Ethics at Work Terris, Daniel

Published by Brandeis University Press

Terris, Daniel. Ethics at Work: Creating Virtue at an American Corporation. Brandeis University Press, 2013. Project MUSE. muse.jhu.edu/book/23072. https://muse.jhu.edu/.

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chapter four

Vulnerabilities

F   successes, there are significant limitations to Lockheed Martin’s approach to ethics. Measured against its own standards and those of the contemporary ethics industry, Lockheed Martin’s program shines. Measured against the expectations of the broader culture, how- ever, the program falls short.

There is a significant gap between how corporate America judges it- self and how its ideas about values and integrity play out in the larger culture. Lockheed Martin’s ethics program, for all its excellent qualities, illustrates that gap. One consequence of this gap is that the corporation’s quest to be seen as an active force for good in American life remains, at best, incomplete. Another consequence is that the company’s program is better at responding to the problems of the past than to the problems of the future.

Lockheed Martin’s ethics program addresses people, but it does not address systems. The exclusive emphasis on lived individual experience is appealing and in many ways effective. But the impact of a corporation like Lockheed Martin is not simply the accretion of millions of acts of fundamental decency undertaken by , workers. It is also the im- pact of the corporation as a very powerful organization, or, rather, as a collection of very powerful organizations. Lockheed Martin’s program is innovative in reaching the , employees, but that is not enough. Innovation for innovation, evil will eventually outflank virtue. It thrives not in the isolated human heart, but in the very spirit of collective enter- prise that corporations value.

The gaps in the program are most apparent when it is examined in the light of the long-standing expectations in American life regarding cor- porate behavior. When it comes to addressing the moral character of the corporation’s leaders, the conduct of the corporation toward its cus- tomers and competitors, the company’s treatment of its employees, its

impact on its various communities, and the ethical considerations re- garding profit within its industry, Lockheed Martin’s programs leave major questions untouched. By drawing strict boundaries around their ethics enterprises, American corporations risk losing the public credi- bility that they are working so hard to maintain.

One way to look at this is to ask of Lockheed Martin’s program a se- ries of simple questions that grow out of the historical conceptions of business ethics that I discussed in chapter :

• Does the program specifically and effectively address the dangers of unethical leadership, of possible misbehavior among the cor- poration’s most senior executives?

• Does the program take into account the dangers of organiza- tional behavior, as well as individual misdeeds?

• Does the program convincingly address the needs and concerns of rank-and-file employees of the corporation?

• Does the program convincingly tackle the full range of issues in- volved in assessing the corporation’s ultimate impact on its local, regional, national, and global communities?

The answers to these questions suggest that Lockheed Martin’s pro- gram fails to go as far as it could, creating potential areas of vulnerabil- ity for the future.

. Leadership: sidestepping privilege and power. The ethics program makes little special effort to target and address ethics issues involving the men and women at the very pinnacle of the corporate hierarchy. Al- though the program enjoys considerable support from top manage- ment, and senior executives participate in the basic ethics awareness ac- tivities, there is little evidence to suggest that the program offers enough attention to the specific challenges facing those who have the power and authority to err on the grandest scale.

. Personal responsibility, collective innocence. Lockheed Martin’s program lavishes attention on the individual employee, encouraging a strong sense of personal investment in the corporation’s ethical per- formance. But the program does not take into account the pernicious side of organizational life: the tendency of groups to slide, often unin- tentionally, into habits of misconduct.

 : Ethics at Work

. The corporate family: rewards and resistance. The ethics office has taken great pains to reach out to the corporation’s employee base and make the organization supportive, rather than didactic. Neverthe- less, there is always a fine line between social improvement and social control.

. Policy and mission: ethics and judgment. Lockheed Martin’s ethics program focuses on issues of business conduct, with few formal mechanisms for assessing the ethical implications of larger policy or strategic decisions of the corporation. The separation between “admin- istrative ethics” and “policy ethics,” quite common in American corpo- rate life, leaves a gaping hole that can undermine the credibility of the ethics program and its ultimate effectiveness.

