Company Description and Background
Before turning into a huge corporation with global reach, Lockheed Martin went through multiple stages of development, most of which faced periods of failure and fallback. Lockheed Martin has nearly a century long history and is one of the world’s leading manufacturers and sellers of weapon, aircraft, surveillance devices, and detection systems. Its story began during the World War I when the Loughead brothers first began to build airplanes and sell them to hobbyists.
They operated within an emerging niche of the military weaponry market, but their airplanes were not created in time to become involved in the war. Over the decades, the company perfected its models to eventually build the Lockheed Vega, one of the first legendary airplanes of the time and the leading machine in the market. Before the start of the Second World War, the company has experienced several ups and downs; however the need for its products grew rapidly as the United States became the partakers in the global conflict, and as a result, the company expanded very fast increasing its productive capacity and the number of employees by approximately 500%.
During the post-war years, as the demand for the company’s production dropped, the company has focused on its new mission to lead the domestic weaponry market through the Cold War and withstand the global competition. Unfortunately, the latter task was not easy to fulfill, and the company found itself facing a new challenge of finding clients and buyers willing to purchase their product that was not the best in the global market.
“Unorthodox” Practices
Attempting to approach potential clients, the marketers of Lockheed failed to promote their aircraft and turned to the so-called “unorthodox” practices. Unable to take over the stronger and larger competitors, Lockheed had to find alternative ways to push their production. Since the Lockheed airplanes were rejected in the domestic market, the company addressed the foreign buyers in such countries as Indonesia, Japan, The Netherlands, Italy, and Saudi Arabia.
The company’s marketers approached the customers through the series of illegal connections and activities selling the Starfighter airplanes. The Lockheed’s F-104 Starfighter was created on the basis of the aircraft missile X-1. The purpose was to outmatch Soviet-made MiG-15. Starfighter made its debut in February, 1954. It had many experimental innovations: it was extremely fast, the top speed was up to 1000 miles per hour, but it was stuffed with inadequate working equipment. Also, it failed to become a multifunctional aircraft due to technical problems. After a failure of the campaign in the United States, Lockheed tried to find a way to the international level. The company paid bribes to support Starfighter advertising campaign abroad. Besides, some of the contracts with the foreign government were facilitated through bribes that were not recognized as illegal practices in the 1950s and 1960s. In 1958, Germany bought Starfighter. Italy, Holland, Belgium, Japan, Denmark, Greece, Spain, Norway, Turkey, and even Indonesia followed Germany. That way, while the native buyers purchased only a few hundreds of the airplanes, the clients from abroad bought several thousands of Starfighters. In other words, the shady strategy of the Lockheed marketers paid off and benefited the company saving it from a major disaster and possible bankruptcy.
A similar situation occurred when the company decided to enter the jumbo jet market. Forced to compete with two powerful manufacturers and their much more superior models, the DC-10 and Boeing 747, Lockheed lost the battle for the domestic market that was not big enough to support too many competitors. As a result, the company, once again, found itself fishing for the clients in the overseas markets. Lockheed was highly motivated to sell their jumbo jet model called L-1011 as its development took a lot of investment and needed to pay off. This development affected the company’s financial performance thus forcing different stakeholders to engage in corrupt strategies. According to an investigation conducted in 1976, Lockheed’s bribes amounted to 22 million US dollars. The company had bribed different foreign officials. Such bribes were aimed at encouraging them to purchase their aircrafts from Lockheed.
The Japanese market became one of the main targets of Lockheed and its vice-chairman Carl Kotchian. This leader managed to change the mind of the leaders of the largest Japanese airlines and make them switch from the DC model they were inclined to purchase. The tool that helped Kotchian to push his aircraft in Japan was active bribery. All in all, he managed to sell 20 jets which made him a hero of marketing at Lockheed.
Lockheed did not do something unusual. In the 1950s and 1960s, bribery was a part of doing business. Bribery overseas was even not illegal according to American laws at that time. However, Lockheed’s overspending has drawn the officials’ attention. The Church Committee brought the light to the Lockheed’s shady deals. This corporation was called a major international bribe-giver in the world. This caused political scandals in Japan, Netherlands, Italy, and Belgium and started the so-called “case of Lockheed”. Lockheed became a byword for the shady practices of American multi-national corporations. Having passed through scandals and layoffs, this corporation became a major impetus for new legislation, being the first who introduced a code of ethics.
Many defense contractors also faced numerous challenges during the period. The absence of transparency and commitment affected the firm’s performance. Before merging with Martin Marietta, Lockheed paid a fine of 24.8 million US dollars for engaging in bribery and ineffective corporate practices. In 1990s, the firm also paid around 1 million dollars to an Egyptian lawmaker in an attempt to market its aircrafts in the country. Such bribery claims affected the company’s image and eventually resulted in heavy fines.
The Turning Point
Several issues and developments emerged thus forcing the managers at Lockheed to implement new ethical approaches. The investigations conducted in 1976 showed that Lockheed had been engaging in various malpractices. Such malpractices resulted in numerous fines and penalties. The events taking place in the company throughout the period led to new allegations. The leaders in the firm also continued to pay bribes to different government officials. In 1975, the firm was forced to pay a fine of over $24 million. The organization was also expected to plead guilty for violating the country’s anti-bribery regulations and laws. New illegalities were also reported during the period.
