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Maintaining high standards of business ethics and corporate integrity is a key pillar of our responsible and sustainable investment process.

Engaging with Telecoms: Maintaining Strong Business Ethics

Neville White Neville White Head of RI Policy & Research

Engaging with Telecoms: Maintaining Strong Business Ethics

Neville White

Neville White
Head of RI Policy & Research

Across all sectors and industries maintaining high standards of business ethics and corporate integrity is a key pillar of our responsible and sustainable investment process. From time to time, many businesses become subject to controversy, scandal and even criminal activity; our job is to analyse these crises, engage effectively and determine whether to stay invested – or to divest.

Earlier this year, we became aware of details outlined by the CEO of Swedish telecommunications company Ericsson that there was the potential for payments to have been made to terror organisations in Iraq in order to gain access to transport routes. These claims dated back to 2018-19.

At that time, the investigation was at an early stage, with the Chief Executive reportedly stating that the final recipients had not been determined but ‘may include ISIS’; this was part of a probe that led to Ericsson being fined $1bn by the US Department of Justice in 2019.

Whilst we welcomed the company’s transparency on this matter, we were extremely concerned about these allegations and the potential for terror related financing to have occurred and, in turn, the failure of Ericsson’s internal controls.

What we did

We immediately put a stop on the company’s stock to prevent fund managers from topping up or buying on share price depreciation. Moreover, the fund management team took the pre-emptive decision to reduce exposure to the stock due to the potential market risk posed by an allegation of this severity.

We then sought a meeting with the company to understand how this failure could have occurred and the remediation work undertaken to ensure internal controls and procedures had been reformed to pre-empt and prevent this kind of facilitation payment going forward.

The call, although helpful, did not leave us feeling the company was on top of material risk in conflict markets, or that it had a compliance and internal control regime that was fit for purpose despite the $1bn penalty for bribery & corruption.

A number of areas raised particular concern:

  • There was tax evasion to avoid legitimate customs payments – this was admitted on the call
  • They potentially further compromised criminal behaviour by paying terrorist groups to secure transport routes
  • The internal control mechanism was clearly weak, and we were given few concrete assurances this has materially changed
  • The payments were hidden by the company on ‘materiality’ grounds – they were only disclosed and planted via a friendly interview by the CEO to get ahead of a presumed highly critical report led by the International Consortium of Investigative Journalists (ICIJ) that was imminent
  • There is no clawback mechanism and executives would not, it appeared, face financial penalty
  • There has been no probe of expenses and payments in 2020-21 (the probe ended in 2019) and later misdemeanours could not be ruled out; the company appeared unwilling to conduct a ‘root and branch’ review of payments up to the present

Altogether we were left with little confidence that Ericsson had rigorously reformed its compliance and internal control procedures and appears not to have a credibly robust plan for dealing with business ethics failures. We recommended fund managers divest from all portfolios and this was completed within 48 hours across all mandates where Ericsson was held.

Engaging with the Wider Sector

Following this ‘shock’ we viewed it as important to engage urgently with all of our holdings across the Telecoms Sector. The objective would be to understand and assess the quality of controls regarding operating in conflict zones and risks associated with bribery and corruption in key territories.

The engagement took place in May 2022 with 10 companies held across our various mandates and strategies, and represented a total of £163.7m of invested equity and fixed interest investments.

We wrote to 10 company holdings in May posing a series of questions; the companies are pan-Global with seven in Europe, two in the US and one in Australia.

Broadly we sought understanding around the following:

  • What controls does the company have in place to mitigate the risk of payments to terrorist or other illegal organisations?
  • Has the company ever encountered similar cases reported through the whistle-blower line; how have these have been addressed?
  • What due diligence is performed before entering into operations in a new country, especially one that is geo-politically challenging?
  • Would you ever terminate operations in a country on these grounds, and is there an exit due diligence process when this occurs?

The majority of responses were written, with Orange and Vodafone offering video calls.

A number of companies are pure single-market operators and therefore have no exposure to network installation or conflict regions: Telefonica Deutschland and KPN provided confirmation of nil exposure given they are pure play German and Dutch telecoms operators.

Overall we were encouraged at the transparency and clarity with which companies engaged with us on what is a sensitive issue – they were all clearly aware we were referencing Ericsson without our mentioning them by name.

In all cases disclosure provided was meaningful and comprehensive; whilst reassurances given are not a guarantee that similar scandals could not happen, they clearly appeared to have well developed bribery and corruption and sanctions processes for eliminating – as far as possible – the potential for ethical breaches. We tested their appetite for making ‘in-country’ facilitation payments, and in all cases these were clearly barred unless there was a threat to life.

Case Studies

Verizon is one of the world’s largest fixed line and mobile communications companies based in New York and formed as part of the break- up of AT&T in the 1980s.

  • Zero tolerance for bribery with a policy forming part of the Code of Conduct; facilitation payments are banned
  • All staff receive corruption-related training and targeted training in specific areas of the business
  • Legal approval is required before anything of value is given to a public official; gifts and expenses are monitored
  • Biennial risk assessment of corruption related risk including geographical and conflict risk

Orange SA based in Paris, Orange provides telecommunications services to residential, professional, and large business customers and operates across 29 countries.

  • We had an open and informative call with Orange to discuss their due diligence process to initiate and monitor relationships with suppliers.
  • The company was able to illustrate the in-depth process undertaken to assess potential suppliers and examples of where they have not commenced a relationship with suppliers on an ethical basis.
  • Given Orange’s geography it remains a high risk area, but we were reassured by the level of oversight.

BT Group plc is a British multinational telecommunications company offering fixed line, mobile, Internet and subscription services. It has operations in around 180 countries.

  • Facilitation payments are prohibited, unless someone feels threatened, then they are advised to make the payment and contact BT Security and Ethics and Compliance as soon as it is safe to do so.
  • If a decision to enter a potentially higher risk market has been made, a dedicated human rights impact assessment is carried out.
  • BT has stopped the sale and delivery of any new services in Russia


Ericsson represents among the most severe breaches of trust we have seen; operational oversight that allowed payments to terrorists to be made when there was no threat to life is among the most damaging breaches of internal control. We were not reassured that the company was on top of a culture that is clearly in need of root and branch reform. Divestment in such cases – although rare – is an appropriate response. The engagement with 10 companies on the back of this proved useful in our obtaining very strong policy and internal control documents to stress compliance with international law and high standards of ethical behaviour. Some in the target group are clearly high risk and have potential exposure to bribery scenarios; others as single market systems operators do not. With one exception, all engaged fully and constructively to our questions.

Responsible Investment Team: July 2022