For all its successes, these important gaps in Lockheed Martin’s pro- gram may leave the corporation vulnerable to new forms of scandal, and new sources of public outrage. In describing these gaps, I do not mean to suggest that the company’s performance in these areas is necessarily deficient. I am saying, instead, that I am not convinced that the ethics program as currently conceived is well positioned to prevent problems in these areas that might arise in the future. To the extent that a good ethics program is supposed to be preventive rather than reactive, these strike me as significant shortcomings. In each section, I include recommenda- tions for how the problems might be conceived or addressed in the fu- ture. I realize that I am not aware of all the possible internal constraints that might prevent such recommendations from being implemented, but if I am going to criticize, I feel a responsibility to offer starting points for remedies that might serve as the basis for future reflection, debate, and possibly change.

Leadership: Sidestepping Privilege and Power

Many of the most spectacular corporate scandals in the first years of the twenty-first century have had their origins in the plushest executive suites. At Adelphia and Tyco, the leaders of the corporations were charged with naked plunder of the assets of the organization. At Enron and WorldCom, senior executives appear to have gone to extraordinary lengths to deceive government regulators and the public, not to mention their own employees, about the true financial circumstances of the cor-

Vulnerabilities : 

porations. At Boeing, senior executives acted as though they believed that ordinary rules of conflict of interest did not apply at the very high- est levels of industry and government. In each of these cases, and in many others, the direct or indirect responsibility for the misdeeds landed eventually at the doorstep of the chief executive officer (CEO) himself. Not every scandal originates with corporate leadership, but when mega- corporations grow as large and powerful as those in the United States today, it is obvious that those with the most power usually have the ca- pacity to do the greatest damage. Every once in a while, the scurrilous actions of a minor player will bring down a major international institu- tion, as happened with Baring’s Bank. But it is far more likely that a cor- porate scandal that makes the front page of the New York Times will in- volve senior executives with direct responsibility for millions of dollars worth of assets and business. There are at least three factors that can push senior executives to testing the boundaries of ethics and integrity: opportunity, incentive, and the very self-confidence that makes them successful in the first place.

By the nature of their positions, senior executives in any organization have more opportunity to act badly on a grand scale. Senior executives have more power, more access, more influence, and often less accounta- bility than more junior members of the organization. They control re- sources, they control information, and they make more decisions in- volving more people and more money. Fewer people oversee their work, and those who have the best access to the inner workings of their deci- sions are often powerless to advise or influence those actions. Opportu- nity does not in and of itself create temptation or erode character. There is no reason to think that corporate leaders, by virtue of their position, are any less “moral” than others in their organization or the larger soci- ety. But malicious or ill-considered decisions made at the top of the cor- porate hierarchy will by definition be more consequential than those made further down the line.

Men and women at the top often also have greater incentive to cross an ethical boundary. Sometimes this is a matter of pure greed and large numbers. The members of the Rigas family looked at Adelphia’s assets and saw the chance to siphon tens of millions of dollars from the com- pany’s assets into their personal accounts. With the size and power of modern corporations, senior executives can sometimes find themselves

 : Ethics at Work

tempted by almost unimaginable financial rewards if they are willing to bend the rules. Incentive, however, is not just a matter of naked greed. The vagaries of the market in a world of rapidly fluctuating profits and losses create enormous pressures on senior executives to succeed, or at least not to fail. These negative incentives place a premium on creating at least the appearance of a positive financial outlook, especially to the investment community. Corporate leaders, whose careers rise and fall on the basis of earnings, assets, and stock performance, have the great- est incentive to rewrite the rules to place their own work in the best pos- sible light.

In addition to falling prey to opportunity and incentive, senior exec- utives can be undone by their own strength of character. Independence, creativity, defying conventional thinking, risk taking—these are quali- ties essential to strong leadership, and they are often justly rewarded within an organizational hierarchy, as dynamic leadership over the past half century at Lockheed and Lockheed Martin has shown. They are also qualities that can make an individual vulnerable to making choices to suit his or her own needs and preferences. Again, this is not to argue that those who defy conventional thinking about business strategy are des- tined to defy conventional thinking about ethics. But it seems obvious that some significant proportion of those succeed through brash new thinking will eventually come to believe that their own actions are not only inherently profitable but inherently “right.” There will always be a fine line between self-confidence and hubris.

Lockheed Martin’s own history suggests its vulnerability to renegade behavior at the top. The global bribery scandals of the s and s involved a number of individuals at the upper echelons of Lockheed, men whose work and contacts made it easy to develop special relation- ships and make special payments that lubricated the corporation’s over- seas business. Lockheed’s deepening financial crisis in the early s put enormous pressure on senior management. When corporation presi- dent Carl Kotchian launched his personal campaign to sell the TriStar jet in Japan, he was taking on himself the burden of avoiding a darker financial abyss. Kotchian’s strategy of secret negotiations and payments owed something to his confidence in his own commitments, in his con- viction that the good of the corporation was a greater moral good than certain niceties of business conduct.