The newly formed Lockheed Martin therefore formulated new agreements and practices in order to remain ethical. Lockheed Martin instituted new strategies in order to deal with such allegations. The firm was also expected to address every past ethical complaint, misconduct, and malpractice. This turning point resulted in a powerful ethics program. The purpose of the program was to ensure the firm was on the right path towards achieving its business objectives.
It also wanted to establish powerful internal programs to monitor, report, and even prevent any illegal act. It is agreeable that the ethical problems and challenges encountered throughout the second half of the century forced the company to implement a powerful ethics program. The program also encouraged more employees to engage in the best business activities. The new program has made Lockheed Martin one of the most successful and ethical companies in the aviation industry.
In May, 1977, Lockheed published a document in the company magazine, Lockheed Life, under the title “Lockheed Principles of Business Conduct”. The Code emphasizes that the company commits to the highest standards of integrity. It is extremely important for every employee to fulfill his or her obligations. The Code also states: bribery, violations of export and import laws, and participation in illegal boycotts destroy confidence in the market, undermine democracy, and spoil the economic and social development. In this document, they announced their pledge to observe ethical business principles as the most essential, adhere to the U.S. law and laws of other countries, and avoid conflicts of interest. This proclamation, nevertheless, made it possible to maneuver and return on the slippery track. However, Lockheed was the first organization that introduced a code of ethics. It was a shift of thinking.
Having introduced the code of ethics, Lockheed continued to spend money. For example, a coffee maker for the cargo plane Galaxy G-5 was estimated in $7000, and the money was spent on pets and baby-sitters. In 1986, President Reagan created the Packard Commission, a blue-ribbon commission to investigate the facts of procurement for the defense industry. The Commission recommended defense companies to take the ethics program. From this recommendation, the Defense Industry Initiative (DII) originated in spring of 1986. This initiative concerned the principles of conduct and ethics and was accepted in 1986. Its main objective was to remove the ethical tension from the industry uniting all the competitors under a promise to play fairly. The new policy increased the accountability of the companies and obliged them to enforce ethical management from within and share their most successful practices with one another. 32 major defense companies developed its six basic principles. Jack Welch, CEO of General Electric, has attracted contractors by the promise to develop and comply with the code of ethics and train employees in the code.
Norman Augustine, the president of Lockheed Martin in 1990s, recognized that the ethics program was boring. He told Carol Marshall, the lawyer in charge of the ethics program, to solve this problem. Having traveled around the corporation, Mrs. Marshal understood that comic characters Dilbert and Dogbert were very popular among the corporation workers. The company paid $50,000 for the right to use Dilbert character for their corporate purpose. Steve Cohen, a specialist in employee training, and his partner, David Gebler, developed business games featuring the cartoon character to attract the attention of employees. Since 1997, “Ethics Challenge” game became a mandatory ethics awareness program. All played this “Monopoly-like” game according to the cascade principle, beginning from Norman Augustine and senior staff. Every senior manager had to play like a common team member and then become a team leader for his or her subordinates. All employees had to play the game for at least an hour a day. As a result, employees have become more aware of morality issues. Thus, the game method introduced by Norman Augustine was the turning point in the employees’ corporate ethics possession.
The DII made Lockheed to develop and put into practice its own organizational code of ethics as a necessity to identify the wrongdoings and prevent the association of the whole company with the misdeeds of particular rule breakers. Naturally, the new standards were disobeyed almost right away as after the Lockheed Martin merger, the company became involved in another overseas bribery scandal which forced it to reevaluate its code of conduct and become especially thorough in order to win back the clients from the Pentagon.
Lockheed Martin has been using powerful strategies in order to implement and support the best ethics programs. The main goal has been to ensure the firm reinvents its image. Modern technologies have the potential to support the best ethical programs. Lockheed Martin has developed an electronic ethics program. The purpose of this ethics program is to track every kind of wrongdoing outside and inside the organization. The implemented system monitors the actions, behaviors, and violations committed by different employees. The system is also effective because it can investigate a specific employee for one month. After implementing the system in 1995, Lockheed Martin has managed to catch around 217 employees. Some of the employees have been observed to misuse the firm’s assets. Some employees have also been involved in different business malpractices. Individuals engaging in conflicts of interest are also fired immediately. This argument shows clearly that the firm’s electronic program plays a positive role towards addressing different challenges. It has also been encouraging different stakeholders to be involved in the process. The important objective is to ensure the firm transforms its corporate image.
Much attention was paid to measures against corruption. Lockheed Martin developed a detailed presentation of the company’s policy with respect to kickbacks, business incentives, and conflicts of interest. Lockheed Martin conducts an audit of all aspects of anti-corruption measures, for example, studies the open sources of information, verification of the documents submitted, and making inquiries at the embassy. The rules formulated in the ethical code made the company with bad reputation more attractive for their customers. Due to improved corporate reputation, Lockheed could overcome the instability period of the early 1990s.
Thus, in today’s business environment, the concept of ethics is gray. This means that no organization complies with the rules absolutely. However, in the pursuit of profit, according to the rules of utilitarianism, it is necessary to evaluate the risks and benefits. Being resorting to bribery, Lockheed committed acts that were not acceptable in terms of utilitarianism and human morality. The corporation went through financial and political scandals associated with ethics violations and was among the founders of the ethical code of defense industry enterprises. Lockheed corporate code of ethics has become a model for other companies.