Martin Marietta is a leading-edge aerospace and defense company which produces technology for the federal government. The company has four main operating divisions or companies. Most of the company’s over 60,000 employees work at nine United States locations. The 1980’s were a climate of government and public mistrust for defense companies. There were many accusations of fraud, waste and misconduct. In 1985, after Martin Marietta found itself under investigation for improper travel billings, the firm’s president decided that it was time to institute an ethics program.
The company started with a 12 page “Code of Ethics and Standards of Conduct” which they distributed to the 60,000 employees by mail. They also appointed an ethics steering committee to oversee the progress of the initiative. In addition, the company joined efforts with over 18 defense contractors to develop the Defense industry Initiative on Business Ethics and Conduct. By, 1990 over 55 companies had joined all agreeing to create an environment of compliance and accept their accountability to the public.
The effort was designed to increase self-governance and to prove to government regulators that defense companies were adept enough to regulate themselves. At the forefront of the initiative was a voluntary disclosure and a total audit program. Upon evaluation of Martin Marietta’s ethics program it appears to be successful. Quantitatively, it can be seen that in the years since instituting the program (see case Exhibit 1) they have seen a net increase in their sales and operating income.
This suggests that they have made headway against government and public scrutiny. On a Qualitative level, the program has the total commitment of the president of the company; an endeavor of this magnitude is bound to fail without this aspect. Also, to ensure buy-in from all corporate executives, ethics was made an explicit requirement for their incentives. This benefits the company by ensuring that corporate social responsibility and ethics initiatives will be judged on the same level as other business performance initiatives, like sales and profitability.
It ensures that all executives are committed and on the same page; it also clarifies the level of importance that the company is placing on ethical conduct. For the same reasons as stated above, the business also established a system where management and supervision’s evaluation and bonus systems are incentivized with ethics objectives. In addition, to help ensure that the general work staff is involved in compliance and ethics initiatives, the company has established various channels for employees to express concerns, ask questions and report complaints about ethics violations.
Employees are encouraged to report violations to their supervisors or appointed representatives. However, they also have the option of reporting violations anonymously over the phone on the “hotline”, in writing or electronically, using a computer that is provided for them. Once again, giving employees a medium to express themselves has the benefit of getting them involved in the program and ensures that the entire company is mindful of ethics. The above steps help to present a consolidated front to the government and general public and thereby demonstrate the firm’s full commitment to ethical behavior.
However, as Martin Marietta has managed to take steps to get the entire company involved in their ethics program by putting their corporate responsibilities in line with the company’s financial objectives, the steps that they have taken also come at a cost. First, since an accurate depiction of the efforts of management and executive performance towards this program requires objective assessment, clear measureable guidelines must be instituted to ensure transparency and fairness.
While the company has made much progress with their program, the facts of the case indicate that there is still uncertainty in these areas. This could lead to degradation of moral, particularly if the program is viewed as unfair by the said parties. Second, the involvement of the employees comes at a price, as well. Allowing employees to voice concerns has resulted in a plethora of complaints that are not in line with the companies ethical initiatives.
Based on the case, it appears that some employees may be using this new medium as a way to express complaints towards their supervisors. The data of the case shows that there are unexplained increases of reports of compliance allegations and wrongdoing at certain locations. Moreover, these locations are often undergoing layoffs. This suggests frivolous claims, many of which are hard to substantiate and could result in reprimands or even job loss for supervision. Furthermore, frivolous cases can dilute the company’s ethics goals by serving as distractions to actual issues.
Lastly, Martin Marietta’s decision to voluntarily disclose noncompliance’s benefits them by thwarting off scandal and presents the company as responsible and proactive. However, it could also result in unwanted scrutiny by the federal government and public. One approach that the Ethics Steering Committee could use to track the program’s effectiveness is evaluating the information that they are collecting from audits and noncompliance using metrics. Similar to executive and management briefings where financial metrics are assessed, they could also cover their ethics program metrics at these meetings.
For example, they could use common business metrics analogous to on-time delivery, which is often used in monthly reviews to show the percentage of goods that were not delivered on time. Currently, they track similar information like the amount of time that a given case stays open. However, instead of assigning a metric to this, they index it up the chain of command and only look at the number of cases open. In creating a hard metric based on percentage, it can be used to chart trends and assess management progress, and therefore be tied to evaluations.
In addition, over time the company should see a better response time and the percentage should decrease. Any spikes, would indicate a problem area that must be looked in to further. Of course to do this effectively, they would have to properly categorize cases and discard any that were outside of the scope of the ethics program. By converting the collected data in to various performance metrics, they could measure improvements and see trends and spikes. In addition, areas where there was lack of progress would be evident and could be focused on.
A key area of concern for Martin Marietta employees is fear of retribution for reporting noncompliance and wrongdoing. While the company has set up many ways to report anonymously, often employees are under the impression that the system is not anonymous. In addition, anonymity often makes it difficult to substantiate claims. One way for the company to deal with this issue is to periodically hold group meetings where they employ consensus group decision making processes with employees. This would allow the group to look for solutions for very specific problems.
Management could frame specific problems that the group must develop a solution for and then ask them to come up with several alternatives that must be voted upon. Although there would not be 100% consensus, by allowing the employees to help craft the reporting system, they would take a sense of ownership. This will provide a win-win situation for management, as they will get ideas, and also build trust by enacting their solutions. Although the consensus style decision processes can be time consuming, if management limits the scope and meets periodically, they should be able to institute employee ideas effectively.
Martin Marietta manages ethics by breaking down their system in to the following key areas: * Education, where they educate and inform employees of company policies using meetings and distributed literature. * Evaluation, where they evaluate questions, concerns and complaints of noncompliance and wrongdoings using audits for investigation. * Follow up, where they use a means for tracking and closing cases. The company used a self governance approach to managing their ethical behavior and the goal of the program was to establish total faith by the government and public in their ability to do so.
In conclusion, I believe that the current state of business requires clarity now more than ever. Technology is advancing at an incredible rate, which requires companies to not only innovate much faster, but also to be able to make decisions faster. As observed by Martin Marietta and the defense industry in general, without an ethical framework to guide companies in their decision making process, fraud, waste and—more importantly—unnecessary mistakes are inevitable. A company’s ethics program is a rudder to steer them through uncertain business conditions.
To use an analogy, had many of the companies that issued subprime mortgages had an ethical framework in place to prohibit loans to people that clearly could not afford them, the world would not be in this current economic downturn. The fact is that there were no laws preventing such business decisions. If these companies would have had a relevant ethics program—one that incorporated the tenants of corporate social responsibility, perhaps we would have avoided the downturn.