Vulnerabilities : 

History also suggests another challenge for corporate leaders: Those at the top face the most complex ethical dilemmas, and encounter situ- ations that are most susceptible to changing moral standards. The nine- teenth-century titans of industry thought of themselves, by and large, as men of character who put their own stamp of values on the companies they built. By their own lights, and by the standards of their youth, they operated according to clear sets of principles. But the very success of their enterprises created new realities and new environments in the United States—a landscape crisscrossed with railroads, vertically inte- grated corporations, and efficient communications networks—that cre- ated whole new generations of ethics issues. What the titans believed was creative exploitation of opportunity appeared to their competitors and to succeeding generations to be crass exploitation of people and resources. In hindsight, we recognize that the corporate leaders of the era were able to think of themselves as beacons of morality because it took years for the public and the government to define and react to new fangled abuses like pools, trusts, deceptive advertising, and the exploitation of workers. In some ways, this pattern continued through the twentieth century and encompassed the more recent scandals involving Lockheed and other defense contractors. The globalization of American business during the s meant that bribery overseas became a way of life, toler- ated as morally acceptable in a world of relative standards. Under the glare of the Washington spotlight, Carl Kotchian portrayed himself as an American patriot and a company loyalist who was the victim of a hypo- critical political vendetta.

In the contemporary environment, the ground is shifting even more rapidly under today’s senior executives, and the ethics issues at the top of the hierarchy are increasingly complex. If a low-level employee know- ingly mischarges labor to the wrong account, or neglects safety checks, or inadvertently shares proprietary information and then tries to cover his or her tracks, these are straightforward situations that require straight- forward investigations and response. The senior executives at Lockheed Martin, however, operate in an environment where their daily decisions have enormous impact, not only on the corporation itself but also on the outside world. They operate in a world of relationships and deals and negotiations where the rules are often not clear-cut, where innovation and success require unconventional approaches, where new arrange-

 : Ethics at Work

ments are shifting the ethical ground. The complex arrangements in- volved in major mergers and acquisitions, for example, create an enor- mous array of ethical minefields. The instigation of complex accounting practices that might have an impact on investors, the potential disrup- tion for employees, assessing the ethical climate of a takeover target, the protection and the sharing of proprietary information—these types of issues create special challenges for senior executives in situations where a mistake can be enormously costly not only to a career, but to the cor- poration and even the country. Equally complicated is the web of rela- tionships between senior executives at Lockheed Martin, their peers in the defense industry, and their counterparts in the U.S. government. The maze of competition and collaborations creates ample opportunities for personal and professional favors to trump forthright business practice.

With these factors in mind, it would make sense to expect that a cor- porate ethics program would place special emphasis on issues of power and leadership, and that it would put special safeguards in place to ad- dress the particular challenges facing those in leadership positions. However broad-based a corporation’s program may be, it makes more sense to judge its merits by its attention to problems at the top of the hierarchy, rather than at the bottom.

Lockheed Martin makes three important claims about its ethics pro- gram in regard to senior leadership. First, the corporation touts the solid and highly visible support of its ethics program by the CEO and other members of the leadership team. Second, the corporation makes it clear that all members of its senior management team not only participate fully in the annual ethics training, but also complete dozens of other modules each year that are designed for others within their areas of re- sponsibility. Third, the corporation makes clear that the ethics officers are widely available for consultation with members of senior manage- ment. Each of these elements of Lockheed Martin’s ethics program is worthy and important, but they nevertheless fall short of addressing the ethical demands of leadership in all their complexity.

Where Lockheed’s corporate leadership was an ethical liability in the s, one of the company’s great successes of the past decade has been to reverse this process, so that the identification of the corporation’s lead- ership with the ethics program is now a strength. CEO Norm Augustine staked his own reputation on the ability of the company to produce a

Vulnerabilities : 

high-quality, high-impact ethics program, and he was willing to take chances in the face of considerable skepticism in order to pull it off. Augustine and his successors, Vance Coffman and Robert Stevens, clearly deserve credit for the strides that the corporation has taken in this area since .

