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March/April 1990 - By Andrew Singer

General Dynamics Corporation: An Ethics Turnaround?

In May 1985, the chairman of General Dynamics Corporation received a three-page letter from the U.S. Secretary of the Navy, John Lehman. In that letter, the Secretary expressed doubts about the Navy’s relationship with the company. He gave notice that pending management changes, the processing of the Navy’s contracts with General Dynamic’s Electric Boat and Pomona divisions would be suspended.

It was a letter that followed dramatic Congressional hearings that detailed, among other things, the company’s extensive bestowing of “gifts” upon the father of the nuclear submarine, Admiral Hyman G. Rickover, and an elaborate scheme to juggle the books and overcharge the government on submarine contracts.

The hearings also recalled the bizarre flight of a former GD executive vice president, P. Takis Veliotis, to Greece; there he admitted to taking kickbacks while with the company in the 1970s and charged other senior company executives with corruption as well.

While the Congressional hearings and the press coverage were discomfiting, Lehman’s letter scalded. It struck directly at the company’s relationship with the government, on whose military budget the St. Louis-based company was largely dependent.

Ordered to establish a code of ethics

“What do you do when you get a letter like that?” asks Kent Druyvesteyn, the company’s Staff Vice President, Ethics Program. “You read it very closely.”

Three of the management changes Lehman called for concerned overhead billing issues. (The government said General Dynamics overcharged it at least $75 million for overhead expenses on contracts, including country club fees and personal travel for company executives.)

The fourth was “to establish and enforce a rigorous code of ethics for all General Dynamics officers and employees with mandatory sanctions for violation.”

On August 1, 1985, Druyvesteyn, an historian by training and a former head of the MBA program at the University of Chicago, joined the company to head the new ethics office. On August 13, the company announced the inauguration of the “General Dynamics Ethics Program.”

An ethics program born out of necessity—imposed, as it were, from outside—the challenge, according to Druyvesteyn, “was to turn something viewed punitively into something positive. How are we going to do it? How were we going to put it into practice?”

A turnaround?

    Nearly five years later, what has become of General Dynamics’ ethics program? Has ethics been ‘institutionalized,’ as the company and government intended? If so, has it had any discernible effect on the company’s conduct?

These are difficult questions, but ones that Druyvesteyn himself isn’t above posing. And, in fact, some outside observers speak of a transformation at the company.

“They’ve had a tremendous turnaround,” says the ethics director at a large New England defense contractor. “They’ve really had to change the whole culture.”

Gary Edwards, executive director of the Ethics Resource Center, a non-profit, Washington-based educational organization, speaks positively of the General Dynamics program. He notes that Druyvesteyn holds the title of vice president and reports directly to the company’s CEO.   

This in itself is significant: Reporting relationships often signal the seriousness with which a program is regarded within a company. Druyvesteyn’s “peers” include the corporate heads of manufacturing, human resources, and engineering.

5,000 ‘communications’ annually

Today the 100,000-employee company has 33 ethics program directors working out of its operating units. An ethics “hotline” is the source of many of the 5,000 ethics “communications” the office receives each year, everything from complaints about a supervisor to reports of kickbacks—or simply employees seeking information about company rules.

The company can offer “significant anecdotal evidence” to indicate some success in its program, says Druyvesteyn. For one, its primary customer, the government, “says a change has taken place, a perceived change in attitude.”

(The company was suspended from contracting with any agency of the government on December 3, 1985, following the indictment of the corporation and four senior executives. The suspension was lifted in February 7, 1986, the government apparently satisfied with the implementation of the company’s ethics program. The Department of Defense Inspector General’s office, contacted for this article, declined to comment on the company’s program, saying that it didn’t comment on specific private industry programs.)   

An ethical transformation? Druyvesteyn himself admits that is no short-term affair. “You don’t build trust just by having a program.” It takes time, “a long time, and it can be lost overnight.”   

The company has sought to gauge its progress toward establishing trust within the company, conducting an employee survey in 1986-87 on the subject. According to Druyvesteyn, the company learned that it still had a “long way” to go in regaining trust. (“Anyone who thinks an institution is universally loved is mistaken.”) General Dynamics recently took another survey; sometime in early 1990 it will learn whether it has improved over the earlier study.

Rules of the road

The evidence suggests, however, that the company has made major strides in institutionalizing ethics. In the company’s booklet titled Standards of Business Ethics and Conduct, it spells out the “rules of the road” regarding business relationships.   

