President's Corner

Industry Reaffirms Business Ethics Principles

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)

January 2002 – As events evolve in the U.S. war against terrorism, it seems clear that the federal government’s spending priorities are changing. For the Defense Department, the days of declining budgets may be over, at least for a while.

The conflict overseas—which could expand beyond Afghanistan—and new homeland defense missions undoubtedly will require significant additional funding for the Defense Department, the military services and other agencies that have various national security responsibilities. It thus seems inevitable that more resources will be allocated to national defense priorities. This has been acknowledged by both the Administration and Congress, even though the numbers are still being worked out.

According to a congressional report issued last month by the House Appropriations Committee, the Pentagon and the Central Intelligence Agency estimated the short-term costs for the war in Afghanistan at $66 billion. That includes $14.7 billion to cover operating costs, such as fuel, spare parts and repairs. About $10.6 billion is for intelligence-related upgrades. Hundreds of millions of dollars would be allocated for hiring more agents and more analysts. Approximately $509 million would go to C4I and intelligence-gathering technologies. The report also lists $3.9 billion for force protection equipment, $3.2 billion for aircraft upgrades, $3.1 billion for munitions and communications equipment and $1 billion for ammunition and counter-terrorism training for special operations forces.

For the industry, obviously this is good news. The increased funding could result in short-term and long-term opportunities for new business and a chance for the industry to contribute to the war effort, by making sure that the equipment our troops receive is the best in the world. These high-tech systems—combined with quality training—give the United States military its battlefield edge.

A rapid buildup of new business, however, also comes with the potential for procurement irregularities. As many of you may recall, the surge in defense spending experienced in the 1980s unfortunately spawned a number of procurement scandals and investigations, most notably Operation Ill Wind. Between 1986 and 1990, more than 90 companies and individuals were convicted of misconduct in dozens of defense programs.

We in industry need to remember those lessons and make a special effort to avoid the errors of the ‘80s.

The NDIA Board of Directors raised this issue during our recent Fall meeting. Our association recommends that it is now an appropriate time to reaffirm the principles of the Defense Industry Initiative (DII), a consortium of companies created to foster a heightened standard of ethical conduct by every employee in the defense industry.

The DII’s Business Ethics and Conduct Steering Committee—composed of chief executive officers from 13 defense companies—met in November, to review and reaffirm the principles of DII.

To recall, the DII is an outgrowth of the 1986 Blue Ribbon Commission on Defense Management (known as the Packard Commission). At the time, public confidence in the defense industry had been eroded by reported instances of fraud or waste. The Commission concluded that the defense acquisition process, as well as the defense business environment, could be improved by placing greater emphasis on corporate self-governance.

As a result of this recommendation, defense contractors voluntarily joined together to embrace and promote the principles of this initiative.

DII promotes self-policing as a means of confirming management’s commitment to abide by ethical standards—even when they exceed legal requirements—and of discovering and correcting instances when conduct falls below these standards. It also encourages companies to share best practices in dealing with ethics and business conduct issues.

The DII signatory companies are required to adopt a written code of conduct, to implement employees orientation and training with respect to the code, to provide employees with a mechanism (such as a hotline or helpline) to surface concerns about corporate compliance with procurement laws and regulations, to adopt procedures for voluntary disclosure of violations of federal procurement laws and to participate in best-practices forums.

Information on how a company may join the DII is on the Web, at www.DII.org.

To summarize, government-Industry cooperation and collaboration has been excellent as of late. Government procurement and contracting officers have continued to sponsor symposia and workshops to promote discussions of mutual interest—with the purpose of improving the openness and efficiency of the acquisition process.

The discussions have proved beneficial to defense business and have been conducted within a legal and ethical framework. Our objective is to advance and enhance this favorable trend.

A serious review of the DII and the lessons of the ‘80s is the right thing to do. It will help to avoid inadvertent transgressions of policy or law and will solidify our industry’s reputation as a leader in ethical business practices.

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President's Corner

Industry Reaffirms Business Ethics Principles

by Lt. Gen. Lawrence P. Farrell, Jr., USAF (Ret)

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