHALLENGEVISIT:WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

We support and encourage employee driven charitable fundraising and volunteering activities across theworld with the aimof helping both local and national causes in the communities in whichwework.


2006 2007 2008 2009

Fatalities* – 2 5 11Major injuries* 40 44 69 77Major injuries recorded (per 100,000 employees)* 47 48 76 71Lost work day case incident rate (per 100,000 employees)* 557 554 789 562

The actual number of major injuries has increased during 2009, but the normalisedrate (major injuries recorded per 100,000 employees) has decreased. This reflects theincreased size of the Company, demonstrating an overall improved trend. Further to theincorporation of Surface Ships as a wholly owned business in 2009, 2008 data for majorinjuries recorded and major injuries recorded per 100,000 employees has been rebased toinclude their 2008 accident data. This exercise has been undertaken to allow comparabledata for 2009.

The Company targeted a 10% improvement in the gap between 2008 performance and thebest in class target of 100 per 100,000 employees. The targeted improvement was exceededin 2009; the improvement in lost work day case incident rate from 2008 was 29%, whichequates to a 33% improvement in the gap to our target of best-in-class. In 2009 our incidentrate reduced to 562 recorded injuries per 100,000 employees.

2006 2007 2008 2009

Total CO2 emissions (thousand tonnes) – 920 1,190 –

The reported increase in the Company’s carbon footprint in 2008 reflects improvements indata collection and acquisition activity. The Coefficient Company has been commissionedto calculate the Company’s 2009 carbon footprint, the results of which were not availableat the date of this report.

2006 2007 2008 2009

Gender diversity*:Male employees 80% 79% 80% 80%Female employees 20% 21% 20% 20%Ethnic diversity11*:White 87% 82% 85% 85%Non White 13% 18% 15% 15%Age diversity*:Under 25 7% 8% 10% 8%26-35 18% 17% 17% 19%36-49 42% 39% 38% 37%50-59 26% 27% 27% 28%60+ 7% 9% 8% 8%

Diversity data during 2009 remained consistent with 2008 figures. During 2009 weconducted a number of activities to develop our inclusion agenda including launching aglobal Diversity & Inclusion Working Group, piloting a Diversity & Inclusion Maturity Matrixand reviewing our Operational Framework to ensure it reflects the Company’s commitmentto inclusion and to ensure it encourages the behaviours and culture needed to underpin ourCode of Conduct.

DIVERSITY AND INCLUSION

ENVIRONMENT

SAFETY

PERFORMANCE SUMMARY

2006 2007 2008 2009

Employee enquiries to Ethics Helpline^ 410 327 507 870Dismissals for reasons relating to unethical behaviour* 216 260 297 485% Employees briefed and trained on Code of Conduct9^ – – – 95%% Written acknowledgement received from employees on Code of Conduct9^ – – – 86%

The increase in the number of enquiries reflects the Company’s continued focus onawareness and training relating to business conduct following the roll out of the Codeof Conduct in 2009. The Company’s target was to brief and train 100% of employees9

in position before 31 October on the Code during 2009. Activity continues to ensure that the remaining employees complete the Code of Conduct programme.

2009 2008 favourable

favourable score10 Changescore10 sample from 2008

Question full survey survey score

I have confidence that if I raised an ethical issue at work it would be addressed 67% 73% +6

I believe I could report instances of dishonest or unethical practices without fear of reprisal 63% 70% +7

The culture of BAE Systems is one where employees are treated with fairness and respect 62% 71% +9

I believe BAE Systems demonstrates clear ethical standards 73% 75% +2

I think it is safe to speak up and challenge the way things are done in BAE Systems 54% 57% +3

I am aware of the ethical standards that the Company expects of me 94% 97% +3

9. As at 31 December 2009 – wholly-owned subsidiaries only, excluding employees on long- term absence.10. Favourable score relates to the total of responses given as Agree or Strongly Agree.11. Ethnicity diversity figures are based on South Africa, UK and US data only.The following symbols, * and ̂ , indicate performance data reviewed by Deloitte as part of its CR assurancework: see page 20. Data indicated by a * has been assured at a limited level and that by a ̂ has beenassured to a reasonable level.

