CASE STUDIES

Episode One: ETHICS IN MANAGEMENT
Episode Two: PROCUREMENT INTEGRITY
Episode Three: ETHICS PROGRAMS

Episode One: ETHICS IN MANAGEMENT

Three employees of Winston Industries, a fictional government contractor, await the start of an ethics training session. A fourth employee joins them, and remarks that he thinks the company is "missing the boat" with its ethics training. While waiting for the ethics instructor to arrive, the four employees discuss what they perceive to be conflicts between the company's code of ethics and actual company practice, including renovating executive offices while laying off employees, being advised by the company's lawyers to file a different site conditions claim when the company itself was at fault for failing to inspect, awarding an incentive trip to Hawaii while laying off employees, providing business gifts to customers, supplying defective products but denying financial responsibility, and ignoring an employee's complaints until she finally filed a whistleblower suit against the company.

Discussion Objectives

One of the challenges facing DII signatories has been to elevate their ethics programs beyond compliance with laws and regulations. This scene is designed to encourage a discussion on that topic. More particularly, the episode should be used to review the contractor's own ethics training program and elicit employeesí suggestions for making it more meaningful to them. Additionally, the episode is useful for highlighting the types of corporate decisions and actions which raise ethical issues. Finally, the episode raises the question of the contractorís responsibility to employees who report unethical behavior.

Suggested Discussion Questions

1. Do DII programs go beyond compliance with laws and regulations in meaningful ways? Is it necessary or desirable that they do so?

2. What is "ethics training?" How is it different from compliance training? What experience have signatories had with ethics training, and what types of training seem to be effective and well received?

3. The vignette asks whether certain issues have ethical content. Do the following situations raise ethical issues? If so, what are they?

A. Renovation or remodeling of executive office space when large layoffs are occurring

B. Reward trip to a resort location for a project team that has done well when large layoffs are occurring

C. Not treating legitimate supplier complaints seriously, on the theory that the supplier has little leverage in the relationship with the customer

4. At one point in the discussion, one character suggests to another that raising certain issues at Winston Industries would not be well received. The other character later says that, in fact, he doubts that sensitive matters could be raised in an open way for discussion purposes.

A. If a company has a culture that discourages employees from raising concerns, or makes employees feel that such concerns would not be addressed seriously, should this be considered a problem? Is it in any way an ethics concern? One character says that if Winston Industries were an ethical place open discussion of all issues would be encouraged. Do you agree with this?

B. How do companies convey to employees whether sensitive issues can be raised and discussed?

C. Is it clear that encouraging open discussion of all issues is an organizational value that is desirable? Might such a culture turn the workplace into a debating society, with an attendant loss of employee efficiency? Might it promote minor discontents? How should companies view the relative advantages and disadvantages of open discussion to achieve the right balance?

5. The CEO has sent out a letter stating certain company values.

A. Are such statements generally useful?

B. If general commitments to a value like fairness are made, how do individual employees decide what is fair? If the company articulates a general value like fairness, does it need an institutionalized process to measure its decisions against this value? If so, how would such a process work?

C. If a company articulates its values, does it obligate itself to consider complaints that it is not following them? Do complaints from anyone have to be considered seriously (for example, what about complaints from suppliers)?

6. One character discusses a situation where management does not pursue a differing site conditions claim, notwithstanding encouragement by legal counsel to do so. Another character discusses an issue on NASA contract performance, to which a colleague replies that the company acted reasonably because NASA contract clauses contemplated the government, not the company, bearing the risk involved.

A. To what extent do companies have an obligation to assert legal rights? Can it ever be unethical to do so?

B. In the vignette, one character says that management believed it was at fault for overlooking the true site conditions. Another character says that the company was careless in devising a computer algorithm. How should companies balance the competing concerns of fairness under the circumstances with legal rights?

7. One character mentions a golf tournament for commercial customers in which lodging and gifts (of an unspecified type or amount) are provided. This employee's concern is that the tournament may not be "appropriate to the situation," which is the guideline in the Winston code for business courtesies offered. The employee also is concerned that the code apparently states that the intent of the business courtesy should not be to obtain favorable treatment from customers, though the employee reasonably observes that the tournament (and for that matter most business courtesies) are crafted with some favorable treatment in mind. The point of this is not whether golf tournaments are legitimate business courtesies, but rather the following issues:

A. How do companies decide a reasonable policy in an area as ambiguous as offering business courtesies? Companies recognize that offering clear kickbacks or bribes would be wrong, but how do you decide when a business courtesy crosses the line from appropriate to inappropriate? For example, if the golf tournament involved no lodging and only a very modest memento gift, perhaps a dozen golf balls, is that appropriate? What if Winston pays for one night lodging? What if the memento gift is a putter (value $75); a golf bag (value $150); a driver (value $250)? Does it matter if the business courtesy is extended as a widely attended activity rather than a targeted group of clients? What are the ethical issues raised in setting such policies?

