Responsibilities of Management in International Business within Lockheed Martin - Case Study Example

Responsibilities of Management in International Business within Lockheed Martin I. Introduction There are times one has to reckon whether business is all about money or about truth and one's integrity. Going international in business should be seen by a manager as a wider field to test one's mettle, and not as a loose proposition to earn easy commissions simply through connections. In Lockheed Martin, the real test for a manger in international business is in not being caught in the web of organizational culture with strong emphasis for commercial success at the expense of one's integrity. The need to be at the top of international contracts awarded appears to be paramount that connections are quite important, whether with dubious background or not. In the process, despite a well-published code of ethics, Lockheed Martin's history is not exactly a good example of managerial experience. II. Lockheed Martin Domain of business. Lockheed Martin is an arms manufacturer said to be one of the world's largest and most influential corporations. Three of its many focus areas are weapons systems, social services, and homeland security. (Polaris Institute, n.d.). Having profiled the corporation "to provide information to activists and citizens concerned with the power Lockheed Martin wields over their lives and the lives of others" Polaris Institute (n.d.) says Lockheed Martin is one of the most politically connected corporations in the world. With its focus on high technology, it was able to get involved with the US Postal Service, the Department of Defense, the Social Security Administration, and the Transportation and Security Administration among others, it said. Sales. In 2003, Lockheed Martin was said to report sales of $31.8 billion, some $3.2 billion of which came from its information and technology (IT) services division. Of that amount, 40 percent came from defense services, 37 percent from IT and 23 percent from NASA. As reported by Arthur Johnson, Lockheed Martin's senior vice president of corporate strategic development, IT sales make about a quarter of Lockheed Martin's revenue, most of which comes from the federal government(Gerin 2004). All in all, seventy eight percent of this business was with the United States Government and 18% of the corporation's sales are from their international customers (Polaris Institute, n.d.) Last year, sales for the first six months rose to 17.8 billion dollars from 17.1 billion dollars, despite a drop in deliveries of F-16 fighter jets. For 2005, this biggest U.S. Defense contractor and top seller of secure computer systems saw net profit jump 41 per cent to 830 million dollars in the first six months (Bauer 2005). Also strong on missile defences, Lockheed Martin's integrated electronic combat systems and military space programmes projects 2005 sales of up to 38 billion dollars (Ibid.). III. Business Ethics Lockheed Martin that specializes in a host of products and services for the federal government has dramatically raised its ethics and business conduct program since the mega-corporation merger in 1995. With 65 "ethics officers" around the United States, it requires its 130,000 employees to devote at least an hour a year to consider the ethical issues of the business, at a cost of millions of dollars per year (Terris 2005). History of lawsuits. Lockheed Martin is said to have a long list of lawsuits and controversies, one of where the company paid $38 million to settle claims for their alleged failure in providing complete and accurate cost in bidding for a large foreign military sales contract (Polaris institute, n.d). Following a series of bribery, overcharging, and corruption scandals in the 1970s and 1980s, it formed its ethics program (Terris 2005). When interviewed in Ethically Speaking: News from The International Center for Ethics, Justice and Public Life at Brandeis University, Terris who wrote a case study on Lockheed Martin Corporation. was said to comment: "If U.S. corporations are spending millions of dollars a year on ethics and business conduct programs, then why are they losing so many CEOs to scandal " Apparently, corruption may have been allowed by Lockheed Martin's organizational structure where, as claimed by Polaris Institute (n.d.), "there is the revolving door for government officials working in the corporation and vice versa." To explain, the Polaris profile of this corporation said, "No less than 11 former U.S. Government officials are now working for Lockheed Martin, and 9 former Lockheed Martin Executives [are] currently in the U.S. Government." Kotchian bribery case. Damian (1992) records that in 1972 and 1973, Carl Kotchian, President of Lockheed, authorized secret payments of $12 million to representatives of the Japanese Prime Minister, Kukeo Tanaka. Accordingly, the revelation of these bribes led to the resignation of Mr. Tanaka and Takeo Miki, his successor, for trying to cover for Mr. Tanaka. Since 1958, Damian (1992) said, Lockheed had