The New, Open Way To Sell Arms

The U.K. in­vites con­trac­tors to sup­port army ath­let­ics “It’s as clean as we can make the damn thing”

Bloomberg Businessweek (Asia) - - Global Economics - −Cam Simp­son and Ben­jamin D. Katz

Cham­pion cy­clist Ryan Perry, a Bri­tish army cap­tain, was un­char­ac­ter­is­ti­cally tipsy the night of Nov. 25, but no one could blame him for en­joy­ing the Cham­pagne. Stand­ing on the stage of a grand 15th cen­tury hall in Lon­don, the 28-year-old cra­dled a crys­tal plaque nam­ing him the army’s sports­man of the year. Seated in front of him was one of the Bri­tish mil­i­tary’s most in­flu­en­tial of­fi­cers, the chief of the gen­eral staff, or CGS. “Yes­ter­day I was rid­ing around Burn­ley in the wind and rain,” Perry told the crowd, re­fer­ring to his sea­side home­town. “Tonight I’m drink­ing Cham­pagne with CGS.”

At­tend­ing the ban­quet were ex­ec­u­tives from at least 20 con­trac­tors for the U.K.’s Min­istry of De­fence—in­clud­ing U.S.-based arms man­u­fac­tur­ers Boe­ing, Lock­heed Martin, and Raytheon. They raised glasses with se­nior mil­i­tary of­fi­cials, many of whom are di­rectly in­volved in spend­ing some of the $268 bil­lion in de­fense pro­cure­ment the U.K. has planned for the next decade. The con­trac­tors paid for the black-tie din­ner in the his­toric Guild­hall.

The cor­po­ra­tions are spon­sor­ing the din­ner through Team Army, a char­ity es­tab­lished in 2011 af­ter an an­tib­ribery law went into ef­fect in the U.K. The law was en­acted fol­low­ing a string of high­pro­file cor­rup­tion cases, in­clud­ing some in de­fense deals. Team Army’s role is to be in the mid­dle of what were once un­of­fi­cial big-dol­lar trans­ac­tions be­tween gen­er­als and de­fense com­pa­nies. “It’s as clean as we can make the damn thing,” says La­mont Kirk­land, a gen­eral who ran the army’s box­ing, rugby, and win­ter sports pro­grams be­fore re­tir­ing to lead the char­ity.

Arms makers and other con­trac­tors pay Team Army as much as £70,000 ($104,000) for mem­ber­ships. The mem­bers spon­sor ta­bles or buy tick­ets for Cham­pagne re­cep­tions and other fêtes. Cor­po­rate suites at premier soc­cer games, rugby matches, and horse races are also used to raise money. Con­trac­tors are in­vited to spend time at the events with the top brass who buy their wares.

The char­ity uses money from the con­trac­tors to fund mil­i­tary sports pro­grams, Par­a­lympics, and elite mil­i­tary ath­letes. Top-draw com­pe­ti­tions, in­clud­ing the an­nual army-navy rugby match at Lon­don’s 82,000-seat Twickenham Sta­dium, are used for more fundrais­ing. Al­though the of­fi­cial num­bers won’t be pub­lic un­til 2016, Team Army raised a record amount this year, Kirk­land says. Since 2011 the char­ity has amassed about $4.5 mil­lion for mil­i­tary sports.

When Kirk­land com­manded the army’s 4th Di­vi­sion and si­mul­ta­ne­ously ran army sports pro­grams, he says he saw a sys­tem rife with con­flicts. Gen­er­als di­rectly so­licited money from their con­trac­tors to spon­sor in­di­vid­ual sports or events, while some com­pa­nies of­fered funds on their own.

None of it was trans­par­ent, he says.

Team Army was cre­ated to be­come “the third-party en­tity” that han­dled “com­mer­cial ar­range­ments be­tween the gen­er­als and the de­fense con­trac­tors” when sports spon­sor­ships were in­volved. Kirk­land says ev­ery­thing has been vet­ted by lawyers and the Min­istry of De­fence to com­ply with reg­u­la­tions and the Bribery Act. “I get the toxic com­bi­na­tion of gen­er­als, de­fense con­trac­tors, money, and hos­pi­tal­ity—it’s a bed of snakes,” Kirk­land says. “So what we’re try­ing to pro­vide here is a mech­a­nism and a process that keeps the thing as clean as pos­si­ble, given that the ac­tiv­ity is go­ing to take place.”

Team Army’s most op­u­lent ac­tiv­i­ties in­clude al­most three weeks of ski­ing in the French Alps for the army and navy, as well as the com­bined forces’ win­ter sports cham­pi­onships in Jan­uary and Fe­bru­ary. The char­ity ad­ver­tises the events as the premier net­work­ing op­por­tu­nity for the ser­vices. For the fi­nal week, the group in­vites com­pany rep­re­sen­ta­tives to join “VIPs from all three ser­vices” for what it calls “a fully hosted ex­pe­ri­ence on and off piste in our catered ho­tel.”

On Nov. 23 the U.K. pub­lished its first long-term mil­i­tary spend­ing re­view since 2010, in­clud­ing its plan to pledge that $268 bil­lion for gear and sup­port over the next decade. One big unan­swered ques­tion: whether the army air corps will up­grade its Apache he­li­copters—made by Boe­ing— or pursue a new sys­tem. The for­mer deputy com­man­der and oper­a­tions di­rec­tor of the Joint He­li­copter Com­mand was seated at Boe­ing’s ta­ble for the Nov. 25 awards, ac­cord­ing to the event’s seat­ing plan. (A for­mer Apache com­man­der who’s at the Joint He­li­copter Com­mand also was sched­uled to sit with Boe­ing, but didn’t at­tend, the com­pany says.) Boe­ing spon­sors sports pro­grams in the air corps through Team Army, Kirk­land says. In an e-mail, the com­pany said, “Boe­ing is proud to sup­port Team Army and those who take part in its ac­tiv­i­ties as part of our wider sup­port for the U.K.’s Armed Forces.”

The chop­per com­man­ders were to stay at Boe­ing’s ta­ble all night, ac­cord­ing to the seat­ing plan. Some se­nior of­fi­cers at Boe­ing’s ta­ble and else­where ro­tated to other ta­bles in the great hall be­tween din­ner and the awards cer­e­mony, the plan showed. Kirk­land says that wasn’t about max­i­miz­ing con­trac­tor ac­cess to mil­i­tary brass, but giv­ing of­fi­cers the chance to thank as many spon­sors as they could. “There’s a very cred­i­ble and im­por­tant im­per­a­tive to meet as many of your spon­sors as pos­si­ble dur­ing the evening,” he says.

The bot­tom line Con­trac­tors and of­fi­cers know they’ll face more scru­tiny un­der new rules as the U.K. pre­pares ma­jor in­creases in mil­i­tary spend­ing.

Boe­ing Apache

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