A culture of ethics and integrity: Lockheed Martin moves beyond Sarbanes-Oxley and the sentencing guidelines

JOURNAL OF ORGANIZATIONAL EXCELLENCE / Summer 2006Published online in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/joe.20098© 2006 Lockheed Martin Corporation. Reprinted with permission of Lockheed Martin Corporation. All rights reserved.

A CULTURE OF ETHICS AND INTEGRITY:LOCKHEED MARTIN MOVES BEYONDSARBANES-OXLEY AND THESENTENCING GUIDELINES

CORPORATE RESPONSIBILITY

Legislative and judicial responses to high-profile corporate financial scandalschallenge U.S. companies to move beyond compliance and make ethical be-havior a part of the organizational mindset. Lockheed Martin took this leapa decade ago. To sustain its commitment to an ethical culture, the company hascarefully targeted its resources, repeatedly innovated, and kept a thumb onthe organization’s ethical pulse. As a result, ethics and integrity are an inte-gral part of a positive work environment at Lockheed Martin—and a compet-itive advantage. © 2006 Lockheed Martin Corporation

Brian Sears

Brian Sears is director of ethics awareness at Lockheed Martin Corporation in Bethesda, Maryland. His responsibilities include managing the devel-opment of annual ethics awareness training, overseeing the company’s ethics film festival, and coordinating the development of ethics communications.This article is reprinted with permission of the publisher. Copyright © 2006 by Lockheed Martin Corporation.

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Enron, WorldCom, and the other corporate fi-nancial scandals that marred the early years

of this decade produced widespread condemna-tion and outrage at the greed and criminal behav-ior of previously exalted senior executives at theaffected companies. Corporate America shuddered,and the public clamored for reform.

The existing Federal Sentencing Guidelines,initially promulgated in 1991 by the U.S. Sen-tencing Commission, already offered incentivesfor “organizations to detect and prevent criminalconduct within their ranks.”1 Any punishment acompany might incur for wrongdoing could be re-duced if the company had a suitable ethics andcompliance program in place, a good-faith effortto reduce the possibility of illegal or unethical be-havior through standards, procedures, training, au-

dits, and other measures. But what the financialscandals revealed beyond criminal and unethicalacts was a culture of corruption, where bad (evenillegal) behavior was not only tolerated but alsorewarded handsomely.

The U.S. Congress responded to the scandalswith the Sarbanes-Oxley Act of 2002, which is in-tended to increase the accuracy and reliability offinancial disclosures by publicly held companies.In addition to its other provisions, the Act requirescompanies to adopt a code of ethics, or to disclosethe reason why they have not taken such a mea-sure.2 Subsequently, the Sentencing Commission,in its 2004 amendments to the Federal Sentenc-ing Guidelines, expanded its original focus be-yond legal compliance to recognize the impor-tance of promoting “an organizational culture that

JOURNAL OF ORGANIZATIONAL EXCELLENCE / Summer 2006 DOI: 10.1002/joe

28 Brian Sears

encourages ethical conduct and a commitment tocompliance with the law.”3

Out of necessity, many companies rushed toestablish an ethics and compliance program. Somecompanies struggled to understand how best to im-plement the requirements of Sarbanes-Oxley andthe Organizational Sentencing Guidelines—in par-ticular, how to go beyond the provisions and guide-lines to find ways to promote an ethical culture.

Fortunately for Lockheed Martin, the com-pany already had a well-established ethics pro-gram that did not need significant changes to bringit into alignment with the new legislative and ju-dicial imperatives. Furthermore, its long-standingcommitment to an ethical culture had moved itwell along the learning curve. The company, in-stead, could focus its energy and resources on fur-ther enhancements that would take its program toa higher level of sophistication and innovation andbuild on the synergy between ethics and a positivework environment for its employees.

PLANTING THE SEEDS FOR AN ETHICAL CULTURE

Lockheed Martin, with 2005 revenues of $37.2 bil-lion and 135,000 employees, is one of the world’slargest advanced technology systems integrators andgovernment contractors. The company, headquar-tered in Bethesda, Maryland, was formed in 1995by the merger of Lockheed Corporation and MartinMarietta Corporation. The merger presented a largerchallenge than integrating two companies and twocultures: The combined entity comprised 17 differ-ent heritage companies, each with its own culture.