been employing the services of Yoshio Kodama, a reputed underworld figure, with good connections to the ruling Liberal Democratic Party. In 1972, Kodama was said to resurface to help Lockheed sell its TriStar airliners to the only uncommitted major airline in the world, ANA. Lockheed was on the verge of bankruptcy but was able to secure a government loan of $250 million in 1970 under controversial conditions. Kotchian was said to express concern for Lockheed's survival, and the fate of thousands of its employees. (Damian 1992) Marubeni, a private company, allegedly represented Lockheed's case through Toshiharu Okubo who told Lockheed that "five hundred million yen is necessary for such sales" of aircraft. (Ibid.). From the beginning, Kotchian knew that this money was going to the office of the Prime Minister. Kotchian defended himself by reasoning that the payments were not contrary to American law, and the money was not from Lockheed but from its Japanese contacts. The resulting negotiations amounted to $1.3 billion in contracts, but were cancelled after disclosures were made. Kotchian in the end was forced to resign. (Damian 1992). More bribery cases. In the 1970s, a number of other cases of bribery involving Lockheed were exposed. Prince Bernhard of Holland was disgraced in 1976 for accepting $1.1 million in bribes allegedly in connection with the sale of 138 Star fighters. Ex-President Giovanni Leone of Italy, and former prime ministers, Aldo Moro and Mariano Rumor, were also accused of accepting bribes from Lockheed. Lockheed admitted to paying "commissions" of at least $202 million. In 1977, the Foreign Corrupt Practices Act was passed by Congress and signed into law, prohibiting American corporations from making payments to foreign governments to advance their business interests. (Damian 1992). Two years later, inn 1979, Lockheed pleaded guilty to four counts of fraud and four counts of making false statements to the government by concealing secret commissions as "marketing costs". (Ibid.). Barely six years later, in 1995, Guardian of London reported that the US government is investigating two of America's biggest defence contractors, Lockheed Martin and General Dynamics, for possible bribery in foreign sales, with the world's most widely used fighter, the F-16 (Tran 1995). Lockheed was said to disclose that it had received a subpoena from a federal grand jury for a "very broad" array of information. General Dynamics received a subpoena requesting material "regarding our foreign consulting contracts." According to Tran (1995), investigators were seeking information about the companies' contracts and ties with foreign consultants and commission representatives. These, allegedly, were the overseas middlemen who facilitate foreign sales. Lockheed said it did not pay commission on F-16 sales but a flat fee to foreign sales consultants. Lockheed had been accused of bribery early in that year. In January 1995, Lockheed was fined $ 24.8 million for bribing an Egyptian MP to help in the $ 79 million sale of three transport aircraft (Ibid.). Code of Ethics. By 1996, Lockheed Martin has in place "some dull, preachy ethics programs designed to provide basic information on telling right from wrong in business practice." (Terris 2005). Its Board of Directors has adopted a Code of Ethics and Business Conduct which summarizes the virtues and principles that are to guide their actions in business. Expecting also their agents, consultants, contractors, representatives, and suppliers to be guided by them as well, Lockheed Martin aims to "set the standard" for ethical business, achieving this through the six virtues of honesty, integrity, respect, trust, responsibility, and citizenship. (Tellep, et al. 1996). In summary, Lockheed Martin employees are to obey the law, promote a positive work environment, work safely or protect oneself and fellow employees, keep accurate and complete records. They are also to record costs properly, strictly adhere to all antitrust laws, know and follow the law when involved in international business. Likewise, they are to follow the rules in using or working with former government personnel, follow the law and use common sense in political contributions and activities, carefully bid, negotiate, and perform contracts. Moreover, they were to void illegal and questionable gifts or favors, and steer clear of conflicts of interest. One particular item says they are to maintain the integrity of consultants, agents, and representatives, which includes steering clear off "paying bribes or kickbacks, engaging in industrial espionage, obtaining the proprietary data of a third party, or gaining inside information or influence" because they could give "an unfair competitive advantage in a government procurement and could result in violations of law" (Tellep, et al. 1996).Further, they are to protect proprietary information, obtain and use company and customer assets wisely, and not engage in speculative or insider trading (Ibid.). In sum, their goal, they said was to establish an ethical work