Industry Reaffirms Business Ethics Principles
by Lawrence P. Farrell, Jr.
As events evolve in the U.S. war against terrorism, it seems clear
that the federal government’s spending priorities are changing.
For the Defense Department, the days of declining budgets may be
over, at least for a while.
The conflict overseas—which could expand beyond Afghanistan—and
new homeland defense missions undoubtedly will require significant
additional funding for the Defense Department, the military services
and other agencies that have various national security responsibilities.
It thus seems inevitable that more resources will be allocated to
national defense priorities. This has been acknowledged by both
the Administration and Congress, even though the numbers are still
being worked out.
According to a congressional report issued last month by the House
Appropriations Committee, the Pentagon and the Central Intelligence
Agency estimated the short-term costs for the war in Afghanistan
at $66 billion. That includes $14.7 billion to cover operating costs,
such as fuel, spare parts and repairs. About $10.6 billion is for
intelligence-related upgrades. Hundreds of millions of dollars would
be allocated for hiring more agents and more analysts. Approximately
$509 million would go to C4I and intelligence-gathering technologies.
The report also lists $3.9 billion for force protection equipment,
$3.2 billion for aircraft upgrades, $3.1 billion for munitions and
communications equipment and $1 billion for ammunition and counter-terrorism
training for special operations forces.
For the industry, obviously this is good news. The increased funding
could result in short-term and long-term opportunities for new business
and a chance for the industry to contribute to the war effort, by
making sure that the equipment our troops receive is the best in
the world. These high-tech systems—combined with quality training—give
the United States military its battlefield edge.
A rapid buildup of new business, however, also comes with the potential
for procurement irregularities. As many of you may recall, the surge
in defense spending experienced in the 1980s unfortunately spawned
a number of procurement scandals and investigations, most notably
Operation Ill Wind. Between 1986 and 1990, more than 90 companies
and individuals were convicted of misconduct in dozens of defense
We in industry need to remember those lessons and make a special
effort to avoid the errors of the ‘80s.
The NDIA Board of Directors raised this issue during our recent
Fall meeting. Our association recommends that it is now an appropriate
time to reaffirm the principles of the Defense Industry Initiative
(DII), a consortium of companies created to foster a heightened
standard of ethical conduct by every employee in the defense industry.
The DII’s Business Ethics and Conduct Steering Committee—composed
of chief executive officers from 13 defense companies—met
in November, to review and reaffirm the principles of DII.
To recall, the DII is an outgrowth of the 1986 Blue Ribbon Commission
on Defense Management (known as the Packard Commission). At the
time, public confidence in the defense industry had been eroded
by reported instances of fraud or waste. The Commission concluded
that the defense acquisition process, as well as the defense business
environment, could be improved by placing greater emphasis on corporate
As a result of this recommendation, defense contractors voluntarily
joined together to embrace and promote the principles of this initiative.
DII promotes self-policing as a means of confirming management’s
commitment to abide by ethical standards—even when they exceed
legal requirements—and of discovering and correcting instances
when conduct falls below these standards. It also encourages companies
to share best practices in dealing with ethics and business conduct
The DII signatory companies are required to adopt a written code
of conduct, to implement employees orientation and training with
respect to the code, to provide employees with a mechanism (such
as a hotline or helpline) to surface concerns about corporate compliance
with procurement laws and regulations, to adopt procedures for voluntary
disclosure of violations of federal procurement laws and to participate
in best-practices forums.
Information on how a company may join the DII is on the Web, at
To summarize, government-Industry cooperation and collaboration
has been excellent as of late. Government procurement and contracting
officers have continued to sponsor symposia and workshops to promote
discussions of mutual interest—with the purpose of improving
the openness and efficiency of the acquisition process.
The discussions have proved beneficial to defense business and
have been conducted within a legal and ethical framework. Our objective
is to advance and enhance this favorable trend.
A serious review of the DII and the lessons of the ‘80s is
the right thing to do. It will help to avoid inadvertent transgressions
of policy or law and will solidify our industry’s reputation
as a leader in ethical business practices.