Both corporations had ethics programs priorto the merger, and executives in the newly formedcompany recognized early on that despite differ-ences in product lines, company cultures, and his-tories, the people shared a commitment to ethicsand integrity. Furthermore, the defense industryhad seen its share of ethics scandals, and LockheedMartin executives believed that all other things

being equal, customers prefer doing business witha company that has demonstrated ethical behav-ior towards all its constituencies. In other words,ethical conduct can be a competitive advantage.

The company’s expectations for an ethical cul-ture are revealed in its vision statement—“Pow-ered by innovation, guided by integrity, we helpour customers achieve their most challenginggoals”—and again in the company’s values, where“ethics” is first on the list:

• “Do What’s Right: We are committed tothe highest standards of ethical conductin all that we do. We believe that honestyand integrity engender trust, which is thecornerstone of our business. We abide bythe laws of the United States and othercountries in which we do business, westrive to be good citizens, and we take re-sponsibility for our actions.”

• “Respect Others: We recognize that oursuccess as an enterprise depends on thetalent, skills, and expertise of our peopleand our ability to function as a tightly in-tegrated team. We appreciate our diversityand believe that respect—for our col-leagues, customers, partners, and all thosewith whom we interact—is an essentialelement of all positive and productivebusiness relationships.”

• “Perform with Excellence: We understandthe importance of our missions and thetrust our customers place in us. With thisin mind, we strive to excel in every aspectof our business and approach every chal-lenge with a determination to succeed.”

Assigning ethics as a top priority in the com-pany’s vision and values sets the tone at LockheedMartin that ethical conduct requires more thansimply “doing things right” by complying with thelaws, rules, and regulations that govern its busi-ness. Rather Lockheed Martin’s goal is to set thestandard for ethical conduct at all locations whereit does business. “Doing What’s Right” also inte-grates the concept of ethics with “Respect Oth-ers”—fair treatment, respect for differences, andinclusiveness, all of which are necessary to createtrust and a positive environment that enables every-one to “Perform with Excellence.”

Lockheed Martin, with 2005 revenues of $37.2billion and 135,000 employees, is one of theworld’s largest advanced technology systems

integrators and government contractors.

A Culture of Ethics and Integrity

DOI: 10.1002/joe JOURNAL OF ORGANIZATIONAL EXCELLENCE / Summer 2006

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• Reasonable steps to respond to and pre-vent further similar offenses upon detec-tion of a violation

The ethics office works to ensure that the el-ements of Lockheed Martin’s ethics program sat-isfy the Sentencing Guidelines criteria and are inplace and operating effectively. Even beyond this,however, the office implements initiatives to keepthe ethics message relevant, fresh, and interest-ing, and develops additional approaches for pro-moting a strong ethical mindset that will lead topositive behaviors in the workplace.

Code of Ethics. A code of ethics is the corner-stone of an effective ethics and compliance pro-gram, an explicit set of statements about the ethicalbehavior expected in the conduct of all the com-pany’s affairs. A company’s code of ethics should de-rive from the company’s values. Lockheed Martin’sCode of Ethics and Business Conduct, Setting theStandard, was first published in 1995 shortly afterthe merger, with various updates since then. Ex-hibit 1 lists the major areas addressed in the nearly60-page document, which is available in 16 lan-guages in addition to English and can be viewed ordownloaded from the company’s public Web site.6

Every employee receives a copy of the Codewhen hired and after each update. All employees,members of the board of directors, consultants,agents, suppliers, and others, when representing oracting on behalf of Lockheed Martin, are expectedto abide by the provisions of the Code.

Ethics Committee of the Board. LockheedMartin established the Ethics and Corporate Re-sponsibility Committee, comprising six membersof the Board of Directors, to provide high-leveloversight of the corporation’s ethics and compli-ance activities. The committee’s ethics-related re-sponsibilities include monitoring compliance withthe code of ethics and business conduct and re-viewing and resolving all matters of concern pre-sented to it by the ethics office or the Ethics andBusiness Conduct Steering Committee (see below).

The office of ethics and business conduct wasestablished at the time of the merger, headed by avice president and reporting to the executive of-fice and to the board of directors.