environment. As such, they have established the Office of Vice President - Ethics and Business Conduct "to underscore their commitment to ethical conduct throughout the Company" (Tellep, et al. 1996). Changes on code. Stevens (2005), Chairman, President & Chief Executive Officer issued changes to these standards in January 12, 2005 and November 15, 2005. This included revision to the policy for gifts from $10 to $20. The final version reads - "Federal Executive Branch Employees Lockheed Martin employees are prohibited from giving anything of value to federal Executive Branch employees, except as follows: Lockheed Martin advertising or promotional items of little intrinsic value (generally $20.00 or less) such as a coffee mug, calendar, or similar item displaying the company logo; Modest refreshments such as soft drinks, coffee, and donuts on an occasional basis in connection with activities; or business-related meals and local transportation having an aggregate value of $20.00 or less per occasion, provided such items do not in aggregate exceed $50.00 in a calendar year. Although it is the responsibility of the government employee to track and monitor these thresholds, no Lockheed Martin employee shall knowingly provide meals and/or transportation exceeding the $20.00 individual or $50.00 annual limit." Critique on code of ethics. Terris (2005) applauds Lockheed Martin's ethics program launched in 1996 as "gloriously democratic" in its focus on the responsibility of every worker for ethical dimensions. However, as Terris (2005) explains, the focus tends to divert attention from the ethical responsibilities of senior management and the moral complexities of collective decision-making. Although he admires the ambitious scope of the program, Terris notes that the corporation's definition of "ethics" is cantered on individual behavior rather than on the impact of the corporation's broader policies on local, national, and global communities. Accordingly, "the ultimate effect of such programs may be to create more ethical business practices, but ironically, at the expense of the public good." (Ibid.). As such, public expectations will only be half met. From Terris (2005) - "But it does mean that the program will inevitably meet at best only a portion of public expectations, because not everyone accepts the notion that ethics should be so strictly contained [within the organization]. A narrowly-defined ethics program may thwart hackers, cheaters, and thieves, but it is poorly positioned to consider and prevent the greatest harms that a powerful organization can inflict on its communities, and on the world." IV. International Business with Lockheed Martin International business ethics. When involved in international business Lockheed Martin employees are expected to know and follow the law. The company is said to be "committed to conduct its activities free from the unfair influence of bribery and to foster anti-corruption awareness among its employees and business relations throughout the world. "(Stevens 2005). Accordingly, there are several laws that govern these transactions foremost of which are the Foreign Corrupt Practices Act (FCPA) and the International Traffic in Arms Regulations (ITAR). The former is a United States law that prohibits corruptly giving, offering or promising anything of value to foreign officials or foreign political parties, officials or candidates, for the purpose of influencing them to misuse their official capacity to obtain, keep, or direct business or to gain any improper advantage. The second, also a United States law, regulates the international transfers of equipment or technology that may contain prior approval, licensing, and reporting requirements (Stevens 2005). If these were expected to work, then manifestations should have been realized. Terris (2005) who did a case study on Lockheed Martin was interviewed at Brandeis University in News from The International Center for Ethics, Justice and Public Life and he said: "If U.S. corporations are spending millions of dollars a year on ethics and business conduct programs, then why are they losing so many CEOs to scandal " With intermediaries. In the Kotchian case earlier recorded by Damian (1992) where Kotchian, President of Lockheed, authorised secret payments of $12 million to representatives of the Japanese Prime Minister, the undisputed facts are that Lockheed did not offer a bribe but was demanded by the intermediaries. Accordingly, use of such intermediaries where commission is given for such services, is common in Japan. Those demanding bribes were intermediaries, not the principals of ANA who would have to carry responsibility for purchasing an inferior aircraft if the Tristar was the product of corner/cost cutting (Ibid.). With the judges. In "Order and Authorization" issued by the Federal Communications Commission granting the application of Lockheed Martin, CGS-LLC, and Comsat for consent to transfer control of Comsat to Lockheed Martin in the year 2000, one commissioner made his own statement separate from the group. The