Martin Marietta: Managing Corporate Ethics (A)
Martin Marietta had earned a reputation for having one of the best ethics programs in the defense
industry, and its top managers were committed to keeping it that way. Established in September
1985, the program had become an integral part of the corporation’s comprehensive approach to selfgovernance.
In 1992, Martin Marietta’s chairman and CEO, Norman Augustine, reflected on the impact of the program.
Ten years ago, people would have said there were no ethical issues in the business. Today,
that is different. Today’s employees think their number one objective is to be thought of as
decent people doing quality work. We all have a much greater consciousness of ethical issues.
With the program, you are less likely to get into trouble, and you feel better about yourself.
The program has also helped us compete. We have been afforded opportunities because we
were trusted.
Senior managers on the ethics steering committee kept a close watch over the program. Chaired
by corporate president Tom Young, the committee included:
! Senior Vice President and CFO—Marc Bennett
! Vice President and General Counsel—Frank Menaker
! Vice President, Audit—Dave Clous
! Vice President, Human Resources—Bobby Leonard
! Vice President, Public Affairs—Phil Giaramita
Every three months, the committee met with George Sammet, a retired general who had served as
vice president and program head since 1988, to consider issues and developments.
In early 1992, Sammet and members of the committee were wrestling with two issues. The first
was employees’ fear of retribution, real or imagined, for raising concerns with the corporation’s ethics
offices. Committee members thought that so long as employees feared retaliation, they would
hesitate to use the offices, thus increasing the likelihood that serious wrongdoing could go unnoticed
until too late. The second issue was how to assess the program’s effectiveness. Although committee
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393-016 Martin Marietta: Managing Corporate Ethics (A)
members all believed the program was a good one, they were searching for ways to evaluate it more
objectively. It was easy to measure activity—much more difficult to measure effectiveness.
Company Background
Martin Marietta was known for the leading-edge aerospace and defense technologies it produced
for the U.S. government. The corporation had led the construction of the Viking spacecraft that
landed on Mars in 1976, and had built the Magellan spacecraft, which began orbiting Venus in 1990.
A number of the corporation’s missile and electronic systems were successfully proven in combat by
U.S. forces in Operation Desert Storm. Martin Marietta’s businesses also included information
management technologies and systems, as well as energy and materials. Each of the corporation’s
four main operating units, known as “companies,” was headed by a president. Most of the
corporation’s 60,000 employees worked at nine U.S. locations, including corporate headquarters in
Bethesda, Maryland.
For 1990, Martin Marietta ranked fifth among defense contractors in the dollar value of
government defense contract awards and fourth in total federal contract awards.1 Defense contracts
accounted for about 75% of its revenues of $6.1 billion in 1990, and other government contracts for
another 15% (Exhibit 1). The remaining 10% reflected commercial and foreign military sales.
One Wall Street defense analyst saw Martin Marietta as “one of, if not the best positioned
company” in the industry.2 Nevertheless, with the likelihood of continued declines in defense
outlays, the company faced a challenging future.
Ethics Program Background
Martin Marietta’s formal ethics program was one facet of an effort to create and maintain a “do-itright”
climate at a time when the defense industry was facing serious attacks from the government
and the public for fraud and mismanagement. The immediate catalyst for the program was a failure
to credit an overhead account on a government contract, but the idea had been “in the air” for some
time.
Jacques Croom, associate general counsel, first suggested a formal code of ethics in 1983, but for
many years he had been a vocal advocate for integrity and fair play. With the federal government’s
campaign against defense industry fraud, waste, and abuse in the early 1980s, the company’s
campaign for integrity and fairness took on a new seriousness. By mid-1983, Croom’s “Hellfire and
Brimstone” speech, initially developed in the late 1970s, had become a standard opening to a variety
of training programs. He told people:
There are a lot of reasons to be good. And I’m sure you’ve all got your own. But I want to
give you one more reason. If you fall off that path, you could go to jail. You’ll be terminated
from this company and you’ll lose your security clearance. That means you won’t be able to
turn around and go over to a competitor. You may also be involved in a civil suit by the
company. So don’t claim you were helping us out of a difficult spot. You are not doing the
company or yourself a favor by cutting corners. We’ll stand behind you if you make an
1 Tom Shoop, “The Top 20 Government Contractors,” Government Executive, August 1991.
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Martin Marietta: Managing Corporate Ethics (A) 393-016
innocent mistake. But if you deliberately violate the law, you won’t get support, and I,
personally, will probably turn you in to the authorities.