B. Is it helpful to have very general statements such as "appropriate to the situation" in a code of conduct? In effect, isn't such a statement no policy at all?

C. How do we guard against essentially meaningless statements in a code of conduct? For example, is a statement that business courtesies offered are "not intended to obtain favorable treatment from customers" a meaningful statement?

8. One character at the end of the tape mentions a whistleblower law suit (qui tam suit) brought under the False Claims Act by an employee. It appears that at least some of these suits arise because employees raise matters internally and feel that they are not treated seriously or respectfully for raising a concern. In the case of someone like Kathy Grant, the whistleblower at Winston, how should the company deal with the complaint? What are the company's ethical obligations to the complainant? What specifically could the company do to minimize the likelihood of a qui tamlawsuit?

Comments

Question 8 raises the issue of a qui tam suit brought by an employee under the False Claims Act. The False Claims Act, as amended in 1986, 31 U.S.C. §§ 3729 et seq., provides both civil and criminal penalties for any person found to have knowingly submitted a false claim, submitted falsified records or documents to get a claim paid, used falsified records or documents to avoid or decrease an obligation to pay or turn over property to the Government, or received public property from a Government employee without authorization. The Act provides civil penalties of up to $10,000 per false claim, plus three times the amount.

The qui tam provisions of the False Claims Act allow a private individual with knowledge of fraud against the Government (the "relator") to commence a civil action against the suspected perpetrator in the name of the United States. The term qui tam is from the Latin "qui tam pro domine rege quam pro sic ipso in hoc parte sequitur," and means "who as well as the King for himself sues in the matter." Under the 1986 amendments, the qui tam "relator" is entitled to recover up to 30% of the proceeds of the action, plus costs and attorney fees. As a result, there is often a tremendous financial incentive for a company's present or former employees to file a civil false-claims suit against the company.

The "whistleblower" provisions of the False Claims Act prohibit a company from discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against an employee because of the employee's participation in qui tam lawsuit or in the investigation preceding such a suit. Companies found to have violated the "whistleblower" provisions are required to "make the employee whole." Such relief may include reinstating the employee at the same seniority status he or she would have had but for the discrimination, two times the amount of back pay lost by the employee, interest on the back pay, compensation for any special damages suffered by the employee, and litigation costs and attorneys fees.

Episode Two: PROCUREMENT INTEGRITY

Summary

Jim, a defense contractor employee, drops in on an old friend from his days as a Naval officer. The friend, Mike, is now a government procurement official. After briefly discussing their families, Jim asks Mike whether he will be going to an industry association conference in San Francisco the following week. When Mike says that he will, Jim invites Mike to accompany him to an evening reception sponsored by his company, a golf outing at Pebble Beach, and a San Francisco Giants game. During the conference, Mike tells Jim that Mike's wife is being considered for a promotion to her company's headquarters in Chicago, and asks Jim for help in finding a job in the area. Jim explains that his company cannot hire Mike right now, because Mike is a procurement official, but agrees to discuss it over lunch when they return from the conference. Before the lunch, Jim calls Mike to ask for information about a new sole source procurement awarded by Mike's office. Mike gets the requested information, quickly calls to give it to Jim, and during the conversation tells Jim that the document from which he's reading is marked "Source Selection Sensitive."

Discussion Objectives

The Procurement Integrity Law has been a major compliance concern of government contractors for the last several years. Because this law deals with gifts to government procurement officials, employment discussion with or offers of employment to government procurement officials, and the improper release or exchange of proprietary and source selection information, the law relates in a general way to overall business practices. The episode should be used to discuss appropriate relationships between contractor employees and government procurement officials. More particularly, the discussion should focus on the Procurement Integrity Law restrictions on giving gratuities and discussing opportunities for employment with procurement officials, and the unauthorized receipt of source selection information.

