Who Should You Trust? - Institute of Public ... Who should you trust? Who Should You Trust? Ben...
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Who should you trust?
Who Should You Trust?
Ben Arnold, BHP Billiton
Alistair Purt, PwC
Ben has over 15 years’ risk and governance experience in the Resources Industry.
Ben is the Superintendent of Standards, Risk and Change for BHP Billiton. He has held management and supervisory positions at KBR (Global EPC contractor) and the Office of Auditor General.
Qualifications • Fellow of the Governance Institute (FGIA) • Certified Internal Auditor (CIA) • Chartered Accountant (CA) • Certified Risk Management Assurance (CRMA) • Certified Fraud Examiner (CFE) • Bachelor of Commerce (BComm)
Alistair has over 16 years’ risk and internal audit experience in the Oil & Gas Industry.
Alistair is a Director of Risk Assurance at PwC. He has held management and supervisory positions at BG Group (FTSE 20 Upstream Oil and Gas), KBR (Global EPC contractor) and Centrica (FTSE 100 Utilities).
Qualifications • Associated Chartered Accountant (ACA) • Fellow of The ICAEW • BA / MA Oxford University
Trust is an integral element of all business relationships.
Like it or not, third parties hold the key to your reputation and success.
So who do you need to trust and why?
Margin & cashflow Reputation
The news is littered with examples of broken promises: contaminated food chains, poor labour hire practices, oil spills, the illegal dumping of toxic waste, human rights violations and over billing.
Every broken promise represents a fractured relationship and the possibility of a trust irreparably damaged. It’s at such moments that competitors can press their advantage.
• Safety incidents / events • High TRIF (recordable injuries) • Significant audit findings
• Missed KPIs • Disrupted service • Poor Third Party governance
• High people turnover • Poor culture / tone at the top • Reduced capacity & capability
• Data leaks • Bad press • Regulatory breach
TSKJ Case Study
• TSKJ was a joint venture formed by the U.S.’s M.W. Kellogg Co. (later became KBR), France’s Technip, Japan’s JGC, and Italy’s Snamprogetti.
• The joint venture company won four contracts worth more than US$6 billion between 1995 and 2004 to design and build liquefied natural gas facilities on Bonny Island, Nigeria. None of the participants had a majority stake in the joint venture.
• TSKJ reportedly used agents to bribe Nigerian government officials.
• The DOJ and U.S. Securities and Exchange Commission (SEC) declared that each joint venture partner had culpable knowledge because senior executives from each company, including some who were serving on the TSKJ steering committee, participated in meetings in which the bribery was discussed.
Implications / Consequences
• Together, the four multinational corporations and the Japanese trading company paid a combined US$1.7 billion in civil and criminal sanctions for the decade-long bribery scheme. These include:
o Snamprogetti and its parent company ENI = US$365 million
o Technip = $338 million
o Consortium leader KBR and its former parent Halliburton paid US$579 million.
• Nonfinancial impacts in this case included reputational damage and criminal charges against current and past joint venture parent employees.
• In addition, KBR’s FCPA violations impacted successor liability after Halliburton acquired KBR in 1998. These were based on book and record violations and Halliburton’s lack of post-acquisition vigilance. On the financial side, the FCPA and U.K. Bribery Act investigations also affected share price & capitalization.
Deepwater Horizon Case Study
• The Deepwater Horizon oil spill in the Gulf of Mexico began on 20 April 2010 when a failure of the cement barrier in the production casing led to a blowout.
• The subsequent investigation by the US Government’s Bureau of Ocean Energy Management (BOEMRE) and the US Coastguard found that “loss of life at the Macondo site on April 20, 2010, and the subsequent pollution of the Gulf of Mexico through the summer of 2010 were the result of poor risk management, last‐minute changes to plans, failure to observe and respond to critical indicators, inadequate well control response, and insufficient emergency response training.”
• It also found that, in some cases, BP’s contractors, who are jointly and severally liable for non-compliance, had violated a number of federal regulations.
Implications / Consequences
• As a consequence of the Deepwater Horizon blowout, 11 lives were lost.
• At least 6 BP employees have been charged with criminal offences relating to the incident.
• As of February 2013, criminal and civil settlements and payments to a trust fund had cost the company $42.2 bn1. The cost to Transocean (BP’s main contractor) is expected to be in the region of US$ 1.5 bn2.
1. “Report Regarding the Causes of the April 20 2010 Macondo Well Blowout”, The Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE). 2. “Transocean to Pay $1.4 Billion to Settle Oil Spill Claims”, Bloomberg 4 January 2013.
Horse Meat Scandal Case Study
• The 2013 horse meat scandal was a scandal in Europe; foods advertised as containing beef were found to contain undeclared or improperly declared horse meat – as much as 100% of the meat content in some cases.
• A smaller number of products also contained other undeclared meats, such as pork.
• The issue came to light on 15 January 2013, when it was reported that horse DNA had been discovered in frozen beefburgers sold in several Irish and British supermarkets.
Implications / Consequences
• Tesco’s reputation was hit particularly badly - $500m share price drop.
• There were complex supply chains in place – one involved 8 separate vendors and traders across 5 European countries.
• The supermarkets lacked visibility across the supply chain and did not have suitable controls to verify the end product.
• A UK House of Commons Report found “The evidence suggests a complex network of companies trading in and mislabelling beef or beef products which is fraudulent and illegal”.
1. Plan Determine which third parties you need and how these should be structured to derive maximum benefit to your organisation.
2. Execute End to end management of third parties to ensure you are collaboratively working towards the achievement of shared objectives.
4. Improve Identification and action of issues identified, both
for individual third parties and for your overarching
3. Monitor The reporting and
assurance mechanisms used to monitor the
success of third party arrangements.
Clear vision and strategy for service delivery requirements
Design a consistent third party governance structure
Development of risk stratification model
Thorough due diligence procedures (including cultural alignment)
Risk based standard contract template structure
With a vast range of ‘partnership’ structures and operations across a number of
industries, your implementation of an effective governance process can be challenging.
Effective risk management within your trust relationships will depend on the nature of
the relationship including level of influence, ownership / management control and your
partners’ appetite for control monitoring and risk management.
Questions for Consideration
• Do you need to engage a third party or does your organisation already have capabilities to perform the service in-house?
• Have you performed appropriate due diligence prior to third party engagement?
• Have you prioritised and ranked your trust relationships according to risk?
• Have you selected the right third party relationship (e.g. alliance, joint venture, contract)?
• Will the third party effectively represent your organisation and align with your culture?
Risk based execution model
Technology and work-flow support
Training of key personnel (including anti-trust requirements)
Defined process for contract changes and dispute resolution
Performance is based on KPIs that link to agreed objectives
Following the planning phase, it is vital to enable end to end management of third
parties. This will help ensure you are collaboratively working towards the achievement
of shared objectives.
Questions for Consideration
• Are performance metrics established and monitored?
• Do you have strategies and technology to obtain the necessary data for control information and monitoring needs?
• Do you have clear stakeholder and role definition for all aspects of the contract lifecycle?
• Do all relevant personnel have the correct knowledge, skills and experience?
• Will the provision of information between partners align with anti-trust requir