Some managers were critical of Croom’s approach, but Croom argued that there were some things
people should be afraid of—prosecutors, the FBI, and auditors, for example. And he thought people
should know what could happen to them if they did something wrong. “The guy who does things
ethically doesn’t have to worry,” he told his critics. “We want employees to know and practice a
simple philosophy that ‘there is no substitute for doing what is right.’“ He reminded cynics and
skeptics that “You may get away with dishonesty all your life, but all it takes is getting caught once.”
In 1984, shortly after Croom suggested a code of ethics, Martin Marietta found itself under
investigation for improper travel billings in a small, wholly owned subsidiary. Evidence of
wrongdoing could expose the company to suspension from defense contracting. A conviction could
lead to debarment—a prohibition on business with the government for a specified period of time.
Martin Marietta’s president decided that the time had come for a companywide ethics program.
About the same time, Frank Menaker, Martin Marietta’s general counsel, began to argue for an
aggressive approach to compliance. He advocated an ethics office and code of conduct. He also
launched an internal investigation of the alleged travel incident.
Croom was given the task of drafting a code. During four months of work, he reflected on his 17
years at Martin Marietta, on what the company stood for, and how it felt about its people and the
communities in which it was involved. Croom wanted a code that employees could use both as a
guide and as a protective shield. A draft was circulated among top management.
As the program began to take shape, some managers were put off by what they saw as an
implication that they were unethical and needed to be reformed. Marketers feared the code would
limit their ability to get information and put them at a competitive disadvantage.
Nevertheless, in September 1985, Martin Marietta’s board of directors approved the proposed
“Code of Ethics and Standards of Conduct,” and authorized the establishment of a corporate ethics
office. The audit committee of the board was renamed the “audit and ethics committee,” and the
ethics steering committee was appointed to implement and guide the ethics program. At about the
same time, the head of corporate internal audit was directed to begin reporting to the chairman and
CEO “to enhance senior management attention to key audit issues.” With these changes, the
company created the basic infrastructure for its ethics program (Exhibit 2).
The following month, a copy of the 12-page code, laying out the company’s guiding principles,
key constituencies, and basic standards of conduct, was sent to Martin Marietta’s 60,000 employees at
their homes. The code covered topics such as conflicts of interest, accurate books and records, gifts
and entertainment, insider trading, antitrust law, and political contributions. It prohibited payments
to secure business abroad. Each employee was required to return an acknowledgement card
certifying receipt of the code.
During the same period, ethics was made an explicit requirement of eligibility for awards under
the incentive plan for corporate executives. The code was later supplemented by a publication
providing examples to help employees interpret the standards of conduct and make decisions in the
“gray areas.”
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393-016 Martin Marietta: Managing Corporate Ethics (A)
Defense Industry Initiative
Martin Marietta established its ethics program during a turbulent period for the U.S. defense
industry. As the Reagan Administration increased defense spending in the early 1980s, allegations of
contractor fraud made headlines. Journalists charged the industry with “a penchant for taking more
than is rightfully theirs, and for delivering less than perfect products, overcharging, falsifying tests
and on occasion bribing government officials.”3 One commentator traced the problems to the
economics of the business.
The defense industry is a one-customer market in which the customer spends money in
chunks ranging from a few hundred dollars to tens of billions. . . . With only a single customer
to focus on, relationships between buyer and seller have been very cozy, with people often
switching roles through a well-oiled revolving door. . . . Winning a large contract often means
the difference between feast and famine for the large prime contractor. For the second-tier
supplier . . . getting hooked up with the right prime contractor can mean doubling sales or
profits in a single year. The reward for marketing hard, bidding low and making unrealistic
promises sometimes can be enormous.4
In the face of such criticism, Congress was threatening more legislation to supplement the already
existing 30,000 pages of regulations and a DoD audit staff of 22,000 employees with a budget of close
to $1 billion. To address the industry’s problems, David Packard, chairman of Hewlett-Packard and
former deputy secretary of defense, was asked to chair a Blue Ribbon Commission to study defense
management, including the budget process, procurement, organization, operations, and legislative
oversight, and to find ways of streamlining and improving defense contracting. The Packard
Commission came up with a program of industry self-governance that the leading defense
contractors embraced as a way of addressing Congressional concerns without additional legislation.