Suggested Discussion Questions

1. Is an offer to a procurement official by a competing contractor to attend a reception an offer of something of value? Does it matter if the reception is an open event and anyone at the convention is welcome to attend? What if the procurement official decides to attend, but to eat and drink minimally, or not at all? What if the procurement official offers to pay to attend? What if the procurement official declines or simply doesn't attend? Since Mike states in the same conversation that he cannot accept any gifts, can Jim assume that Mike will do whatever he needs to comply with the Procurement Integrity Law? Does it matter if the invitation is based on personal friendship?

2. Is the offer by Jim for Mike to become part of a golf foursome an offer of something of value? Does this constitute a violation under the Procurement Integrity Law? Is any possible violation negated by Mike's immediate response that he would have to pay his own green fees and cart? How does the fact that Mike apparently won wagers on the golf match ultimately of sufficient value to pay these costs factor into this? (We do not know if Jim was playing "customer golf" or his best game.) What if Jim drives the foursome to Pebble Beach? Does Mike have to pay for part of the rental car?

3. Is the offer by Jim for Mike to attend a baseball game in a skybox an offer of something of value? Does this constitute a violation under the Procurement Integrity Law? Is any possible violation negated by Mike's immediate response that he would have to pay for his own ticket? Assume that those who own skyboxes pay a high annual lease amount (perhaps $100,000 a year) and then buy tickets at the regular face value for skyboxes (perhaps $20 a ticket). Does paying the face value of the ticket alone constitute adequate payment for the ticket? What if the ticket were to an event for which tickets were not normally available, such as the World Series?

4. Given the limitations in the Procurement Integrity Act on employment discussions, should contractors avoid any discussion with procurement officials related to anything about employment opportunities? Was there anything improper about Jim's inquiry to Mike of possible candidates for a job with Jim's company? Was it in any way imprudent? Was there anything improper about Mike's inquiry to Jim about kinds of opportunities in the private job market for someone with Mike's background? Was it in any way imprudent?

5. Is Jim's statement that Mike is ineligible to work with his company a technically accurate statement?

6. Does Jim's offer to provide various kinds of assistance to Mike in relocating to Chicago, though not a job with his own company, pose Procurement Integrity Act issues? Does this constitute a prohibited discussion of employment opportunities? Might Jim's offer to provide extensive assistance to Mike, including one or more favorable references, constitute an offer of something of value? Jim takes the view, incidentally, that he would do the same for any friend, and after all, if he does all this, Mike will no longer be a procurement official and won't be in a position to help him anyway.

7. Was there anything improper about Jim's request to Mike for information on the rationale for a sole source procurement? Was it imprudent? Should such requests be in writing? Should they be accompanied by one of the disclaimers in the Procurement Integrity Act?

8. Does Mike's discussion at the end of the tape violate the Procurement Integrity Act?

9. Is there anything imprudent about the overall way in which Mike and Jim seem to interact with one another? Does extensive socializing between a procurement official and a competing contractor pose a problem even if all interactions comply with the Procurement Integrity Act?

Comments

The Procurement Integrity law, 41 U.S.C. § 423, was enacted by section 27 of the Office of Federal Procurement Policy Act, as amended by section 814 of the FY 1990/1991 National Defense Authorization Act. The Act applies, during the conduct of a federal agency procurement, to competing contractors, procurement officials, and anyone with access to proprietary or source selection information. It prohibits competing contractors from knowingly engaging in the following conduct during the conduct of any Federal agency procurement of property or services:

• Making, directly or indirectly, any offer or promise of future employment or business opportunity to, or engaging in any discussion of future employment or business opportunity with, any procurement official of such agency;
• Offering, giving, or promising to offer or give, directly or indirectly, any money, gratuity, or other thing of value to any procurement official of such agency;
• Soliciting or obtaining, directly or indirectly, from any officer or employee of such agency, prior to the award of a contract any proprietary or source selection information regarding such procurement.

The following definitions are necessary to understand these statutory prohibitions:

"Conduct of a federal agency procurement" means the period beginning on the earliest data upon which an identifiable, specific action is taken for the particular procurement and concluding upon the award or modification of the contract or cancellation of the procurement. Each contract award and each contract modification constitutes a separate procurement action. Modifications are included only when determined by the contracting officer to be outside the scope of the original contract.

"Competing contractor" means any entity legally capable of entering into a contract or subcontract in its own name that is, or is reasonably likely to become, a competitor for or recipient of a contract or subcontract under a federal agency procurement. The terms includes the officers, employee, representatives, agents, and consultants of the competing contractor.