Personal integrity and strong support for an ethics program are not, however, the same thing as having a system that aims to ensure continu- ous integrity at the top of the corporate hierarchy. Support from the leadership may be necessary to launch a successful ethics program, but that support provides no guarantee that those same leaders will neces- sarily act for the best in their capacity as corporate decisionmakers. After all, it is perfectly conceivable for an individual to offer the strongest pos- sible public support for an ethics program, while violating ethical stan- dards as a matter of habit in his or her day-to-day work. This is known as hypocrisy, of course, but any strong ethics program should be pre- pared for that possibility. A more common scenario, perhaps, involves the subtle but steady erosion of values under the stress of the workplace. A corporate leader may enter a position with a strong set of values and convictions, only to find them chipped away by circumstances. It casts no aspersions on the personal character and commitment of Norm Augus- tine or Vance Coffman or any other Lockheed Martin leader to suggest that their public commitment to the ethics program is no more than a necessary starting point. For the program that they have spawned to be ultimately effective, it will need to train its sights on the behavior of the CEO and other senior executives, skeptically discounting their pro- nouncements and focusing more closely on their actions.

It is a fine thing, symbolically, to emphasize that senior executives at Lockheed Martin undergo the same kinds of trainings and modules as thousands of other employees of the corporation. If leadership, however, requires special skills and makes special ethical demands, does it not re- quire an ethics curriculum more suited to its level of complexity? As we have seen, the corporation’s ethics awareness program and training modules do an excellent job of provoking discussion among a wide range of employees, but they tackle ethics issues at a relatively low level of com- plexity. None of these many trainings, as far as I can tell, addresses the special ethical demands placed on those at the highest reaches of the hierarchy. Ethics, after all, is ultimately about the just application of

 : Ethics at Work

power. Just as we know that the business situations that senior executives face are inherently more complex and challenging, so are the questions about the proper application of values in any particular situation. The ethics and compliance modules favored at Lockheed Martin make the law clear, suggest sources of help, and hint that many situations have no single “right answer,” but they do little to encourage the deep, difficult self-examination that can help leaders stave off opportunity, incentive, and their own hubris. The program encourages employees to think about the complexities of applying the rules and regulations, but it does little to encourage those at the top to think about the complex nature of the rules themselves. Sheer quantity of exposure to ethics modules can- not replace more searching considerations of the ethical challenges of power and leadership. The  scandals at Boeing illustrate vividly that an extensive, broad-based ethics program creates insufficient protec- tions against top executives who believe that they can redefine ethical boundaries with impunity.

The ethics officers at Lockheed Martin are available for consultation with the leaders of their divisions, but the effectiveness and extent of this consultation depend on personal relationships, rather than on more for- mal practice. Alice Edmonds at the Lockheed Martin Space Operations division in Virginia described to me at length the ways that her company president relies on her advice in key situations. And CEO Bob Stevens is known to drop in for advice at the office of ethics vice-president Mary- anne Lavan. My impression is that these relationships are sometimes substantial, and that ethics officers have worked their way into positions of greater trust and responsibility vis-à-vis senior executives in recent years. But it is a relationship that is wholly at the discretion of the senior executive himself or herself, so it offers a relatively weak wall of protec- tion against misdeeds at the top.

So, while Lockheed Martin’s senior executives have offered consider- able support to the ethics program over the past ten years, the program makes relatively modest demands on them, and opens up an area of vul- nerability for the future. This is exacerbated by potential weaknesses in the structure of accountability. Ultimate authority on ethics issues at Lockheed Martin lies with the Audit and Ethics (A&E) Committee of the corporation’s board of directors. The vice-president for ethics and business conduct reports to this committee, as well as to the CEO, so one

Vulnerabilities : 

strength of the structure is that there is a formal and direct line of com- munication between the ethics program and the board. The A&E com- mittee does receive reports about higher level legal and ethics violations, and theoretically, at least this committee would be open to hearing concerns from the ethics office about the behavior of senior manage- ment. The  Sarbanes-Oxley Act put significant pressure on corpo- rate boards to play a more active role in overseeing ethics in their or- ganizations, including the threat of holding directors personally liable for scandals that occur on their watch. So the board does have signifi-

cant incentive to pay close attention to ethics and compliance issues. As with so many corporations, however, the composition of Lock-