Led by General Electric, 18 defense contractors, including Martin Marietta, worked together in
June of 1986 to create the Defense Industry Initiative on Business Ethics and Conduct (DII). By 1990,
55 defense contractors had joined the effort, agreeing to adopt and implement principles of business
ethics based on their responsibilities under federal procurement laws and to the public. They also
agreed to create an environment in which compliance with the laws and timely reporting of
violations became the conscious responsibility of every employee in the industry.
Martin Marietta’s Menaker had helped shape the DII, and he continued to advocate for stronger
internal self-governance. In 1986 Martin Marietta promoted the director of corporate audit to the
position of vice president and created an assistant general counsel for compliance. The position was
later upgraded to associate general counsel. Its responsibilities included acting as the liaison with
government investigative and enforcement agencies such as the Inspector General and the FBI, and
advising the ethics office. In addition, in 1986, performance review criteria for supervisory and
management positions were amended to include each employee’s commitment to the ethics effort.
Voluntary Disclosure
Among the DII’s requirements, the voluntary disclosure provision was most controversial. Even
though the provision required merely that companies have in place procedures to effect disclosure –
not that they voluntarily disclose every instance of employee misconduct – some companies balked.
Many failed to see any benefit.
3 Robert Wrubel, “Addicted to Fraud?” Financial World, June 27, 1989, p. 58.
4 Ibid.
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Martin Marietta: Managing Corporate Ethics (A) 393-016
5
Although the Defense Department set up a program to accept disclosures in July 1986 and the
Justice Department, which was responsible for prosecuting and litigating claims against defense
contractors, agreed to participate, the benefits of disclosure were not apparent to all. The government
made it clear that voluntary disclosure would not lead to amnesty and made no commitment
regarding ultimate resolution of matters voluntarily disclosed. Even with disclosure, contractors
might still face suspension or debarment by the DoD and prosecution by the DoJ. However, the
program did offer contractors accelerated consideration of their cases and the opportunity to do their
own initial investigations, and the government indicated that disclosure and full cooperation would
be viewed favorably.
Martin Marietta, however, took a clear stance on voluntary disclosure, which had been an element
of its administrative settlement of travel billings incidents. Essentially, the company advised
employees that misconduct would be disclosed. Explained Menaker, “If we’ve got a problem, we
should admit it and get it behind us. Our business is making goods and services for the federal
government. To succeed, we need to focus on our core business, not on these kinds of problems.”
Still, disclosure was never an easy decision since, as Augustine noted, “The [voluntary disclosure]
program does sometimes cause me to reflect on my priorities as CEO. I feel a conflict between my
obligations to the shareholders and what is required under the program since disclosure could lead to
convicting the corporation. But there is a pragmatic side to disclosure—it diffuses the impact of a
scandal, which can have more damaging effects.”
Procedures for identifying and assessing potential disclosures were put in place in August of 1987.
The head of the relevant operating unit was assigned responsibility for the decision to disclose,
though company lawyers offered advice and implemented any disclosure. Careful thought had to be
given to the decision to disclose information that might otherwise be legally protected by the
attorney-client privilege or work product doctrine because disclosure might be deemed a waiver of
these protections.5 On the other hand, some U.S. attorneys were very demanding in the information
they required: “If a company wants the benefit of not being prosecuted, then I want the results of the
investigation and the underlying interviews.”6 Yet disclosure of this information could result in the
company’s being legally compelled to disclose the same or related information to adverse parties in
other lawsuits against it.
Total Audit Program
The ethics program and the voluntary disclosure program were closely linked to the audit
function, headed by corporate vice president and ethics steering committee member Dave Clous.
Between 1986 and 1991, the audit office tripled in size in furtherance of the “total audit” mission of
strengthening the company’s self-governance environment. Audit provided investigative services to
the ethics program, and Clous, who met privately four times a year with the audit and ethics
committee of the board, worked closely with Sammet. Some 12%–13% of the 70-person audit staff’s
5 The attorney-client privilege permitted a corporation to protect confidential communications between its employees and its
attorneys if the communications were for the purpose of providing or obtaining legal assistance to the corporation. The
privilege did not apply if the corporate client was seeking to further or cover up criminal wrongdoing. The work product
doctrine protected documents and materials prepared by a party or the party’s representative in anticipation of litigation. The
law was very unclear on the extent to which the corporation’s or its counsels’ rights might be waived by disclosures to the
government in the context of the Voluntary Disclosure program.
