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Defense Firms' Self-Policing Hasn't Closed the Ethics Gap

July 31, 1988|JIM SCHACHTER and CARLA LAZZARESCHI | Times Staff Writers

Two years ago--amid allegations of fraud, headlines about slush funds and congressional hearings into $600 toilet seats--the nation's largest defense contractors sought to salvage their image and stave off tighter government oversight by pledging to police their own ranks.

Forty-six defense giants signed onto a "Defense Industry Initiative," promising to adopt codes of ethics, train their workers in ethical conduct and encourage whistle-blowing without fear of retribution.

But the companies went only so far.

Rather than give up a competitive edge in the dogged scramble for Pentagon contracts, the defense industry stopped short of agreeing to standards for its conduct in the gathering of secret or sensitive data from military customers.

All of a sudden, that omission is looking rather costly.

'Locks on Doors'

A new procurement scandal--focused squarely on charges of an illicit traffic in market intelligence--has raised the prospect of defense executives once again lined up outside a grand jury's door. Defense consultants, contractors and high-level Pentagon officials are suspected of illegally peddling top-secret technical and competitive data.

Emboldened by the revelations, industry critics again are calling for tough action against defense companies, new laws and stricter enforcement of the scores of existing rules designed to keep the Pentagon's $150-billion per year in purchases above board.

And Congress is turning a skeptical eye on the whole notion of self-policing, provoked by Pentagon officials' disclosure in the wake of the scandal that 37 of the 46 signatories to the industry initiative are under investigation in no fewer than 250 cases of contracting misconduct.

Ethics experts say defense contractors--and the public--should not have expected differently.

"I don't think the government can feel comfortable that self-policing will work," said Joseph H. Sherick, the Defense Department's first inspector general, who retired in 1986. "You have to believe that human beings are human beings. That's why we have locks on doors."

For all the scandal that has buffeted Pentagon spending, ethics experts say defense firms have done better than companies in less visible industries in focusing their employees' attention on the ethics of conducting business.

"There is no trade association program that comes close to the effort that has gone into the Defense Industry Initiative," said Kirk Hanson, a lecturer at the Stanford University business school and a consultant on business ethics.

Still, analysts say the defense companies' record stands out only in comparison to the meager commitment of most of American industry to elevating the business world's ethical baseline.

And nowhere has corporate America done less than in setting standards for the gathering of market intelligence. In that arena, only two of the 600 corporate ethics codes collected by the Washington-based Ethics Resource Center offer clear, stern guidance, Executive Director Gary Edwards said.

The defense industry had more reason than most to regulate its conduct in collecting sensitive data. With the Reagan Administration's insistence on heightened competition in defense procurement, top executives knew the industry was particularly susceptible to an information-peddling scandal, Edwards said.

"The very scandal we're talking about--the gathering of competitors' intelligence by illicit means--is something that has been a subject of discussion, and intense discussion, at the senior levels of management in at least two dozen of the defense contracting firms we've had discussions with in the last two or three years," Edwards said.

Yet most of the companies failed to act on these concerns. The reason? Defense industry chiefs, like business leaders in other highly competitive fields, didn't want to find themselves all alone on the high road, Edwards said.

May Have Blind Spot

"There's a presumption on the part of most of the executives within the industry with whom I've spoken that their competitors are not going to constrain their marketing people in going after your proprietary information," he explained. "Therefore, if you restrain your own, you're at a significant competitive disadvantage."

John R. Stocker, a Rockwell International vice president in El Segundo, disputes the notion that large defense contractors have failed to take a responsible stand against the misappropriation of market intelligence.

"The law makes it pretty clear that you can't give or accept bribes, that you can't pay or offer kickbacks or bribes, and I'd be surprised if there's confusion in the industry on that point," said Stocker, who sits on Rockwell's business standards compliance committee.

Alan Yuspeh, director of the industry initiative, said, too, that it is unfair to suggest that defense executives had purposely ignored intelligence gathering in designing the ethics program. But he conceded that the initiative may have "a blind spot" in that sphere.

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