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Ethics Corner 

 Make Commitment To Corporate Ethics 


By Joe Reeder and David T. Hickey 

At the beginning of this year, NDIA President Larry Farrell unveiled the association's "Statement of Industry Ethics," putting ethical conduct on par with shareholder profits and noting prior lapses that have damaged the industry's reputation. He noted that maintaining the highest ethical standards throughout this industry has never been more important to the country.

The industry's unique relationship with the Defense Department mandates a code of ethics that makes ethical conduct no less important than profits. This past year has provided some sobering ethical and compliance lessons.

Some view the Darleen Druyun conflict-of-interest scandal as the highest profile public contracting scandal since Operation Ill Wind of the 1970s and 1980s. One obvious lesson of this scandal-which came to a head in 2005 and resulted in prison sentences, resignations and overturned contract awards-was renewed attention to the particulars of the federal criminal conflict of interest statutes.

Perhaps an even more valuable lesson to industry may be found in the results of the numerous government and internal investigations and resulting remedial actions undertaken by Boeing and the Defense Department.

These results and actions have far exceeded the parameters of mere compliance with a particular law or regulation and, at Boeing's expense, focus much needed attention on managerial aspects of company ethics codes, best practices, policies and procedures.

Partly as a result of Boeing's compliance and ethics program, the Air Force did not recommend the company's suspension or debarment. Boeing fired Druyun and its chief financial officer, Michael Sears, and made full disclosure to the Air Force inspector general and the Department of Justice. This is a key lesson of that affair-the critical importance of prompt and appropriate corrective action, including disciplinary measures, where instances of unethical conduct are discovered.

The value of a solid ethics program also was cited last year when the Air Force lifted the suspension of the Boeing business units involved several years ago in Procurement Integrity Act (PIA) violations, which were related to the misuse of proprietary information in connection with the Evolved Expendable Launch Vehicle contract.

While remedial actions necessarily focused on the particulars of PIA compliance and the parameters for the protection and disclosure of proprietary data, a major factor in the decision to lift the suspension was Boeing's timely and effective response to the incident.

That response included independent reviews of Boeing's ethics and business processes, followed by implementing recommendations from those reviews.

The result proved the value of constant self-monitoring, external review, communication, self-policing and, equally important, the decisive response of senior management and the board.

More lessons can be derived from lesser-known events. Last year witnessed a surge in enforcement actions under the Foreign Corrupt Practices Act (FCPA) by the Department of Justice and the Securities and Exchange Commission, including an action against the Titan Corporation, which settled criminal and civil charges relating to a bribery scheme to benefit the president of a West African nation. Titan pled guilty last year to improper payments by a Titan foreign sales agent to a government official in the Republic of Benin. As a result, Titan was required to pay a significant fine, adopt an FCPA compliance procedure-which was not in place before the violations-and was required to retain an independent consultant to review the company's FCPA compliance procedures and to adopt and implement the consultant's recommendations.

Again, independent review followed by remedial action was deemed vitally important to the government in resolving this transgression that caused real harm to Titan. The terms of this settlement underscore the importance of proactive internal and external review, as well as remedial action to detect transgressions and mitigate them when they occur.

Other ethics scandals during the past year included:

. The arrest of the head of the Office of Federal Procurement Policy on false statement charges, arising from statements made to a government ethics official and the General Service Administration's inspector general.

. A guilty plea by an Army and Air Force Exchange Service procurement official and contractor for wire fraud.

. The indictment of a former employee of Kellogg, Brown & Root and its subcontractor for fraud relating to a contract award to supply fuel tankers for military operations in Kuwait.

. The indictment and guilty pleas of numerous defendants in a GSA corruption probe in Chicago.

. The indictment of a Pentagon employee and his co-conspirators for defrauding the U.S. Army in Korea and accepting kickbacks.

One lesson from all of these cases is that chief executives and government leaders must remain vigilant and encourage ethical consciousness in their organizations from the top down.

NDIA was the first organization to formally conclude that the "chief ethics officer" must always be the CEO, that training and ethics focus must be a priority at every level of business and that it must always start at the very top.

Joe Reeder and David Hickey are attorneys at the international law firm of Greenberg Traurig. The opinions expressed here are solely those of the authors and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee.

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