6 Fred Strasser, “Dicey Dilemmas: Corporate Probe Use Expanding,” The National Law Journal, January 9, 1989, quoting U.S.
Attorney Anthony Valukas of Chicago.
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393-016 Martin Marietta: Managing Corporate Ethics (A)
6
time was devoted to investigating ethics inquiries. Another 48% was spent on audits for government
compliance.
As a defense contractor, Martin Marietta was under the constant scrutiny of government auditors,
nearly 100 of whom were assigned to the company full-time. Clous wanted the government to
recognize the reliability of the company’s own audit systems, but he saw the government auditors’
mindset as a big stumbling block. He explained: “We are concerned about systems. They are
concerned about finding mistakes and errors to prove they’ve done their job. They get credit by
bringing errors to the attention of Congress. It’s hard for them to think we can be independent and
objective.”
Nonetheless, two efforts had begun to improve relationships with the government. Since 1990, the
company had been involved in both the Coordinated Audit Planning and the Contractor Risk
Assessment Guide (CRAG) programs to reduce overlap and improve audits in certain high-risk areas
such as labor charging, estimating systems, materials management, accounting systems, and
purchasing. With coordinated audit planning, Martin Marietta auditors and government auditors
together reviewed their various audit plans for the year and attempted to reduce overlap. “Before
CRAG,” explained Clous, “We never really knew what the government auditors’ concerns were, nor
did we much care. By opening new channels of communication, the program has helped build trust.”
As a result of these efforts, the number of full-time government auditors at the company declined
from 139 in 1989 to 96 in 1991. The change was most dramatic at the Orlando facility, where a pilot
CRAG program had been introduced in 1989. Full-time government auditors were down from 45 to
26. The full impact of these programs could not yet be assessed since full company commitment to
CRAG was only a year old.
Managing the Ethics Program
George Sammet, who managed the ethics program from the corporate ethics office at the
company’s aerospace facility in Orlando, Florida, saw himself as a spokesperson for the employee.
With the assistance of Bud Reid, his deputy, and an administrative assistant, Sammet tried to ensure
that employee concerns, questions, and complaints were being heard and dealt with satisfactorily
throughout the corporation. In practice, this involved overseeing the network of 26 part-time ethics
representatives stationed at the company’s major facilities, monitoring and dealing with cases
brought to the field reps and the corporate ethics office, keeping abreast of employee attitudes, and
working to maintain the visibility of the program. In addition, Sammet oversaw ethics training and
the periodic updating of the code. He reported regularly to Tom Young, and, every three months, to
the ethics steering committee. He also reported twice a year to the audit and ethics committee of the
board.
Handling Employee Concerns
Dealing with employee questions, concerns, and complaints was a core activity of the program.
Although employees were encouraged to raise concerns about ethics with their supervisors or their
designated personnel reps and could also consult corporate counsel, the ethics program provided
several other channels for questions or allegations of wrongdoing. The local ethics representative was
one source of assistance. Chosen for their “approachability,” local field reps were often in the best
position to deal quickly with problem situations.
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Martin Marietta: Managing Corporate Ethics (A) 393-016
7
However, employees concerned about confidentiality or those dissatisfied with the local reps’
handling of cases could also call the corporate ethics office directly, using a toll-free telephone line, a
corporate hotline, or the ethics office’s private post office box. In 1991, the corporate ethics office
received some 9,625 calls. Many callers sought advice about difficult situations or asked questions
about interpreting the code. Others called to register concerns or complaints about questionable
behavior. Reports of questionable behavior that could not be dealt with quickly by telephone became
“cases” to be looked into and resolved. They were entered into the ethics office computer, assigned a
number, and tracked until closure.
The ethics office monitored the full range of cases brought to the network to ensure they were
handled appropriately and in a timely way. In 1991, 572 cases of alleged questionable behavior were
entered into the system (Exhibit 3). The office tried to see that cases were investigated and wrapped
up within 60 days, although some took longer because of false starts, sick leave, or the involvement of
outside investigators such as the FBI. Cases that were not closed within 90 days were reported to the
local company president or the manager in charge of the relevant business unit. Any case extending
longer than 120 days was brought to the attention of the ethics steering committee.
