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Rolls-Royce tries to clear the air as prized executive steps down Rolls-Royce tries to clear the air as prized executive steps down
(5 months later)
The first real cracks of strain at Rolls-Royce began to appear last week, five months after the company revealed it was co-operating with the Serious Fraud Office (SFO) over allegations of bribery and corruption.The first real cracks of strain at Rolls-Royce began to appear last week, five months after the company revealed it was co-operating with the Serious Fraud Office (SFO) over allegations of bribery and corruption.
The FTSE 100 engine maker announced the shock departure of Mark King, the head of its aerospace division and a man many analysts and insiders saw as a future chief executive. His resignation after four months in his current role, ending a 27-year career at the company, has inevitably reawakened interest in the SFO issue because it is scrutinising allegations that centre on the civil aerospace division.The FTSE 100 engine maker announced the shock departure of Mark King, the head of its aerospace division and a man many analysts and insiders saw as a future chief executive. His resignation after four months in his current role, ending a 27-year career at the company, has inevitably reawakened interest in the SFO issue because it is scrutinising allegations that centre on the civil aerospace division.
There is no suggestion that King was complicit in any wrongdoing that is alleged to have taken place and Rolls-Royce declined to comment on whether his departure was related to the allegations, while the SFO has yet to confirm whether it will even launch an official investigation.There is no suggestion that King was complicit in any wrongdoing that is alleged to have taken place and Rolls-Royce declined to comment on whether his departure was related to the allegations, while the SFO has yet to confirm whether it will even launch an official investigation.
Nonetheless, the allegations are back in the headlines again. One of the many questions now is to what, if any, extent Rolls will be damaged by the process or the ultimate findings of an inquiry. For a company that has prided itself on an impeccable reputation and high-quality products, and never felt the need to promote itself to the wider world, the last few months must have been excruciating.Nonetheless, the allegations are back in the headlines again. One of the many questions now is to what, if any, extent Rolls will be damaged by the process or the ultimate findings of an inquiry. For a company that has prided itself on an impeccable reputation and high-quality products, and never felt the need to promote itself to the wider world, the last few months must have been excruciating.
"It does have an impact because everything is about reputation," said one industry insider who did not want to be named. "Reputation costs money. Rolls hasn't built that level of credibility overnight. You need to take all possible steps to protect it. If you don't take swift action, it will have an impact over the longer term.""It does have an impact because everything is about reputation," said one industry insider who did not want to be named. "Reputation costs money. Rolls hasn't built that level of credibility overnight. You need to take all possible steps to protect it. If you don't take swift action, it will have an impact over the longer term."
To date, Rolls appears to have earned some credit by publicly revealing in early December that it had identified "matters of concern" and had passed information to the SFO.To date, Rolls appears to have earned some credit by publicly revealing in early December that it had identified "matters of concern" and had passed information to the SFO.
The company also said at the time that it had begun its own investigation after the SFO requested information relating to contracts in China and Indonesia, and that it had subsequently identified issues in other markets.The company also said at the time that it had begun its own investigation after the SFO requested information relating to contracts in China and Indonesia, and that it had subsequently identified issues in other markets.
The majority of the claims relate to the 1980s and 1990s. They include the allegation by a former employee turned whistleblower, Dick Taylor, that $20m (£13m) and a car was given to the son of Indonesia's former president to persuade the national airline, Garuda, to order Rolls-Royce Trent 700 engines.The majority of the claims relate to the 1980s and 1990s. They include the allegation by a former employee turned whistleblower, Dick Taylor, that $20m (£13m) and a car was given to the son of Indonesia's former president to persuade the national airline, Garuda, to order Rolls-Royce Trent 700 engines.
The SFO has never commented on this matter, nor has it launched an official investigation, so the company has been proactive in bringing it to light. It has also sought to reassure investors that changes have been made to strengthen anti-corruption procedures, not least with the appointment of veteran lawyer and Conservative peer Lord Gold to lead a review.The SFO has never commented on this matter, nor has it launched an official investigation, so the company has been proactive in bringing it to light. It has also sought to reassure investors that changes have been made to strengthen anti-corruption procedures, not least with the appointment of veteran lawyer and Conservative peer Lord Gold to lead a review.
"In terms of reassuring investors that they are on top of it and that this is not an endemic problem, I think they have done that," said Ed Stacey, an analyst at Espirito Santo. The shares have risen steadily since the revelations emerged back in December."In terms of reassuring investors that they are on top of it and that this is not an endemic problem, I think they have done that," said Ed Stacey, an analyst at Espirito Santo. The shares have risen steadily since the revelations emerged back in December.
The company continues to win business, and said on Thursday that it expected modest growth in underlying revenue and good growth in underlying profit this year. For instance, at the end of 2012 Rolls's order book stood at £60.1bn, up 4%.The company continues to win business, and said on Thursday that it expected modest growth in underlying revenue and good growth in underlying profit this year. For instance, at the end of 2012 Rolls's order book stood at £60.1bn, up 4%.
Stacey believes the inquiry is unlikely to put off customers: "For airlines ordering engines, I don't think you're going to worry about opening yourself up to an investigation. It doesn't feel like that."Stacey believes the inquiry is unlikely to put off customers: "For airlines ordering engines, I don't think you're going to worry about opening yourself up to an investigation. It doesn't feel like that."
Rolls could face a substantial financial hit further down the line, however, if the SFO were to impose a fine.Rolls could face a substantial financial hit further down the line, however, if the SFO were to impose a fine.
There has been speculation recently that the company and the watchdog are working towards a civil settlement. Such an agreement might involve a multimillion-pound fine, but would avoid criminal charges. Rolls and the SFO have not commented on this.There has been speculation recently that the company and the watchdog are working towards a civil settlement. Such an agreement might involve a multimillion-pound fine, but would avoid criminal charges. Rolls and the SFO have not commented on this.
The arrival on Thursday of new chairman Ian Davis – the former head of management consultant McKinsey and a non-executive director at BP – and a new chairman of Rolls's ethics board, show that the company is attempting to move on.The arrival on Thursday of new chairman Ian Davis – the former head of management consultant McKinsey and a non-executive director at BP – and a new chairman of Rolls's ethics board, show that the company is attempting to move on.
Despite its strengths, however, there will be more uncomfortable moments and unwanted attention ahead for Rolls-Royce as the inquiry rumbles on. A return to the quiet life cannot be granted yet.Despite its strengths, however, there will be more uncomfortable moments and unwanted attention ahead for Rolls-Royce as the inquiry rumbles on. A return to the quiet life cannot be granted yet.
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