Defense industry ethics draw fire

Is the defense industry that unethical? Absolutely not, say many industry officials who argue that, in fact, its moral compass points truer north than many segments of corporate America.

The defense industry has serious problems, counter critics, who say you need look no farther than the latest headlines about alleged fraud and bribery.

The dispute over ethics in the weapons-making business is an enduring one. But it is heating up in the wake of the defense procurement probe.

Many reform-minded lawmakers want the Defense Department to make certain ethics regulations mandatory for the industry. But industry supporters balk at the idea of more strictures - particularly when it comes to regulations governing conduct.

The debate comes as Congress and the Pentagon weigh varying changes in the procurement system. On Tuesday, Defense Secretary Frank Carlucci vowed the department would take ``appropriate action'' if the ongoing Pentagon bribery probe turns up new evidence that some contracts may be tainted. In hearings Tuesday before the Senate Armed Services Committee, Mr. Carlucci said Pentagon actions may include rescinding, terminating, or suspending contracts, or fining individuals.

The debate over ethics revolves largely around a series of voluntary guidelines the industry came up with in the wake of the 1986 Packard Commission report on defense management. Some of the nonbinding principles were contained in the commission's report, while others were added by the industry later.

In the two years since the initiative was launched, only 46 of the country's thousands of defense contractors have signed up for the program. And 39 of those contractors are under federal investigation on allegations of fraud and other criminal abuses, the Pentagon says. Six of them have been named in the current Pentagon fraud probe.

Last week Pentagon Inspector General June Gibbs Brown called for making the ethics regulations mandatory at congressional hearings.

Some in Congress are pushing hard for it, too.

``We ought to stop asking them [the contractors] to self-police themselves,'' Rep. Patricia Schroeder (D) of Colorado noted at hearings last week.

Yet industry officials contend that the statistics are not so incriminating. They note that the 46 who have signed up represent some of the largest defense firms, accounting for more than half of all contract dollars awarded by the Pentagon. Many of the other companies that have not endorsed the Defense Industry Initiatives on Business Ethics and Conduct have developed their own ethical training programs and guidelines.

Industry backers argue that one reason so many companies are under investigation today is because of reports by the contractors themselves of abuses. Voluntary disclosure is one element of the ethics and self-governance initiative.

That means ``it's working,'' claims Alan Yuspeh, a lawyer who coordinates the program for the industry.

Under the voluntary rules laid out by the contractors, companies are required to have written codes of conduct and provide ethical training for employees. They are also supposed to provide whistle-blower protection and ways to voluntarily disclose fraud uncovered internally.

It is the disclosure provision that has made many firms skittish about signing, since they fear retaliation from the Justice Department or other investigating agencies, according to Gary Edwards, executive director of the Ethics Resource Center, a Washington-based group. Other companies - particularly smaller ones - have balked because of the cost of setting up extensive programs.

At Tuesday's hearings, Secretary Carlucci said the Pentagon would consider making ethics regulations mandatory if companies don't act on their own. But he noted that such programs are usually ``much more effective'' if done on a voluntary basis.

If the Pentagon does not act, Rep. Nicholas Mavroules (D) of Massachusetts says he will ask Congress to mandate the ethics program.

Ethics watchers such as Gary Edwards, however, argue that mandating ethical guidelines would undermine their ``moral force.''

He notes, however, that defense contractors do have gaps in their ethics programs. Few companies include training on what to do with proprietary information they get on competitors.

Others note that all the ethics in the world won't keep people from doing unethical things.

``The threat of a stiff jail sentence will have more of a chilling effect than anything else,'' says Jeremy Tennenbaum, a defense analyst with Solomon Brothers.