Ethics officers were responsible for ensuring that complaints were fully investigated by
the appropriate office, that the findings were supported by sufficient evidence, and that sanctions and
corrective action were implemented as appropriate. Ethics officers informed complainants about the
follow-up on their complaints and obtained feedback from them when the case was closed. Although
initially a few division lawyers had been tapped to serve as ethics reps, the practice was discontinued
because of potential conflicts of interest between the corporation and employees. Many ethics reps
also served as personnel reps for their area.
Handling cases required sensitivity and caution at every step to protect the complaining party as
well as the accused. Great care was taken to preserve the anonymity of complainants and
investigations were sometimes folded into routine audits for this purpose. Still, it could be difficult to
preserve absolute confidentiality. Merely asking questions could point directly or indirectly to the
reporting party. Sometimes, employees themselves told others about complaints they had lodged.
Word sometimes spread informally as employees chatted at the water fountain.
Typically, the person named in a complaint was not informed until investigation revealed facts
supporting or verifying the allegation. The deputy for corporate ethics explained, “In many cases, the
accused employee is in a position to drive evidence underground. This arrangement also minimizes
possible retaliation against the employee making the complaint.” Some, however, felt that those
accused of wrongdoing were entitled to know and be informed of their rights immediately.
The company had maintained its policy of accepting anonymous complaints, even though the
policy had been questioned from time to time. The substantiation rate for anonymous complaints was
42%, compared with 40% for known complainants for 1991. The most serious issues were often raised
by anonymous parties.
Depending on the issues raised, ethics reps often called on audit, personnel, security, or legal staff
to conduct investigations. Mischarging or defective pricing cases were usually investigated by audit.
Potential procurement fraud or other cases possibly involving legal action or disclosure to the
government were transferred to the office of corporate counsel so that information gathered during
investigation would be protected by the attorney-client privilege. Investigators from human
resources handled personnel-related complaints.
Cases that could not be substantiated were closed after investigation. The proportion of
substantiated cases had ranged from 25% to 41% since the inception of the program in the fall of 1985.
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393-016 Martin Marietta: Managing Corporate Ethics (A)
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For the roughly 40% of cases that could be substantiated, closure required corrective action,
discipline, or changes in corporate policy. Though the ethics office reviewed and sometimes
questioned any sanctions or corrective action taken, the task of deciding on and administering
sanctions was assigned to human resources professionals. Sanctions included counseling and oral
reprimand, written reprimand, transfer, suspension without pay, and termination (Exhibit 3).
Fairness in administering sanctions raised difficult ethical issues. In a typical year, the company
appeared before state labor boards to face two or three complaints about unfair sanctions. In 1991, a
jury had found that a company sanction was too harsh. Complainants, however, sometimes felt that
sanctions were too light. One victim of sexual harassment by a supervisor complained about the
severance pay given the dismissed supervisor to induce him to seek professional help and never
again to bother the victim. Assigning degrees of responsibility also was difficult. Generally, for
instance, employees directed to mischarge by a supervisor would be sanctioned, whereas the
supervisor would be terminated. The harder case was the employee who knew about mischarging
but did nothing about it.
Complainants who wished to follow the progress of their case could call the ethics rep
periodically for an update. Once a case was concluded, the ethics rep advised the complainant about
its resolution and asked whether the complainant was satisfied or dissatisfied with how the case had
been handled. Feedback from 154 complainants during the first three quarters of 1991 showed that
80% were pleased or satisfied with the results of the investigation.
Case records were kept on file for a year after closure. Sammet developed a system to categorize
cases as serious, nonserious, and personnel. Serious allegations were those that might result in
criminal charges, civil suits, voluntary disclosure to the government, or negative media coverage for
the company. Some 48% of the allegations in the first three quarters of 1991 were considered serious,
compared with 54% for 1990 and 46% for 1989. These cases typically involved:
! Inaccurate or false records
! Poor management resulting in waste
! Serious conflicts of interest
! Drug use
! Theft or security violations
! Racial or gender discrimination or harassment
! Serious safety problems
! Defective quality
! Other, such as procurement violations, retaliation, improper acquisition or use of
proprietary information, and sabotage.
About half of the 1991 cases and 43% of 1990 cases involved personnel-related issues such as
salaries, promotions, assignments, nepotism, poor management, and supervisory style. Cases
involved all levels of management, including the executive. The largest number of cases categorized
as serious involved inaccurate or false records.