separate statement of Commissioner Harold Furchtgott-Roth underscored special treatment which can be detrimental to public interest. Roth said - Re: Lockheed Martin Corporation, COMSAT Government Systems, LLC, and COMSAT Corporation, Applications for Transfer of Control of COMSAT Corporation and Its Subsidiaries, Licensees of Various Satellite, Earth Station Private Land Mobile Radio and Experimental Licenses, and Holders of International Section 214 Authorizations. "I fully support today's decision to grant transfer of these licenses, and concur with the final judgment. Nonetheless, I cannot endorse the majority's decision to subject these applications to a "market analysis" presumably designed to assess the impact of these transfers on the satellite services market. As I have stressed elsewhere, I believe such concerns are outside the scope of our public interest review and duplicative of the work of other agencies. So long as license transfers comport with our rules, I believe our approval should be swift and sure. Culling out certain transactions for special treatment undermines predictability, diminishes transparency, delays resolution, and ultimately harms the public interest. I once again urge my colleagues to support my efforts to curb these unnecessary intrusions into market analyses." Political contributions. The Federal Election Commission (FEC) was said to audit Lockheed Martin Corp.'s political action committee (PAC) after a former manager allegedly embezzled at least $170,000 from the fund (Merle 2004). Lockheed was said to discover that the assistant treasurer of the PAC had written checks to himself. According to the company spokesman Tom Jurkowsky, "Some of the standards we have now are unmatched in the industry. We've learned some lessons here and are managing these monies differently" (Ibid). Merle (2004) records that Lockheed Martin Employees Political Action Committee is reputed to be one of the 50 most generous PACs in the country, and this is reflected in the FEC data. With contributions from 3,000 employees, it donates $500,000 a year to about 260 House and Senate candidates. For the 2004 election cycle, Lockheed's PAC has already contributed $350,279 to federal candidates, with about 62 percent going to Republicans, according to the Center for Responsive Politics (Ibid.). Commercial defense versus ethical defense. Back to the Kotchian case, Kotchian was said to believe his actions were defensible commercially, but he did not seem to believe they were defensible ethically. Kotchian was said to know that payments were destined for the Prime Minister. As such, it was like the President of Lockheed was paying the Prime Minister of Japan for preferential treatment (Damian 1992). The Drucker defense. Business guru, Peter Drucker, has argued that business has been subjected to unfair demands from ethicists. He accuses those who point the finger of blame at Lockheed over the bribery scandal of applying a very different standard from the one they would apply to an individual in similar circumstances."(Ibid). Accordingly, there was very little difference between Lockheed's paying the Japanese and the pedestrian in New York's Central Park handing his wallet over to a mugger. Yet no one would consider the pedestrian to have acted "unethically." Drucker argues that Lockheed's choices were similar to those of the mugger's victim - for being extorted. (Damian 1992). Issues. In the Kotchian case, the question arises, what is the difference between a bribe and a normal cost of doing business, such as a commission Damian (1992) presents several issues for business ethics to locate responsibilities of management. For example, iss commercial defensibility a higher value over and above ethical defensibility If so, does such an attitude devalue ethics Would you do business with a company, which approached you for a bribe or accepted a bribe Would not a company prepared to bribe also be prepared to cut corners in other areas What does the history of bribery in Lockheed reveal about its corporate culture What sort of corporate culture would have allowed Mr. Kotchian to believe that he could offer secret commissions What kind of corporate culture would have permitted dealing with a war criminal as an intermediary How much personal responsibility should Mr. Kotchian have carried for Lockheed's conduct (Ibid). V. Conclusion It would appear now that with an ethics code or none at all, people will act the way they want, manager or not, prince or not. With ethics code or none at all, people will bribe or be bribed in business because things are not discovered instantly and tracts could be covered. However, this is as far as individuals are concerned. With the individual, the impact of managerial acts can only be superficial when compared to impacts on organizations. With the latter, impacts can be far reaching as to attach so strongly every managerial mistake to the organization. For example, just one manager's act of bribery for Lockheed Martin gets to be recorded for posterity. For every piece of news from now