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RESPONSIBLE BUSINESS CONDUCT

Data on responsible businessconduct, safety, environment,anddiversity and inclusion iscollected by the businessesandcollated centrally for review.

KPI

KPI

KPI


Independent assurance report by Deloitte LLP toBAESystems plc on the Corporate ResponsibilityReport 2009

What we looked at: scope of our work

BAE Systems plc (‘BAE Systems’) has engaged us to giveassurance on:

Limited Assurance:– Their description, on the Introduction page in the section“Scope and data”, for compiling the BAE Systems(Group) Corporate Responsibility (CR) Report(‘CRReport Compilation’);

– Group level safety performance indicators comprisingfatalities, major injuries recorded (total and rateper 100,000 employees), cause of major injuriesrecorded, lost work day case incident rate per100,000 employees;

– Group level diversity performance indicatorsencompassing gender diversity, age diversity andethnic diversity; and

– Group level responsible business conduct performanceindicators encompassing dismissals for reasonsrelating to unethical behaviour.

Reasonable assurance:– Their statement on responsible business conduct madeunder the heading ‘Responsible Business Conduct’onpages 5 –8, excluding the table headed ‘Dismissalsfor reasons relating to unethical behaviour’ on page 5which has been subject to limited assurance; and

– The responsible business conduct performanceindicators on page 19 indicated with a ̂ .

What standards we used: basis of our work and levelof assuranceOur work was carried out by a multi-disciplinary teamofCRand business ethics assurance specialists inaccordance with the International Standard on AssuranceEngagements 3000 (ISAE 3000).

For the CR Report Compilation we planned and performedthe work to provide limited assurance as to whether theBAE Systems’ description of the Group compilation of theCR Report as outlined on the Introduction page in thesection “Scope and data” is not materially misstated.For the safety, diversity and responsible business conductindicators we planned and performed the work to providelimited assurance as to whether the BAE Systems’ dataonpage 19, indicated with a *, is not materially misstated.This provides less assurance and is substantially less inscope than reasonable assurance.

For the statement on responsible business conduct weplanned and performed the work to obtain reasonable –not absolute – assurance as to whether the statementsonResponsible Business Conduct on pages 5 –8 isa fair description of the activities undertaken. For theresponsible business conduct indicators we planned andperformed the work to obtain reasonable assurance thatthe responsible business conduct indicators on page 19,indicated with a ̂ , are fairly stated. The basis of reportingfor each indicator marked with a * or a ̂ is provided atwww.baesystems.com/cr09/.

What we did: key assurance procedures

Considering the risk of material error, we planned andperformed the work to obtain all the information andexplanations considered necessary to provide sufficientevidence to support our assurance conclusion. The keyprocedures we carried out were:

In relation to the limited assurance of CR Reportcompilation, safety, diversity and selected responsiblebusiness conduct indicators:– Interviewing managers at BAE Systems’ head office,including the CR and Safety, Health and Environment(SHE) team and those with responsibility for CRmanagement and reporting systems;

– Gaining an understanding of BAE Systems’ ownprocess to collect information from issue owners(including subsidiary entities) and the process forcollation and validation by the Group CR team;

– Analysing and reviewing on a sample basis the keystructures, systems, processes, procedures andcontrols relating to the Group level collation, validationand reporting processes of the CR Report, including:

– the selection of issues to be reported on, relatedkey performance indicators and other matters tobe reported on

– the collection, collation, validation and reporting ofsafety, diversity and selected responsible businessconduct performance data at the year end

– Undertaking questionnaires and interviews with23sites and visiting a sample of seven furtherbusinesses/operating sites to corroborate Group levelfindings. Sites were selected for visits based on safetyperformance, materially to the Group and inherent riskof the location; and

– Reviewing the CR report against the findings of ourworkwhilst assessing that the CR Report has beencompiled as described on the Introduction page inthe section “Scope and data”.

The scope of our work excluded CR environmentalperformance data.