Sammet monitored the mix of cases and their variations in number, seriousness, and type
reported at various company facilities. Sammet’s data revealed potential problem areas and issues
needing corporate attention. For example, the discovery that all the cases being filed at one location
were anonymous prompted an investigation and removal of the field ethics rep. Too few cases, as
well as too many, or a disproportionate number might prompt an inquiry.
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Martin Marietta: Managing Corporate Ethics (A) 393-016
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Providing Ethics Education
Education was another key dimension of the program. For Tom Young, corporate president and
head of the ethics steering committee, it was the most important part. “That’s where you can reach
the people who want to do the right thing, but who may not know what it is. It’s also the way to
combat any excessive risk aversion people might feel as a result of not knowing what is acceptable.”
Changing standards and laws, as well as employee turnover and promotion, necessitated constant
attention to training and the periodic updating of the code. The late 1980s had seen changes in what
was considered appropriate in entertaining customers, in negotiating strategy, and in competitor
information gathering. As one executive explained, “What was once considered shrewd business in
corporate America is no longer considered acceptable. In the old days, you’d put your best foot
forward and try to negotiate the best deal. You’d put in contingencies that you could negotiate out.
Today, that is defective pricing or false claims, and it’s against the law.”
Between 1986 and 1988, the company conducted an initial round of training for the entire work
force. The objective was to communicate an understanding of the code, heighten employee sensitivity
to ethical problems, and demonstrate management commitment. By late 1989, the ethics training
subcommittee was recommending the second round, for which Young favored a change from openended
discussions of problems and dilemmas to a format with greater closure. Augustine
emphasized the importance of including hard cases in which the problem was not so much choosing
right versus wrong, as it was choosing among or balancing conflicting responsibilities—to the
customer, to employees, to the community, and to the shareholders.
The second round of training included a five-hour program for company presidents and their
staffs covering the ethics program’s results, discussion of challenging ethical questions and cases,
review of relevant legal issues, and DII matters. A shorter seminar was provided for program
directors and staff with significant customer contact as well as all “new business” personnel,
especially those in marketing, contracts, and finance. Employees who had significant contact with the
customer or with competitors attended a two-hour session on ethics in marketing. A 50-minute
session was presented for all remaining personnel. Attendance at the training programs was
compulsory.
Ethics awareness training was complemented by specific training in compliance with the laws and
regulations governing substantive areas such as cost and labor charging or cost accounting standards.
Integrating the Program into the Organization
The ethics program provided employees with an umbrella of protection and an avenue of inquiry
which they had not previously had. Issues raised with the ethics office went far beyond compliance
with the law and the code of conduct. Employees raised questions about corporate decisions to lay
people off and corporate policy on contributions to Political Action Committees. Employees unhappy
with their supervisor’s directives sometimes looked to the ethics office for support and relief.
Not everyone was comfortable with the new channels of employee assistance. Some plant
managers and first-line supervisors felt the program undermined their authority, while some human
resources managers felt the program was defined too broadly. Vice president for human resources
and steering committee member Bobby Leonard, for example, felt that only cases involving
wrongdoing, such as discrimination or favoritism on the part of the supervisor, should go into the
ethics channels.
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393-016 Martin Marietta: Managing Corporate Ethics (A)
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Sammet and others who favored a more expansive definition of ethics thought the program
should respond to whatever employees perceived as ethical concerns. And, indeed, many employees
saw their complaints in terms of fairness. Young commented, “Since our standard says people will be
treated fairly, we have to take these complaints seriously.” Corporate counsel stressed the importance
of answering people’s questions—however categorized. “We don’t want to turn anyone away, and
besides, they have other avenues—the news media, the FBI, a federal grand jury.” Nevertheless,
explained Reid, “The ethics office was not intended as a forum where regular supervisory directions
were questioned.”
The ethics office worked closely with the human resources function. Most personnel cases
received in the ethics office were routed back to human resources channels for investigation. Human
resources had responsibility for deciding on and implementing discipline and was responsible to the
ethics office for delivering the company’s ethics training. This procedure prompted human resources
to take a close look at the company’s disciplinary policies to ensure consistency in the penalties
imposed for various kinds of misconduct.
