Lockheed is Doing Right and Doing Well

March 1, 2004

In 2001, a man named Ron Covais, a vice president for business development at aerospace giant Lockheed Martin, received an "inappropriate request for payment" during the bidding process for a contract with a foreign customer. Covais not only turned down the bribe request flat but also immediately removed his company from the bidding process. He reported the incident to his bosses and met with top-level U.S. and foreign officials to discuss the matter. His action cost his employer a multimillion-dollar business opportunity.

    But in March 2002, Covais was presented with the first annual Chairman’s Award, a crystal bowl symbolizing "the highest standards for integrity and business conduct." Lockheed Martin’s chairman and CEO, Vance Coffman, presented the award in a special ceremony. "Ron’s action in resolving this complex ethical issue followed our ethical guidelines to the letter," Coffman declared. In March 2003, the second annual Chairman’s Award was presented to Vic LaRosa, a software engineer who inadvertently received two e-mails containing proprietary information belonging to a competitor. LaRosa immediately deleted the messages and reported the incidents to his manager.

    These aren’t the kinds of stories that get much ink these days. There’s much more interest in plumbing the murkier depths of the military-industrial relationship. But perhaps the primary reason why Lockheed Martin, unlike Boeing and Halliburton, has been out of the headlines lately is that the formulation, dissemination and enforcement of ethical standards is one of the company’s strategic priorities. It is this company-wide commitment that singled out Lockheed Martin as the 2004 Optimas Award winner for Ethics.

    "Our belief is that good ethics is good business," says Maryanne Lavan, Lockheed Martin’s vice president for ethics and business conduct. "The competition in this business is fierce, but if our company wins through underhanded means, we don’t consider it a win. Because eventually there’ll be someone uncomfortable enough to report it." Lavan emphasizes that her company’s ethics policy, in effect since the 1995 merger of Lockheed and Martin Marietta, works from the top down. To illustrate, she points out that each year, every senior leader in the company is asked to find an example of exemplary ethical behavior in his business unit and recommend the responsible employee for the Chairman’s Award. If he fails to do this, he receives a negative evaluation.

    No one, from the CEO down, is exempt from inquiries and complaints phoned in to an anonymous ethics hotline. Every one of Lockheed Martin’s 130,000 employees--again from the CEO down--receives a mandatory hour of ethics training each year. To carry out such ambitious tasks, Lockheed Martin employs 65 ethics officers, divided among its Bethesda, Maryland, headquarters and its five business units. The ethics department produces training materials that stress guided role-playing exercises simulating "gray area" ethical quandaries. For instance, what do you do if you accidentally receive information from a U.S. government employee about a rival company’s bid? If a manager asks you to fudge financial information on an internal report? If a vendor’s representative offers to pay for TGIF drinks for your entire work team? Many of the scenarios are based on actual experiences of workers at Lockheed Martin and other corporations.

    To keep its messages fresh, the Lockheed Martin ethics department turns out a newspaper and calendar and an "Ethics Zone" site on the company intranet. There is even an annual Lockheed Martin Ethics Film Festival. Prizes are awarded to the best tongue-in-cheek amateur ethics "infomercials" submitted by auteurs from throughout the company. Some of the entries are surprisingly well produced and powerful. Some are not, but the ethical messages still get through. In 1997 the company contracted with Dilbert creator Scott Adams to spice up the training materials with pertinent examples of his satirical comic strip. Then-CEO Norman Augustine, a particularly vocal advocate of ethical conduct and education, appeared with Dilbert in an introductory video.

    The roots of Lockheed Martin’s ethics program go back to the 1970s, when Lockheed was caught in a messy scandal involving kickbacks to foreign customers, which resulted in a major congressional investigation and the passage of the Foreign Corrupt Practices Act. In the intervening years, there has been much heated discussion about the cozy relationship between the defense industry and the U.S. government as well as some of its more byzantine contracting and pricing methods. It’s a measure of the company’s progress that when the Sarbanes-Oxley Act was passed in 2002, Lockheed Martin was already in compliance with most of its provisions and proscriptions.

    Calculating the ethics program’s return on investment is difficult, especially since its budget, about which Lavan will say only that it’s "millions of dollars," is secret. But another way to look at it is that in an era when Enron, WorldCom, Parmalat and Tyco have become household names, public scrutiny is closer and illegal corporate conduct costlier. Last year’s ethical lapse by Boeing--to be precise, an ex-employee’s pilfering of proprietary information connected to an Air Force missile contract--cost the Chicago-based company an estimated $1 billion. Says Brian Sears, Lockheed Martin’s director of ethics services, "You lose a billion dollars in business, it gets people’s attention in a hurry."