“What we have tried to do in the Standards booklet is to state what is considered acceptable conduct in ordinary business relationships,” says Druyvesteyn. “We haven’t tried to write a treatise on ethics.”

The standards are kept clear and simple. The booklet, now in a second edition, is distributed to all employees as well as thousands of company suppliers; it is also issued as a part of consulting agreements.   

The company recognizes, however, that “no set of guidelines or policies are large enough or wise enough to cover every situation,” observes Druyvesteyn. Questions about the guidelines are bound to arise. Hence the need for a communications system.

Ethics ‘hotline’

Normally, when an employee has a question, he or she goes to a boss or supervisor, or to a functional specialist, such as human resources manager. “In most cases, the normal channel works. But sometimes it doesn’t work. Sometimes the supervisor is the problem.”   

Thus the company introduced an ethics hotline, its emergency channel, with an 800 telephone number. In the company’s operating units, these are manned by ethics program directors.   

“One of the things we do is field a number of questions regarding the meaning and application of the standards,” explains Druyvesteyn. Many people don’t like to ask questions sometimes for no other reason than they might appear “stupid.” It is often easier to ask questions of a stranger. “Some people need to be ‘enabled’ to do what for other people is easy to do.” The more than 5,000 “communications” that the office gets each year include phone calls, visits, and letters. Reports of alleged wrongdoing are about 10 percent of the total.   

“I personally take 800 calls a year,” says Druyvesteyn. He also has a private post office box that only he opens—and to which employees are encouraged to write.

Questions of fairness

What are the most common calls received by the ethics office? Often they involve questions about fellow employees and questions of fairness.   

A worker receives a public dressing-down from a supervisor, say—when the matter could just as well have been discussed privately. She calls the hotline.   

What does Druyvesteyn do in such an instance?   

“We can’t hide the identity of the individual if we go to the supervisor.” So the first tack is often to work with the individual—to try to give that person the “courage” to go to the supervisor and say: “I was humiliated by the way you treated me.”   

If needlessly abusive treatment on the supervisor’s part continues—or appears to be a pattern—they’ll encourage the employee to go to her boss’ boss.   

There are good reasons, however, why Druyvesteyn wouldn’t confront a manager directly in such a situation. “If I were to call the supervisor in the plant in Marblehead Lime [Illinois]—what’s he going to think?” asks Druyvesteyn. “The vice president for ethics is calling me!” It’s an instance of overkill.   

On the other hand, if there were a sexual-harassment aspect to the case, it would be regarded as a “very serious matter,” says Druyvesteyn. “We would attempt to get the facts, while trying to protect the individual’s identity.” If it appeared likely that sexual harassment was taking place, “then that individual could well be confronted directly.”

 Enforcing guidelines

Clear guidelines effectively communicated are critical elements in any ethics program. So too is enforcement. An organization that fails to enforce the rules, robs its guidelines of any real substance, says Druyvesteyn.

Enforcement is a “very sensitive part” of the General Dynamics ethics program, he observes. “Investigations and sanctions have to be done carefully to protect the rights of individuals.”   

Since 1985, 746 sanctions have been imposed company-wide as a result of communications through the system, reports Druyvesteyn. Time card violations and misuse of company or customer resources are the most common violations. Some 113 violations overall resulted in employee discharges.   

What happens when a violation is reported?

First, the ethics program director at the operating unit launches an initial screening, a quick fact-finding investigation to see “if there is fire under the smoke.” After collecting names, dates, etc., the company has a fairly good notion if the issue is still in doubt.

The company tries to solve as many cases as possible at the lowest level. Ninety percent of all cases are solved at the initial screening—often by something as simple as looking at an expense sheet or examining a timecard.   

“Very few go to the formal investigation stage,” says Druyvesteyn. Those that do are cases that involve “extensive problems, often ones that involve many people,” such as a kickback scheme involving a number of individuals.

More serious violations

 The most serious alleged violations are investigated by a “cognizant manager,” someone outside the chain of command, who is usually named by the general manager or the president of the operating unit.   

The hardest thing to do in an investigation is to get the facts, says Druyvesteyn. It’s easy to be diverted from that task by appeals to emotion or appeals to character, e.g., “that person couldn’t have done that.”   

Thus, it’s probably better for an investigation if the ethics program director doesn’t know the person under investigation. If the ethics director knows the person well, that person would be asked to absent him or herself from the case, for the program director’s own protection, since he or she is likely to be second guessed in such a case.