The presence of the ethics program was felt in other areas, too. Phil Giaramita, vice president of
public affairs and ethics steering committee member, explained that the company’s ethical standards
had to be reflected in all its activities, including media relations. Giaramita made a point of being
aggressive in getting to journalists, sometimes calling them with bad news. By getting the facts out
early, he thought the company built credibility. “If you are going to stand for honesty, integrity, and
candor, you can’t be honest just when it suits you. These qualities have to be apparent to the average
employee who often gets company news from the press. Failure to be honest, open, and candid
would dramatically undermine the program.”
Steering Committee Concerns
Employees’ Fear of Retribution
Steering committee members had been aware of employees’ fear of retribution for some time.
According to a 1987 survey, 94% of the company’s employees considered the ethics program
effective, but 40% believed they would suffer retribution for calling the ethics office. One committee
member noted, “You know the fear is there when you go out and talk to people.”
While everyone agreed that eliminating the fear of retribution was important, it was hard to figure
out how much of it was justified, much less what to do about it. One member commented, “There
have been instances where supervisors retaliated against employees for using the ethics office, but
our investigations have also shown that employees have perceived behavior as retaliatory when it
was not.” Another member noted that weak employees would sometimes use the ethics office so that
they could later claim retaliation. It was also observed that complaints about retaliation were more
prevalent in locations undergoing downsizing.
Nevertheless, specific steps had been taken to address the problem. Young had written to all
presidents, and all employee training included specific modules and discussions on retribution. The
company magazine had also addressed the issue. Despite measures to combat fear of retribution,
Young was concerned about employee distrust. He pointed to the percentage of anonymous reports:
38% for 1988; 33% for 1989; 44% for 1990; and 41% for the first three quarters of 1991.
Croom thought the fear of real or perceived retribution was a fact of life. “It’s just human nature to
want to get even. [We] have all been reared not to be a tattletale. We have to manage the fear by
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This document is authorized for use only by Olivia Tadros in CorpGov_FinalExamPaper taught by Abed A. Abdallah, American University of Sharjah from April 2018 to October 2018.
Martin Marietta: Managing Corporate Ethics (A) 393-016
11
helping employees understand that the well-being of the company and employees themselves could
be at stake if they do not report possible wrongdoing and by tracking down and dealing with anyone
taking retaliatory action. We cannot have employees like the one who corralled his subordinates and
refused to let them leave until he found out who turned him in. That is bad management.”
The ethics office favored severe discipline in substantiated cases of retaliation, but substantiating
evidence was not always available. In flagrant cases, like the spray painting of “snitch” on the walls
of an employee’s office, the evidence was clear. In more subtle cases, such as downgrading someone’s
performance or not offering a promotion, hard evidence was much more elusive.
Program Effectiveness
Sammet and the steering committee were searching for a way to assess the effectiveness of the
ethics program. To date, the committee had relied on indicators such as compliance with the DII
benchmarks (Exhibit 4), other outside studies, the perceptions and comments of government officials,
case statistics, employee feedback, and their own feelings. Sammet cautioned about putting too much
weight on the numbers, but nevertheless, they provided a natural focus for the discussion.
Typically, the committee looked at the trends in the number of reported cases, the number of
serious substantiated cases, variations in the number of cases at various company locations, the
number of anonymous cases, the proportion of calls received locally and centrally, and employee
satisfaction with the disposition of cases. They also tried to compare data from other companies. But
interpreting the data was difficult. “The decline in reported allegations could be due to a number of
factors—better behavior, better subterfuge, ignorance, or fears of retaliation or retribution,” said
Sammet.
Young noted, “We still don’t understand what the statistics tell us. But we look to see if there’s an
excessively low number of reported cases, or a high number of anonymous cases, or too many cases
involving retaliation. We also invite regional ethics reps to the steering committee meetings and try to
get to know what’s going on.”
As he considered the issues before the steering committee, Young reflected on the program’s
impact:
When we went into this program, we didn’t anticipate the changes it would bring about. At
the time, the industry was really being battered about. It was a matter of damage control. That
was a good reason to do what we did, but not necessarily the right reason. Back then, people
would have said, “Do you really need an ethics program to be ethical?” Ethics was something
personal, and either you had it or you didn’t. Now that’s all changed. People recognize the
value.
Though the program hasn’t affected the company’s business direction, I think it has
probably affected our performance. Personally, it has enhanced my awareness in a lot of areas.
Changes in industry standards have made employees feel more comfortable. There’s a higher
quality of work life. Ethics is something that cannot be left to chance. It’s part of management’s
responsibility, and it should become part of the organizational structure.