heed Martin’s board does little to reassure outsiders that it can serve as a truly independent watchdog of corporate activities. Of fourteen mem- bers of the corporation’s Board in  –, four were current or for- mer senior executives at Lockheed Martin, two were senior executives at other major defense contractors, and one was recently retired from the U.S. Air Force. Most have served as directors of other major U.S. corpo- rations, including Enron and Global Crossing. None of the Lockheed Martin executives sat on the six-member Audit and Ethics Committee, but its members were nevertheless part of an interlocking web of indus- try and government relationships. E. C.“Pete”Aldridge, a member of the Audit and Ethics Committee, is a former Undersecretary of Defense as well as a former senior executive at McDonnell-Douglas and the CEO of the Aerospace Corporation. Aldridge was a member of Lockheed Mar- tin’s board of directors, while at the same time heading a presidential commission that called in spring  for privatizing much of NASA. Aldridge told the New York Times that he saw no conflict of interest, de- spite the fact that a division of Lockheed Martin, United Space Alliance, was a potential beneficiary of privatization.1 Even where board members are individually men and women of impeccable reputations, the mirror- image profiles of so many directors make it difficult to believe fully in the thoroughness of their oversight, even with looming presence of Sarbanes-Oxley and the federal sentencing guidelines.

The question, then, is whether Lockheed Martin’s ethics program is best positioned to protect the corporation against misdeeds by its top executives, and whether it can identify and stay ahead of emerging ethics issues that involve the top leadership. Lockheed Martin ethics officers

 : Ethics at Work

fret that a “bad apple” like Michael Sears at Boeing can undo years of work, but there is a fatalism in the “bad apple” theory that dodges the issue. The Lockheed Martin does educate senior management about the specific type of violation in the Boeing case. Indeed, when the news broke in December , Vance Coffman ordered that all relevant Lock- heed Martin employees make sure that they were up-to-date on the com- pliance module on offering employment to U.S. government officials. But when it comes to more subtle forms of arm twisting, influence ped- dling, and relationship building, the program is silent. This is a matter both of education (providing senior executives with the opportunity to examine ethics issues in a manner suitable to their level of authority) and of accountability (creating credible mechanisms for monitoring the actions of senior executives).

It is also a matter of viewing ethics broadly enough to respond to changing public perceptions of what is right and what is wrong in cor- porate life. As recently as a decade ago, the salaries of a corporation’s top executives were thought of simply as an internal management issue. But in an era when the gap between the richest and poorest workers in the United States has widened considerably, executive compensation has be- come an emerging ethics issue in the American corporate landscape. In , Vance Coffman’s total compensation package was more than $,,, in a year when the total shareholder return for Lockheed Martin was down by  percent. In a newly skeptical era, this raises sig- nificant questions. Is it “right” for the CEO of a corporation to earn, for example, more than  times the salary of one of the corporation’s ethics officers? Is it “right” for senior executives to earn large salaries, and sometimes larger bonuses, at a time when the owners of the corpora- tion, its shareholders, are losing money? When does executive compen- sation cross the line and become simply too much? In other words, when does a compensation issue become an ethics issue?2

For Lockheed Martin’s ethics officers, this issue is entirely off the table. Not a problem in our environment, Brian Sears assures me. “With all the oversight that we’re getting from the federal government, there’s no way that we’re going to get away with anything excessive,” Sears says. Besides, he goes on, “You couldn’t pay me enough to do Dr. Coffman’s job—to have to answer to so many constituencies, to work under so much pressure. He’s worth every penny that they pay him.”

Vulnerabilities : 

Brian Sears may well be right—perhaps the Lockheed Martin CEO’s compensation would stand up to every test of fairness known to human- kind. The point, however, is not to make a judgment about what Vance Coffman or Bob Stevens earns. The point is that the issue is not registered in terms of fairness or ethics in the Lockheed Martin environment. With- out that type of scrutiny, the corporation is vulnerable to the kinds of cozy compensation deals at other companies that have spawned noto- rious headlines in recent years. Even if the deals are not excessive in contemporary terms, a bland disregard for the income gap may be seen as morally blind by a future generation. It is possible that the issue of ex- ecutive compensation receives rigorous scrutiny in ethical terms among the corporation’s leadership and board of directors. But even if this is true, the public silence on the issue undermines the corporation’s self-image as an organization willing to tackle the full range of tough questions.

Taken together, these concerns suggest that Lockheed Martin’s pro- g