For violations at the highest level, “I can go to the Board [of Directors] if I have to,” says Druyvesteyn; in his view, this is “mostly an academic question,” however. In practice, the situation rarely arises. It’s like asking: “What happens if the Chief of Police goes through the stop sign.”

Druyvesteyn is careful to get back to people reporting violations on the status of their cases. “If you don’t respond, people stop using the system. The system hangs by two slender threads: confidentiality and responsiveness.”

 Ethics program directors

In the General Dynamics system, much responsibility is delegated to the ethics program directors. Where does Druyvesteyn find his people?

“From all over, from all functional backgrounds.” One ethics program director is a former submarine captain, now working in public relations. Another is an attorney in the law office in the contracts area. A third has a Ph.D. in engineering and works in planning.

He seeks people who know how the organization “works,” since they are often called upon to operate alone, working through other people in the organization. They have to be able to interact smoothly with senior executives in the organization. They should also be honest, trustworthy, discreet, and good listeners—“Someone whom people feel comfortable complaining to—or asking a stupid question of.

 Measuring success

Most corporate ethics programs have a problem with evaluation—determining whether a program is working or not. This has to do with the nature of the subject. “Ethics” is not a tangible, quantifiable item.

Often it is easier to say what does not constitute success. “I don’t think that the number of people that you catch is a measure of success—it’s a measure of vigilance,” says Druyvesteyn. On the other hand, the existence of improper conduct in itself is not a measure of failure. Just because drivers exceed posted speed limits doesn’t mean highway safety laws are flawed.

Nor is profitability a measure of success. “Ethics won’t make you a successful businessperson,” says Druyvesteyn. On the other hand, “without ethics—without fairness and integrity—you will not be trusted. And I think there is a close relationship between success and trust.”

However, Druyvesteyn insists that there are positive ways to measure the success of an ethics program. 

Awareness, knowledge, commitment

One measure is awareness on the part of employees. “I hope all 100 percent of our employees are aware of our guidelines.”   

A second measure is knowledge. “We want all of our employees to know the guidelines relevant to their situation.” If you’re a buyer, you should know all the relevant rules regarding gifts and gratuities, for instance.   

Both awareness and commitment can be measured. It can be as simple as quizzing 20 buyers on the company’s rules.   

A third component that can be evaluated is commitment. This can be gauged, in part, by the extent to which people are using the system—communicating through the hotline, letters, or other means. The fact that the General Dynamics had 5,000 communications in the last year—two-thirds of which were questions—is a good indication of commitment, in Druyvesteyn’s view.   

In terms of output, trust is the critical component. And even that can be measured by surveys or opinion polls, says Druyvesteyn.

Leadership by example

As for those elements that make an ethics program work, Druyvesteyn, like others, stresses the importance of leadership by example. “If a person in a leadership position is lying, cheating or stealing, systems mean nothing,” says Druyvesteyn.

He is often asked if ethics can be taught. He believes the subject can be taught—as in a philosophy class. But if one means by ethics, conduct—what one does or says—“then the way you teach it is by example.” Further, “You don’t choose to be a leader; you’re there by virtue of your position.”

The largest barrier in any ethics program is apathy, says Druyvesteyn, e.g., “I just didn’t have time” or “I didn’t think it was that important.” And here “the only antidote is leadership.”

Integrity of the corporation

 In his 1985 letter to General Dynamics, Secretary of the Navy Lehman had questioned the “integrity and responsibility of the corporation.” He emphasized that this was not an isolated instance, a case of “one of two individuals doing the wrong things. It is a pervasive record of corporate policy that we want changed.” Those charges are bound to haunt the company for some time.   

Does Druyvesteyn still hear comments alluding to the company’s past misconduct?   

“It’s decreasing. The memory will remain, since its made its way into the textbooks. But I’m not here to exhume the past. What we’re concerned about is today’s conduct, and tomorrow’s conduct.   

“Ethics is about conduct right now. We have set up a system that will support right conduct in the future. But in the end we’re dependent on individuals.”   

There are no “magic words” or easy answers, notes Druyvesteyn, because at bottom one is dealing with people. “If anything, it’s a humbling experience. It points out how fragile is the fabric of an organization.”

Andrew W. Singer is publisher and co-editor of ethikos.
Reprinted from the March/April 1990 issue of ethikos
© 2005 Ethikos, Inc. All rights reserved.

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