Scandal at Lockheed Martin and What the Company Did About It

Moving Toward an Ethical Workplace at Lockheed Martin

Do What’s Right. – One of Lockheed Martin’s Corporate Values, 2022

Founded on August 16, 1912 by Glenn L. Martin (Our history, 2022), the entity that would become Lockheed Martin (hereinafter alternatively “the company”) is currently a leading aerospace company headquartered in Bethesda, Maryland which employs about 114.000 at more than 370 facilities in the United States and around the world (About us, 2022). Although the company enjoys positive global brand recognition at present, Lockheed Martin experienced some significant fallout as a result of its sales strategies beginning in the 1950s that adversely affected its reputation. The purpose of this paper is to provide a description of some of the unorthodox strategies that were used by Lockheed Martin during the 1950s and 1960s and an analysis concerning whether the ethics of these strategies given their ubiquity at the time. In addition, an examination concerning why the Defense Industry Initiative was important to the eventual success of Lockheed Martin’s ethics program and a discussion about Norman Augustine\\\\\\\'s and Dilbert\\\\\\\'s contribution in helping Lockheed Martin turn the corner with its ethics program are followed by a summary of the research and significant findings concerning the company’s business strategies then and now in the conclusion.

Description of some of the unorthodox strategies used by Lockheed Martin during the mid-20th century

In reality, the strategies that were used by the company during the mid-20th century were only “unorthodox” by modern standards because bribery was a ubiquitous and accepted part of doing business in many parts of the world at the time. In fact, Terris (2013) points out that not all of the business practices used by Lockheed Martin for its negotiations abroad during the mid-20th century were illegal under U.S. laws, but even those practices such as outright bribery that were illegal elsewhere were widely regarded as just “the cost of doing business” in these regions of the world. In this regard, Terris emphasizes that, “In the 1950s and 1960s, bribery overseas was not even illegal under American law; corporations doing business in other countries were presumed to be subject to the laws (or lack of laws) in those places” (p. 56).

Likewise, some of the other strategies that the company used abroad to gain favor with powerful decision-makers appear to be taken right from a James Bond novel, replete with well-known but nefarious and even sinister actors as well as prominent politicians and even members of royal families such as German-born Dutch Prince Bernhardt of Lippe-Biesterfeld. For this purpose, the company enlisted the assistance of influential middlemen with intimate knowledge of the workings of local governments who also possessed good relations with the powerbrokers they needed to sell more Starfighters. In this regard, Terris reports that, “In countries around the world, they found willing partners, middlemen with access to the highest reaches of government, who were able to sway decisions for a price, and with access to a pool of funds that would not be tracked too closely” (pp. 55-56). In addition, the company also invested in multiple charitable initiatives in several nations, but it is reasonable to posit that these investments were directly linked to Lockheed Martin’s overarching objectives of increasing sales of its Starfighter aircraft in these countries.

If everybody is playing by the same shady rules, is it unethical to compete?

Private sector companies’ top leadership teams are responsible for serving as good stewards of their organizations, and generating enough revenues to stay in business and provide a reasonable return on stakeholders’ investments is among the most important of these responsibilities. This means that top leaders are routinely faced with ethical dilemmas concerning how they should proceed in any given setting, including those involving “shady rules.” If rules are recognized as being shady, their ethicality is also obviously in question. Therefore, from this perspective, it is understandable but still unethical for companies to “play by the same shady rules” even if all of their competitors are doing so.

This harsh reality places smaller enterprises at a competitive disadvantage since they are unable to weather the losses that result from their failure to engage in unethical business practices compared to their larger counterparts, but the historical record confirms that even the largest concerns frequently receive their corporate comeuppance once their unethical business practices are revealed, just as with the company’s outright bribery of Japanese aerospace companies in the early 1970s in an attempt to generate more sales. As Terris points out, “Lockheed was not the only player in the aeronautics industry to engage in these activities, nor was it the only one to receive government scrutiny. But the sheer size of the company, the scope of its international activities, and the harsh spotlight of the [Senate] subcommittee combined to make Lockheed a watchword for global bribery” (p. 58).

In sum, because virtually all of Lockheed Martin’s competitors were engaged in the same type of shady business practices to varying degrees, the company’s leadership insisted that the company was being singled out as a scapegoat for the entire industry. Moreover, Terris points out that although the company did not have an internal ethics program throughout the 1960s and 1970s, it was unlikely that their shady business practices abroad would have been addressed even if one was in place. Following a major shakeup of the company’s top leadership team and the implementation of the Defense Industry Initiative in 1986, though, the company instituted fundamental changes to improve its ethical conduct which are discussed further below.

Why the Defense Industry Initiative was so important to the eventual success of Lockheed Martin’s ethics program

The company had abundant reasons to effect meaningful changes in its business practices following the revelation of its widespread use of bribery abroad during the late 1970s which compelled Lockheed Martin to develop its initial code of ethics. In this regard, Terris reports that in 1977, the company published a set of ethical ideals by which it intended to operate in the future, which included formal commitments to “comply with the laws of the United States and foreign countries, avoid conflict of interest, operate in a manner that is in concert with the objectives of the U.S. Government, and strive for integrity in every aspect of our work” (p. 65). In addition, the introduction of the Defense Industry Initiative (DII) in 1986 served to level the playing field for the American aerospace industry, an eventuality that contributed to the company’s sustained success since that time.

According to Bonime-Blanc (2011), the overarching purpose of the DII was to “address procurement fraud and provide parameters around mitigating and eliminating such fraud” which “represented the beginnings of a revolution in how corporations, especially in the United States but increasingly elsewhere, create and implement internal business conduct and ethics programs” (p. 37). The salient provisions of the DII meant that the company could pursue its dealings at home and abroad using an ethical business model and still remain competitive, but the company also received a major boost to its ethics program when Norman Augustine became CEO in 1996 and leveraged Scott Adams’ iconic “Dilbert” comic in an innovative fashion as discussed further below.

How Norman Augustine\\\\\\\'s and Dilbert\\\\\\\'s contribution helped Lockheed Martin turn the corner with its ethics program