News Analysis: A question of ethics

Diamonds and guns are fuelling war in distant Africa, but last week the spillover from he continent’s vicious trade circle rumbled into the City raising the question of ethics and business for the accountancy profession.

A fortnight ago Grant Thornton decided to withdraw its services at the eleventh hour as nominated advisor in the bid by controversial diamond venture Oryx to secure a London Stock Exchange listing.

Oryx was seeking a reverse takeover of South African-owned and London-listed Petra Diamonds, which was set to adopt the company’s name.

Senior partners held top-level meetings with the London Stock Exchange to discuss the firm’s involvement with the mining venture which runs a $1bn concession in civil war torn Congo.

Oryx managing director and Petra chairman, Adonis Pouroulis, just weeks before admitted that the Zimbabwe army had board level representation with the company, despite its role in the war against Rwandan-backed rebels in the area.

For weeks Grant Thornton had shaken off questions about its relationship with Oryx with the bland statement that ‘we are satisfied that Oryx have fulfilled all the appropriate criteria for admission to the Alternative Investment Market’.

Meanwhile, Peter Hain, Foreign Office minister for Africa, slammed Oryx for its ‘unacceptable’ intention to mine in ‘a clear conflict zone’ as the government separately called for an international embargo on Sierra Leone diamonds as UK forces policed the country.

Grant Thornton had woken up at the centre of an explosive international controversy surrounding the mining of precious gems, the funding of war and international peacekeeping. At 5.30pm on Friday, Grant Thornton issued a statement to Petra threatening to withdraw as nominated advisor to the company if it went ahead with the Oryx deal.

Rumours were out that the Foreign Office had put pressure on the London Stock Exchange to scupper the listing, although the department last week said that it had put no pressure on the LSE or Grant Thornton.

The LSE talked about the need to preserve its integrity, while angry Petra shareholders at a meeting last Monday at Grant Thornton’s offices talked about blackmail.

As Petra and Oryx last week discussed their next move, including a New York listing and seeking a judicial review, a Petra spokesman said: ‘There are companies on the London Stock Exchange who are selling jets to dictatorships and whose guns are being used to arm children – why should a legitimate mining operation be blocked?’

Observers of how ethical issues inform business decisions view Grant Thornton’s decision to extricate itself from a potentially damaging association as further proof that the glare of adverse publicity is not good for business or profit.

Multinationals that have experienced the backlash of public opinion include British Aerospace, now BAE Systems, after the sale of Hawk training jets to Indonesia that were used in East Timor.

‘It’s very clear that the public takes as much note about who you work with as what they do of what you do,’ an Amnesty International spokesman said. ‘Companies are increasingly targeted by public opinion if their business is seen to be out of step with public morality.’

He warned that accountants who offer professional services to companies who are involved in unethical activity could themselves become a target of public opinion.

Amnesty International last month urged businesses to put ethical consideration at the top of the corporate agenda and offered a primer for companies looking to adopt human rights.

Enlightened self-interest has gathered pace under the guise of extending corporate governance and the need for risk management to account for intangibles such as reputation as well as financial measures.

A series of committees set up over the last decade to review corporate governance lead last year to the English ICA appointing Rank FD Nigel Turnbull to look into implementing a code of conduct on corporate governance.

The London Stock Exchange has implemented the Turnbull committee’s recommendation that listed companies take account of ‘environmental, reputation and business probity issues’ when considering internal controls.

If accountancy firms are looking at who they provide services for, the Big Five have seen a potential market in providing multinationals with social and ethical audits.

PricewaterhouseCoopers is ahead among the Big Five in providing ethical, social and environmental auditing services – known as triple bottom line auditing – with a reputations assurance package aimed at large multinationals.

PwC partner Glen Peters says: ‘failure to address these demands has proved damaging to a company’s most important asset – its reputation.’

www.grantthornton.co.ukwww.baesystems.com www.londonstockexchange.comOryx background

UK ARMS INDUSTRY AND ITS AUDITORS

Alvis (armoured vehicles) – Ernst & Young
Babcok (engineering) – Arthur Andersen
Bae Systems (aerospace, defence) – KPMG
Chemring (electronics, engineering) – Deloitte & Touche
Cobham (systems, components) – PwC
GKN (auto parts) – PwC
Hunting (business support) – PwC
Rolls Royce (engines) – KPMG
Sema (IT) – PwC
Smiths Industries (avionics) – PwC
Vosper Thornycroft (shipbuilding) – KPMG.