"Procurement official" means a Government employee (or contractor employee acting on behalf of the Government for the procurement) who has participated personally and substantially in any of the following activities for a particular procurement:

• drafting a specification or statement of work
• review or approval of a specification or statement of work
• preparation and development of the purchase request
• preparation and issuance of the solicitation
• evaluation of bids or proposals
• source selection evaluation
• negotiations to establish the price or terms and conditions of the contract or modification
• review and approval of award of the contract or modification

"Gratuity or other thing of value" means any gift, favor, entertainment, or other thing having monetary value, except:

• anything for which market value is paid by the procurement official
  
• anything which is paid for by the Government or accepted by the Government under specific statutory authority
  
• plaques or certificates having no intrinsic value
  any unsolicited item, other than money, having a market value of $10 or less per event or presentation
  

Finally, it is worth noting that much of the conduct prohibited by the Act is also prohibited by other statutes and regulations. For example:

• The offer or acceptance of a bribe or gratuity is prohibited by 18 U.S.C. § 201.
• The post-Government employment of certain former Government employees is restricted by 18 U.S.C. § 207.
• The Federal Acquisition Regulation and Trade Secrets Act place restrictions on the release of contractor's proprietary information and information related to procurements.
• Federal Government employees are prohibited from accepting gratuities (over $25 in value) by the Office of Government Ethics Standards of Ethical Conduct for Employees of the Executive Branch.

Episode Three: ETHICS PROGRAMS

Summary

The president, ethics director, general counsel, and chief human resources executive of a defense contractor are sitting at a conference table, waiting to receive an out-briefing by Pat, an ethics consultant from a fictitious Business Ethics Center at Northern University. When asked by the company president for the "bottom line," Pat explains that although the company has all of the mechanical pieces, its ethics program lacks "feeling." Pressed further, Pat explains that the code of conduct is long and difficult to read, the employees do not refer to the code, a majority doubted senior and middle management were committed to the ethics program, a significant percentage of employees approved of time mischarging, the mass training was ineffective, the concern line was not being used, employees feared retaliation for reporting unethical conduct, and a majority of the employees doubted the company management would take the "moral high road" when faced with an ethical dilemma.

Discussion Objectives

DII signatories have developed comprehensive ethics and compliance programs. The episode is intended to encourage discussion about methods of evaluating ethics programs generally, about various details of ethics programs, and about how to ensure a companyís ethics program is more than a mechanical exercise.

Suggested Discussion Questions

1. What do you think the consultant means by his conclusion that the Western Industries ethics program seems to "lack feeling?"

2. As a general matter, how do companies judge whether their ethics program is perceived as being largely mechanical?

3. With respect to codes of conduct, how can companies judge the practical usefulness of a code? How important is length? How is important is format? How can the company insure that the code is readily understandable to all employees? Should it be of concern to Western that most employees could not locate their copy of the code, and apparently do not ever refer to it? What can companies do to encourage more regular reference to a code?

4. How should a company measure the commitment of management to an ethics program? Is a survey question like the one posed by the consultant meaningful? Since the university consultant apparently believes that management at Western is committed to a program, he concludes that there is a communications problem. If this in fact a communications problem, how could it be addressed?

5. What is the significance of the consultant's findings that employees at Western do not believe that the ethics program helps them to solve ethical dilemmas? Is this a problem? If so, how could it be addressed?

6. What types of surveys of employees are useful? For example, can a survey show the extent employees' knowledge of particular compliance details? Can a survey accurately measure what actions employees will take under certain circumstances, for example, would an employee call the hotline to report misconduct by a fellow employee? Can a survey accurately measure general employee attitudes through the "agree - disagree" type of questions the consultant used in the video tape? For example, would responses to the question discussed at the end of the tape about whether management would take the moral high road if confronted with an ethical dilemma provide reliable data? In Western's case, where 83 percent answer negatively, what should the company do?

7. With regard to training, how should companies approach refresher training? How should companies determine the particular training needs of groups of employees? How should companies meet those needs? How can companies make ethics training something more than just a mechanical exercise?

8. With regard to internal reporting systems, how informative is the number of calls received? Is there a target percentage of employees that companies should desire? What might a low call rate signify? What might account for skepticism regarding corporate representations of confidentiality and non-retaliation for concern line callers? Assuming that the company is committed to these practices, how can these apparent employee concerns be addressed? How would you address the apparent lack of satisfaction with the company's responses expressed by many of those who did call the concern line?

9. Of what significance is the opinion letter from outside counsel on the sentencing guidelines? Given this CEO response, did the CEO and the consultant seem to be talking past one another? If so, how? If you were the CEO and had just received this report, how would you proceed?

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