The office developed a mission statement thatreflected the broader goal of an ethical culture:“We are a proactive business partner advancingan ethical, positive, inclusive work environmentthat results in excellence for our company.” Inpractice this means that in addition to traditionalethics-related responsibilities, the ethics office ac-tively supports company initiatives that help im-prove the work environment for all employees.For example, the vice president of ethics and busi-ness conduct and various ethics officers serve asmembers of company diversity councils, whichwork in support of the diversity goal of “one com-pany, one team, all inclusive, where diversity con-tributes to mission success.” Elements of the com-pany’s ethics and compliance program aredeveloped with this broader goal in mind—e.g.,innovative approaches for engaging employees inconstructive dialogue about the ethics of their in-teractions with each other—and are coordinatedwith other company initiatives directed at build-ing a positive work environment.

THE LOCKHEED MARTIN ETHICS ANDCOMPLIANCE PROGRAM

According to the Ethics Resource Center’s 2005National Business Ethics Survey of employeesacross all business sectors, formal ethics programs“are likely to be an essential element” in maintain-ing a strong ethical culture.4 The earlier-mentionedU.S. Sentencing Commission Guidelines sets outthe criteria for what the commission considers tobe an effective compliance and ethics program:5

• Standards and procedures to prevent anddetect criminal conduct

• Responsibility at all levels, and adequateresources and authority for the program

• Personnel screening related to program goals• Training at all levels• Auditing, monitoring, and evaluating pro-

gram effectiveness• Nonretaliatory internal reporting systems• Incentives and discipline to promote

compliance

The ethics office works to ensure that theelements of Lockheed Martin’s ethics programsatisfy the Sentencing Guidelines criteria and

are in place and operating effectively.


30 Brian Sears

Ethics and Business Conduct Steering Com-mittee. Senior executives from the corporation’smajor business areas and functional departments—legal, finance, human resources, business devel-opment, communications, diversity, ethics, and in-ternal audit—serve on the Ethics and BusinessConduct Steering Committee, which is chaired bythe company’s general counsel. The Steering Com-mittee meets each quarter to review status,progress, and results of the corporatewide ethicsand compliance program, including the following:

• Any significant issues that have emerged• Ethics activity statistics• Employee ethics survey results and action

plans• Status of ethics initiatives• Status of training completions

Ethics Officers. Based at each major businesssite, Lockheed Martin’s ethics officers serve a crit-ical role in administering the ethics program.These experienced professionals—who report ad-

ministratively to their business unit presidents,and, for ethics-related duties, to a business areaethics director—are the local contact for em-ployees at their site. Most Lockheed Martin ethicsofficers at have at least ten years of proven busi-ness experience before they join the ethics or-ganization. This level of experience helps preparethem to handle the broad range of issues they tendto encounter in the course of meeting their re-sponsibilities, which include:

• Conduct investigations of wrongdoing (orrequest assistance from other investiga-tive resources)

• Manage ethics cases through closure• Respond to employees’ requests for

guidance• Enter activity in the ethics database• Distribute ethics materials locally

Helpline/Hotline Reporting Systems. Thechallenge with any ethics reporting system is to re-duce employees’ concerns about (1) possible re-taliation for reporting wrongdoing and (2) a per-ceived stigma associated with being a“whistleblower.” The company addresses theseconcerns by making it clear to everyone that itwill not tolerate any retaliation for an employee’sreporting an ethical violation, and employees un-comfortable identifying themselves can reportanonymously. Employees can seek guidance onethics issues or report concerns using LockheedMartin’s worldwide, toll-free HelpLine or by con-tacting the ethics office by e-mail, letter, or fax.

Such contacts are documented in a database,which enables the ethics office to gather and ana-lyze information and generate reports on activityand trends such as most frequent allegations, sub-stantiated case rates, timeliness to close ethics cases,and anonymous case rates. The results help us as-sess the effectiveness of current program activitiesas well as identify and prioritize future actions.