In relation to the reasonable assurance over thestatements on responsible business conduct andbusiness conduct indicators:– Interviewing the Woolf programme managementteam to understand the milestones and activitiesundertaken in 2009 to address the recommendations;

– Interviewing a sample of senior executives, includingthe Steering Committee Chairman and members ofthe Executive Board to understand the commitment,drive and actions undertaken to date to addressthe recommendations;

– Interviewing a sample of members of the Group’s legaldepartment and its legal advisers to understand theprocess followed to roll out and monitor compliancewith the Business Development Adviser Policy in 2009;

– Performing sample testing to verify that a selection ofAdvisers added to the BAE Systems’ approved Adviserregister in 2009 were appointed in compliance withtheBAE Systems Adviser policy;

– Interviewing a sample of owners of BAE Systems’policies referred to in the statement on responsiblebusiness conduct to understand the scope and rollout of these policies;

– Interviewing a sample of BAE Systems’ Code ofConduct central delivery and roll out team tounderstand the scope and coverage of their activities;

– Performing sample testing at a selection of sites,in conjunction with BAE Systems’ Internal Auditdepartment, to understand the nature and extent ofthe roll out of the Code of Conduct, including but notlimited to the cascade of and training on the Code;

– Interviewing the Head of Internal Audit and performingsample testing to understand how internal auditresponsibilities have been expanded to provideassurance over non-financial risk managementacross the business;

– Interviewing individuals with responsibility forBAESystems’ external stakeholder engagementto understand the nature, extent and timing ofstakeholder engagement;

– Reviewing underlying documents to corroborateinterview outcomes and inform our assessmentof the statements made on responsible businessconduct; and

– Analysing and reviewing the key structures, systems,processes, procedures and controls relating to theGroup level collection, collation, validation andreporting of selected responsible business conductperformance data at the year end.

The scope of our work did not include the provisionof assurance over whether BAE Systems’ programmeofwork is adequately designed to, or will, meet therequirements of the Woolf Report.

WWhhaatt wwee ffoouunndd:: oouurr aassssuurraannccee ooppiinniioonn

Limited assurance conclusion:– Based on the assurance work performed nothinghas come to our attention to suggest that thedescription on the Introduction page in the section“Scope and data” for compiling the Group CR Reportismaterially misstated.

– Based on the assurance work performed nothinghas come to our attention to suggest that the safety,diversity and business conduct indicators on page 19,indicated with a *, are materially misstated.

Reasonable assurance opinion:– BAE Systems’ statement on responsible businessconduct made under the heading “ResponsibleBusiness Conduct” on pages 5 – 8 is, in our opinion, inall material respects fairly stated as at 10 March 2010.

– The responsible business conduct indicators on page19, indicated with a ̂ , are, in our opinion, in all materialrespects fairly stated.

Responsibilities of Directors and independent assuranceprovider

BAE Systems’ responsibilities– The Directors are responsible for the preparation oftheCR Report and for the information and statementscontained in connection with it. They are responsiblefor determining BAE Systems’ objectives in respect ofCR performance and for establishing and maintainingappropriate performance management and internalcontrol systems from which the reported informationis derived.

Deloitte’s responsibilities– Our responsibility is to independently expressconclusions on the reliability of management’sassertions on the selected subject matters asdefinedwithin the scope of work above.

– This report is made solely to BAE Systems plc inaccordance with our letter of engagement for thepurpose of the directors’ governance and stewardship.Our work has been undertaken so that we might stateto the Company those matters we are required tostate to them in this report and for no other purpose.To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other thanBAESystems plc for our work, for this report, or for theconclusions we have formed.

– Our multi-disciplinary team of CR and business ethicsassurance specialists performed the engagementin accordance with Deloitte’s independence policies,which cover all of the requirements of the InternationalFederation of Accountants (IFAC) Code of Ethicsand in some areas are more restrictive. We confirmto BAE Systems that we have maintained ourindependence and objectivity throughout the year,including the fact that there were no events orprohibited services provided which could impairthat independence and objectivity in the provisionof this engagement.

