Ethics Case Study for Lockheed Martin

. What do you think about the notion presented by Terris that Lockheed's ethics program does little to prevent ethical breaches at the highest level of the organization?

I somewhat agree with the notion present regarding Lockheed’s ethics program. As stated by Terris on page 117, “Lockheed Martin’s ethics program addresses people, but it does not address systems.” Here, Terris looks to make that point that ethics programs within the corporation are much more reactionary as oppose to forward looking. Likewise, according to Terris, little is done to oversee the ethical standards of top-level management. In the case of Lockheed Martin, the lower level employees often have standards and procedures to operate ethically, but high-level management often does not have nor even comply with these standards. For one, there is very little oversight and pushback for top level executives in the organization. In many instances the board of directors is subject to the information provided them by senior leaders (Hoffman, 1982). As such, the board of directors, who are often closely related to the executives through formal relationships are often complicit in any unethical behavior on the part of executives. Terris uses the examples of Enron, Tyco and Adelphia as examples of unethical practices from higher ranking corporate executives. Here, the executives essentially lied, obfuscated and concealed vital information from the board of directors and the investors they were to represent. These executives even went to extraordinary lengths to essentially hide critical information from regulators and government authorities. Even more alarming, many of the employees pension and retirement assets were tied to Enron stock, which eventually became worthless during the bankruptcy. All of these circumstances prove that point made by Terris that ethical programs do little to prevent breaches from top level executives (De George, 1994).

2. Are the efforts put forth—such as making sure higher level executives participate in training—enough to help executives navigate what Terris calls the "ethical minefield" faced by leadership in such an organization?

Unfortunately, theses efforts are not enough. Although training is helpful and a welcomed addition, more safeguards will be needed to help prevent unethical behavior. Here, as Terris alludes to, many of the most unethical executives at Tyco and Enron had some form of ethical training, either through college or through continual education courses. However the incentives, conflicts of interest, and principal-agent issues created compelling incentives to behave unethically. Here, these same issues are much more pervasive within the business world. Globalization for example, places more pressure on executives to compete and grow relative to peers in the industry (Stafford, 2005). As such, they may engage in practices that are unethical in order to make certain earnings per share figures, analyst expectations, or bonus incentives. This in turn, can lead to behavior that undermines the overall viability of the organization. For example, management may engage in inappropriate acquisition activity. Management could use complex accounting terms and treatments to hide poor performance from investors. It can even mislead investors with overly optimistic projections. Each of these elements are present within the ethics minefield that Terris alludes to on page 123. Unfortunately, without proper safeguards, these minefield will continue to exist even with training (Hoffman, 1982).

3. What are some things that could be done to address the issue related to ethics at higher executive levels of the organization?

The first will be to have a fully independent board of directors who are active and engage with the operations of the business. There should be an independent audit committee and an independent executive compensation committee. The metrics used to evaluate the business should be based on some executive input, but primarily those of the board who understand the business. With an independent audit and compensation committee, the influence of executives on the overall board is reduced but no eliminated. In addition, the chairman of the board and the CEO should be separated to improve the oversight and independence of the board of directors. Other legal remedies such as the Sarbanes Oxley legislation have been helpful in help limit unethical practices on the part of executives. Here, both the CEO and CFO must attest the accuracy and legitimacy of the financial results presented. In addition, the threat of severe fines, punishment and jail time can help incentivize strong ethical behavior on the part of top-level executives. However, more can be done to help improve overall ethical decision making. Here, companies should include claw back provisions for stock options, bonuses and other compensation to executives who are found to behave in an unethical manner. Finally, the company should look to improve “whistle blower” programs and initiatives within the organization to encourage employees to voice concerns they have related to unethical behavior on the part of executives (Svensson, 2008).

4. Terris points out that the company's program is overly focused on individuals and that it doesn't really address group dynamics that can impact ethical situations. For instance, there can be a tendency for groups to "go with the flow" of the group decision-making process and overlook ethical issues in the process. What would you recommend that Lockheed Martin do to address this situation?

As noted above, Lockheed must create a corporate culture that allows employees to properly voice their fears or concerns without fear of reprimand. This can be done through management and other initiatives that look to provide a safe communication infrastructure for employees. Those that do speak shall be rewarded to further incentivize the detection and prevention of unethical behavior throughout the organization. The board of directors will also play a large role in helping to better safeguard the interest of the organization, its investors, and communities. The board should be independent with strong oversight powers to help alleviate ethical considerations on the part of executives. Finally, severe punishments must be put in place for those executives who are found to have violated the code of ethics for Lockheed Martin (Sears, 2007).