on about Lockheed Martin, the public again and again will chime in for bribery as background material. Commissions received by individuals can only be read as bribes in the perception of organizations. There is no other way of perceiving it. Like Kotchian, one cannot claim his bribing the prime minister is commercially defensible because, on the contrary just one act of bribery could spearhead a corporate culture allowing such practice and may drive away future contracts. It is also not ethically defensible as he properly thought. There is just no dissection between these two. In addition, allowing a war criminal as intermediary speaks a lot about not being discriminating with associates. The manager, as an individual, can choose his own messengers freely, but not when one has to wear the corporate hat. The corporation bears all the brunt of managerial decisions or actuations, good or bad. As to how much responsibility a manager has to his organization for his conduct, it cannot be assigned in piece meal. Either one stands for the corporation or not. In sum, in international business, Lockheed Martin requires his managers to be knowledgeable about laws of the countries involved. However, it appears that they are to be knowledgeable to know where to tweak and twist propositions to make it commercially successful for Lockheed Martin. At times, organizational culture can trap a manager to be forced to act for the benefit of the Organization in ways contrary to one's beliefs. That would be the time a manager has to weigh where his priorities lie: the organization or one's integrity. Could Peter Druker be correct when he said, business is being treated unfairly when much is required of it in the matter of commissions, for example Human nature would not let commissions fly away easily - in the midst of hardships in life. However, it has a way of eroding character- individually and worse, nationally and internationally until it is considered correct when everybody does it. A manager should be of a mold in the higher level than an ordinary employee. References Bauer,P. Business booming for U.S. defense contractors. Menafn. August 20, 2005. In: CorpWatch. Holding Corporations accountable. www.corpwatchorg.com. Retrieved December 6, 2005, from http://www.corpwatch.org/article.phpid=12661. Damian, G. (2002). Case study: International Business. Australian Graduate School of management. Adapted from Velasquez, M. Business Ethics, 3rd. edn. 1992, 207-8; and Martin, M. and Schinzinger, R. Ethics in Engineering, New York, 1989, 261-2. Retrieved December 6, 2005, from http://www.agsm.unsw.edu.au/bobm/teaching/BE/Cases_pdf/International_business_Locheed.pdf. Gerin, R. (2004). Lockheed Martin Corp. 11th annual Top 100. Business intelligence for government integrators. Washington Technology. May 10, 2004. Vol. 19 No. 3. Updated December 2, 2005. Retrieved December 6, 2005, from http://www.washingtontechnology.com/news/19_3/special-report/23418-2.html Merle,R. Lockheed Martin Lobby Group Audited. Washington Post January 28, 2004. In: CorpWatch. Holding Corporations accountable. www.corpwatchorg.com. Retrieved December 6, 2005, from http://www.corpwatch.org/article.phpid=7838/ Order and Authorization. In the matter of Lockheed Martin Corporation (File No. SAT-T/C-20000323-00078), COMSAT Government Systems, LLC,and COMSAT Corporation (File No. SAT-STA-20000323-00073). Applications for Transfer of Control of COMSAT Corporation and Its Subsidiaries,Licensees of Various Satellite, Earth Station, Private Land Mobile Radio and ExperimentalLicenses, and Holders of International Section, 214 Authorizations. Adopted on July 27, 2000Released on July 31, 2000. Federal Communications Commission. Washington, D.C. 20554.Retrieved December 6, 2005, from http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-00-277A1.doc. Profile of Lockheed Martin. Polaris Institute. Retrieved December 6, 2005 from, http://www.polarisinstitute.org/corp_profiles/public_service_gats_pdfs/lockheed.pdf. Stevens, R. J. (Chairman, President & Chief Executive Officer). Changes to "Setting the standard." The Lockheed Martin code of ethics and business conduct. Updated November 2005. Retrieved December 6, 2005, from http://www.lockheedmartin.com/data/assets/7856.pdf. [Html version]. Tellep, D. M. Augustine, N.R. & Schwartz, B.L. Treat in an Ethical Manner Those to Whom Lockheed Martin Has an Obligation. Code of Ethics and Business Conduct. Lockheed Martin Corporation. June 1996. Retrieved December 6, 2005, from http://www.itcilo.it/english/actrav/telearn/global/ilo/code/lockheed.htm. Terris, D. (2005). Ethics at Work. Creating Virtue at an American Corporation. Political Science & Government. Brandeis University Press/University Press of New England. 168 pp. Retrieved December 6, 2005 from http://www.upne.com/1-58465-333-7.html. Tran,M. World: Bribe Probe for US Arms Firms. Guardian (London). September 2, 1995. In: CorpWatch. Holding Corporations accountable. www.corpwatchorg.com. Retrieved December 6, 2005, from http://www.corpwatch.org/article.phpid=7863. Read More