DDeellooiittttee LLLLPPLondon, United Kingdom10 March 2010

ASSURANCE STATEMENT

BAE Systems is a global defence, security and aerospace company with 106,9002

employees worldwide. The Company delivers a full range of products and servicesfor air, land and naval forces, as well as advanced electronics, security, informationtechnology solutions and customer support services. In 2009 BAE Systems reportedsales of £22.4 billion (US$36.2 billion).

6,100Employees4

AUSTRALIA

Get the latest information online:www.baesystems.com

VISIT WWW.BAESYSTEMS.COMFOR THE LATEST INFORMATION ON:– PERFORMANCE– INVESTOR PRESENTATIONS– CORPORATE RESPONSIBILITY

INTERACTIVE FEATURES ENABLEYOU TO:– CUSTOMISE THE HOMEPAGE– VIEW THE BAE SYSTEMS MOBILE SITE– SIGN UP FOR RSS FEEDS– SIGN UP FOR EMAIL ALERTS

Annual Report 2009– Accessible in pdf or interactive format– Search the Annual Report for key information– Download our corporate reporting literature– Links to further informationwww.baesystems.com/ar09/

Corporate Responsibility Report 2009– Accessible in pdf or interactive format– Search the Report for key informationwww.baesystems.com/cr09/

FOR ADDITIONAL CORPORATE RESPONSIBILITY INFORMATION: WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

Production of this reportThe printer is an EMAS certified CarbonNeutral®company and itsEnvironmental Management System is certified to ISO14001. 100%of the inks used are vegetable oil based, 95% of press chemicals arerecycled for further use and on average 99% of any waste associatedwith this production will be recycled. The papers contain 50% recycledfibre and 50% virgin fibre. The pulp for each paper is bleached usingan Elemental Chlorine Free (ECF) process. The paper is FSC certified.

BAE SYSTEMS ONLINE

OUR MARKETS

Our home markets are those countries where we havedeveloped or are seeking to develop a significant andsustainable industrial base. Export sales from ourhome markets are an important element of our strategy.Approval from the relevant home market governmentis sought before we execute potential defence businessopportunities with an overseas government.

A formal export licence or other authority is alwaysrequired before any defence products can be suppliedto an overseas customer, and before technical informationis released to them. In addition, our Pursuit of ExportOpportunities Policy stipulates that we apply ourown standards for evaluating both defence andcivil export opportunities.

43,700Employees4

UNITED STATES

600Employees4

SOUTH AFRICA

The Electronics, Intelligence &Support (EI&S) operating groupdesigns, develops, producesand services systems andsubsystems for a wide rangeof military and commercialapplications.

Electronic SolutionsInformation SolutionsPlatform SolutionsSupport Solutions

Land & Armaments (L&A)designs, develops, produces,supports and upgradesarmoured combat vehicles,tactical wheeled vehicles,naval guns, missile launchers,artillery systems, munitionsand law enforcement products.

Global Combat SystemsGlobal Tactical SystemsSecurity & SurvivabilityUS Combat SystemsProducts Group

Programmes & Support (P&S)primarily comprises theGroup’s UK-based air, navaland security activities.

Military Air SolutionsBAE Systems Surface ShipsSubmarine SolutionsDeticaIntegrated SystemTechnologies

International comprisesthe Group’s businesses inSaudi Arabia and Australia,together with a 37.5%interest in the pan-EuropeanMBDA joint venture, andshareholdings in Saab ofSweden and Air Astana.

CS&S InternationalBAE Systems AustraliaMBDA (37.5% interest)Saab (20.5% shareholding)Air Astana (49% shareholding)

InternationalProgrammes& Support

Land &Armaments

Electronics,Intelligence& Support

Number of employees

32,0002,3

Number of employees

19,8002,3

Number of employees

33,2002,3

Number of employees

19,7002,3

2. Including share of equity accounted investments.3. Excluding HQ and other businesses.

4. Excluding the Company’s share of equity accounted investments.

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/EIS/

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/LANDARMAMENTS/

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/PROGRAMMESSUPPORT/

FOR MORE INFORMATION VISITWWW.BAESYSTEMS.COM/BUSINESSES/INTERNATIONAL/

OVERVIEW

WHAT WE DO

4,900Employees4

SAUDI ARABIA

40,400Employees4

UNITED KINGDOM

1,500Employees4

SWEDEN

FOR MORE INFORMATION ABOUT BAE SYSTEMS VISIT:WWW.BAESYSTEMS.COM

Main operating locations Main operating locations Main operating locations Main operating locations A new home marketin 2009

INDIA

1. As at 31 December 2009 – wholly-owned subsidiaries only, excluding employees on long-term absence.

A culture of Total Performance

Corporate Responsibility Report 2009

REAL PERFORMANCE. REAL ADVANTAGE.

