• U.S.

SCANDALS: Lockheed’s Defiance: A Right to Bribe?

5 minute read

Lockheed Aircraft Corp.—the company famous for its financial troubles, spectacular cost overruns and controversial Government loan guarantees—has now acquired another dubious distinction. Having admitted under prodding by the Securities and Exchange Commission that it has slipped at least $22 million under the table to foreign government officials and political organizations, the company issued a defiant statement that sounded almost like an assertion of the right to bribe.

A lengthening list of giant U.S. corporations, including Exxon, Gulf, Mobil, United Brands and Northrop, had previously admitted to making similar payoffs. The SEC’s policy has been to require corporations insuch cases to reveal who got their political payments and to agree not to make any more. Some have complied, others are resisting. Last week Ashland Oil Inc. argued that securities laws do not require public disclosure of the recipients of questionable payments that the company says it has made in Nigeria, Gabon, Libya and the Dominican Republic. Ashland has already supplied the names to the SEC.

Lockheed went further. It stated that identifying its beneficiaries could hurt its $1.6 billion backlog of unfilled foreign orders, presumably by causing embarrassed foreign governments to cancel contracts, and also damage prospects for future sales. Nor would Lockheed promise to make no more political payments. Such payments, it said, are a normal and necessary feature of doing business in certain parts of the world, are essential to sales and “are consistent with practices engaged in by numerous other companies abroad.”

That blunt stand forces into the open—as no previous case has—some of the legal, ethical and practical questions surrounding the whole issue of foreign bribery and political payoffs by American corporations. Immediately, Lockheed’s position could provoke a legal battle over just how far the SEC can go in forcing a company to make public its foreign payments. If the company and the agency cannot agree—and Lockheed’s statement would seem to leave little room for compromise—the SEC could hale Lockheed into federal court on charges of violating the agency’s financial reporting requirements. Generally speaking, foreign political payments—or even outright bribery—do not violate any U.S. law, but concealing them on a corporation’s books does. In addition, of course, the payments might violate laws of the countries where they were made.

The broader questions are whether payments to foreign government officials and politicians are really necessary to U.S. companies’ overseas sales and what the Government can do to stop the practice. The answers, unhappily, seem to be that Lockheed and other aerospace companies really would lose sales—to open-handed British, French, German, Japanese and Soviet concerns—if they did not make such payments. Further, the U.S. Government is too deeply involved in the companies’ fortunes to do anything very effective.

Overseas Sales. For Lockheed, big foreign sales are especially critical. The nation’s second biggest defense contractor (after General Dynamics), Lockheed has been financially shaky ever since it ran into mammoth cost overruns on the C-5A cargo plane in the late 1960s. It received a near lethal blow in 1971 when Britain’s Rolls-Royce, maker of the jet engines for the company’s civilian L-1011 TriStar, went bankrupt, and Lockheed eventually lost $300 million, due in part to canceled orders. A recent rescue operation, under which Textron Inc. would have provided $100 million in new cash in exchange for a 46.8% interest in Lockheed, fell through in February. Lockheed two weeks ago announced that its profits for the first half of 1975 nearly doubled from a year earlier, to $24.7 million, but this is based partly on cost calculations that assume Lockheed will eventually sell 300 TriStars; whether it can is in serious doubt. Lockheed still bears a debt load of nearly $1 billion. The current scandal seems as unlikely to unhorse Chairman Daniel Haughton, who has headed Lockheed since 1967, as any of the company’s former crises. His defenders on the board of directors believe Haughton is not personally responsible for many of the company’s biggest problems.

The company’s survival has been due largely to U.S. Government business and to a huge expansion of overseas sales, primarily of the C-130 Hercules troop-and-cargo transport. Foreign sales have grown from $146 million in 1970 (when the political payments began) to $650 million last year. Sales have been high in Iran and Saudi Arabia, and speculation is that many of the payments have gone there.

The Government bailed out Lockheed in 1971, when it agreed to guarantee repayment of as much as $250 million in bank loans to the company; Lockheed currently is using $195 million of the credit. The Government Emergency Loan Guarantee Board, set up to oversee the program, is looking into the possibility that Lockheed violated its obligations by failing to tell the board about the $22 million in foreign payments.

The Government’s dilemma is subtly symbolized by the position of SEC Chairman Ray Garrett. As a member of the Loan Board, his chief concern is to ensure that Lockheed survives until the Government is released from its commitment at the end of 1977. But as SEC chief, he would normally be expected to concentrate on seeing that the reporting rules are obeyed, whatever the damage to the company. Garrett’s solution: he has disqualified himself from the SEC’s deliberations as to what to do about Lockheed.

More generally, the Government has strong political and balance of payment reasons to encourage sales abroad by U.S. arms and aerospace manufacturers, and sometimes has not hesitated to promote them. The Government interest does not, of course, extend to condonement of bribery. But it probably precludes any effective measures to stamp it out, like passage of a law making the payment of foreign bribes a crime in the U.S.

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