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This document is authorized for use only by Olivia Tadros in CorpGov_FinalExamPaper taught by Abed A. Abdallah, American University of Sharjah from April 2018 to October 2018.
393-016 Martin Marietta: Managing Corporate Ethics (A)
12
Exhibit 1 Martin Marietta Corporation, Five-Year Summary
1987 1988 1989 1990 1991
Net sales ($ in millions) $5,173 $5,727 $5,796 $6,126 $6,075
% change in sales + 11% +1% +6% -1%
% change in Federal National Defense Outlays +3% +3% +5% -1% -10%
Operating income as % sales 7.9% 6.9% 8.0% 7.2% 8.8%
Return on capital 20% 21% 18% 18% 15%
Return on equity 25% 27% 23% 21% 17%
Times interest earned 16.2 13.2 11.0 11.4 8.3
Debt as % capital 25% 29% 26% 23% 25%
Earnings per share $4.25 $6.02 $5.82 $6.52 $6.30
Dividends per share 1.05 1.10 1.22 1.39 1.50
Source: Martin Marietta Corporation Annual Report, 1991. U.S. Department of Commerce.
For the exclusive use of O. Tadros, 2018.
This document is authorized for use only by Olivia Tadros in CorpGov_FinalExamPaper taught by Abed A. Abdallah, American University of Sharjah from April 2018 to October 2018.
Martin Marietta: Managing Corporate Ethics (A) 393-016
13
Exhibit 2 Organization Chart: Corporate Ethics Infrastructure, 1991
Source: Martin Marietta Annual Report, 1991.
Exhibit 3 Martin Marietta Corporation
1985-1987a 1988 1989 1990 1991
Number of ethics cases 508 516 573 441 572
Sanctions 74 99 201 105
Terminations/resignations 12 9 29 10
Suspended without pay 7 10 8 5
Transferral 10 5 11 2
Written reprimand 22 21 37 11
Oral reprimand 23 54 116 41
Conditions corrected b b b 35
Source: Company document
a Does not include energy systems
b Not collected.
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This document is authorized for use only by Olivia Tadros in CorpGov_FinalExamPaper taught by Abed A. Abdallah, American University of Sharjah from April 2018 to October 2018.
393-016 Martin Marietta: Managing Corporate Ethics (A)
14
Exhibit 4 Defense Industry Initiative – Public Accountability Questionnaire
1. Does the company have a written code of business ethics and conduct?
2. Is the code distributed to all employees principally involved in defense work?
3. Are new employees provided any orientation to the code?
4. Does the code assign responsibility to operating management and others for compliance with
the code?
5. Does the company conduct employee training programs regarding the code?
6. Does the code address standards that govern the conduct of employees in their dealings with
suppliers, consultants, and customers?
7. Is there a corporate review board, ombudsman, corporate compliance, or ethics office or
similar mechanism for employees to report suspected violations to someone other than their
direct supervisor, if necessary?
8. Does the mechanism employed protect the confidentiality of employee reports?
9. Is there an appropriate mechanism to follow up on reports of suspected violations to
determine what occurred, who was responsible, and recommended corrective and other
actions?
10. Is there an appropriate mechanism for letting employees know the result of any follow-up
into their reported charges?
11. Is there an ongoing program of communication to employees, spelling out and reemphasizing
their obligations under the code of conduct?
12. What are the specifics of such a program?
13. Does the company have a procedure for voluntarily reporting violations of federal
procurement laws to appropriate governmental agencies?
14. Is implementation of the code’s provisions one of the standards by which all levels of
supervision are expected to be measured in their performance?
15. Is there a program to monitor on a continuing basis adherence to the code of conduct and
compliance with federal procurement laws?
16. Does the company participate in the industry’s “Best Practices Forum”?
17. Are periodic reports on adherence to the principles made to the company’s board of directors
or to its audit or other appropriate committee?
18. Are the company’s independent public accountants or a similar independent organization
required to comment to the board of directors or a committee thereof on the efficacy of the
company’s internal procedures for implementing the company’s code of conduct?
19. Does the company have a code-of-conduct provision or associated policy addressing
marketing activities?
20. Does the company have a code-of-conduct provision or associated policy requiring that
consultants are governed by, or oriented regarding, the company’s code of conduct and
relevant associated policies?
Source: DII, 1990 Annual Report to the Public and the Defense Industry, February 1991.
For the exclusive use of O. Tadros, 2018.