BAE Systems plc6 Carlton GardensLondon SW1Y 5ADUnited KingdomTelephone +44 (0)1252 373232

Registered in England and Wales No. 1470151

Website detailswww.baesystems.com

WE WELCOME FEEDBACK ON ANY ASPECT OF OURCR REPORTING AND PERFORMANCE. EMAIL US AT:[email protected]

Welcome to the ninth annualBAE Systems CorporateResponsibility (CR) Report.

CR is an integral part of BAE Systems’Total Performance approach. TotalPerformance is about every aspect of theway we do business: Customer Focus,Financial Performance, ProgrammeExecution and Responsible Behaviour.

To reflect this, we aim to increasinglyintegrate our reporting of financial andCR performance in the Annual Report.

This report covers the Company’s CRactivities in the 2009 calendar year. Itfocuses on our strategy and performancein key areas of responsible businessconduct, safety, environmental sustainability,workplace and community. The report alsoincludes case studies from our businesses

around the world that demonstrate ourapproach in practice.

More information on CR and how ourbusiness works is available online atwww.baesystems.com/corporateresponsibility/.

AssuranceIndependent assurance of this report isprovided by Deloitte LLP (see page 20)on the following basis:

– Limited assurance of the CR Reportcompilation process;

– Limited assurance of selected group levelbusiness conduct, safety, and diversityperformance data;

– Reasonable assurance of selected grouplevel business conduct performance data(see page five); and

– Reasonable assurance of our statementon business conduct made under theheading ‘Responsible Business Conduct’

on pages five to eight, excluding the tableheaded ‘Dismissals for reasons relatingto unethical behaviour’ on page five whichhas been subject to limited assurance.

Scope and dataThe data and performance measuresin this report cover the period January –December 2009 with the exception ofenvironment data which covers the periodJanuary – December 2008. Qualitativeinformation and quantitative data forthe report are provided by individualsacross our business. Quantitative datais recorded on centralised systems,and content and data are reviewed athead office.

Unless otherwise explained, the data inthis report cover the Company’s majoroperations globally, excluding thoseacquired or divested during the year.

Overview: Introduction – BAE Systems: A snapshot for 2009What we do Inside flapOur markets Inside flapMessage from the Chief Executive 1CR Committee Chairman’s statement 4

Responsible business conduct 5Safety 9Environmental sustainability 12Workplace 14Community 18Performance summary 19Assurance statement 20

OVERVIEW

0

200

400

600

800

09080706

557 554

789

562

95% 86%


70

80

90

100

110

09080706

88,600

97,500

106,400 106,900

INTRODUCTION

BAE Systems: A snapshot for 2009

IN THIS REPORT

YOUR FEEDBACK

KPIFOR MORE INFORMATION ON OUR KPIS SEEOUR ANNUAL REPORT 2009 PAGE 26

LOST WORK DAY CASE INCIDENT RATE(PER 100,000 EMPLOYEES)

CODE OF CONDUCT1 EMPLOYEE NUMBERS

KPI KPI

FOR MORE INFORMATION ON OURAPPROACH TO CR AND HOW OURBUSINESS WORKS VISIT:WWW.BAESYSTEMS.COM/CORPORATERESPONSIBILITY/

FOR MORE INFORMATION ON OURPERFORMANCE SEE OUR ANNUALREPORT OR VISIT:WWW.BAESYSTEMS.COM/AR09/

FURTHER INFORMATION

business works is available online at … · 2020-05-19 · (see page five); and – reasonable...

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