Ethics Awareness Training. Most people de-velop their ethical compass at a very early age,hence “teaching” ethics is not generally effective.What is effective, the company believes, is main-taining a high level of ethics awareness, achievedin part by requiring all employees and members ofthe board of directors to complete annual ethicsawareness training. These sessions begin with the

Exhibit 1. Areas Addressed in Lockheed Martin’sCode of Ethics and Business Conduct

• Keep our commitments to the company’s employees, cus-tomers, shareholders, suppliers, and communities in which itoperates to conduct business honestly, fairly, and safely; toproduce reliable products and services, on schedule, and at afair price; to observe sound environmental business practices;and to reflect all aspects of good citizenship.

• Comply with all applicable laws and regulations.• Promote a positive work environment.• Work safely, protecting yourself, your fellow employees, and

the world we live in.• Keep accurate and complete records.• Make accurate public disclosures.• Record costs properly.• Carefully bid, negotiate, and perform contracts.• Avoid improper gifts and business courtesies.• Steer clear of conflicts of interest.• Know and follow the rules for the employment of former

government officials.• Maintain the integrity of consultants, agents, and

representatives.• Protect proprietary information.• Use company assets wisely.• Avoid illegal insider trading.



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tails sanitized to protect the privacy of theemployees involved).

• Most recently, ethics awareness traininghas included cases “pulled from the head-lines.” For example:— An Olympic athlete wins the gold

medal, only to discover later that ascoring error by one of the judges wasa factor in his victory. The generalpublic believes that without the scor-ing error, the athlete would not havewon. Should the athlete relinquish hisgold medal and accept the lesser prize?

— A reporter broadcasts a story basedon questionable documentation. Whenthe authenticity of the documents isquestioned by independent experts,should the reporter retract the storyand apologize?

Although employees are unlikely to personallyconfront these specific ethical questions in theirwork at Lockheed Martin, the cases nonetheless

chairman, president, and CEO and his staff andcascade throughout the corporation, with leadersconducting sessions with their team members.

To keep the training fresh and relevant, as wellas build on what we have learned works well, weperiodically revise the theme and draw on newmaterial:

• 1995–1996: The initial approach involveda series of viewgraphs, which were gen-erally viewed as preachy and not verycompelling.

• 1997–1999: Lockheed Martin secured therights to use the characters from the “Dil-bert” comic strip to help spread the ethicsmessage. The characters were featured inan engaging board game that highlightedethical challenges employees face andused appropriate humor to reinforce ethicsconcepts. “Dilbert” was a huge hit withemployees.

• 2000–2001: The next awareness trainingtheme, Ethics Daily, presented ethics casestudies in a newspaper format (see Ex-hibit 2). The concept was based on the“newspaper test”: How would an em-ployee’s actions be viewed by the public ifthe situation were reported on the frontpage of a newspaper?

• 2002–2003: Under the theme of Perspec-tives, employees role-played the differentcharacters in a case scenario during thetraining session. We developed Perspec-tives around the premise that different em-ployees would view an ethical challengedifferently depending on their level in thecompany, their background, and their ex-perience, and that employees need to con-sider these differing perspectives in theethical decision-making process.

• 2004–2005: The Ethics Effect awarenesstraining theme, which also focused on casestudies, included an “ethics meter” for em-ployees to gauge various actions on a slid-ing scale—from “highly ethical” to“highly unethical.” The case studies gen-erally address the common ethical dilem-mas facing employees and include manyreal-life situations handled by the Lock-heed Martin ethics office (with case de-

Exhibit 2. Ethics Daily


32 Brian Sears

give them an opportunity to exercise the thinkingskills and judgment required to address many work-place ethical dilemmas, including searching for theright course of action among multiple perspectivesand competing objectives.

Compliance Training. While compliance is notthe sole focus of ethical behavior at Lockheed Mar-tin, it remains an essential component. The companydeveloped 13 compliance training modules to makeemployees aware of the various laws, regulations,and company policies pertaining to their job duties:

• Antiboycott• Antitrust• Drug-Free Workplace• Equal Employment Opportunity/

Affirmative Action• Ex-Government Employees• Export Control• Foreign Corrupt Practices Act• Harassment-Free Workplace• Information Protection• Insider Trading• Kickbacks and Gratuities• Labor Charging• Truth in Negotiations Act

Each compliance training course has a tar-geted audience; for example, all employees in-volved in international business development arerequired to complete the Foreign Corrupt Prac-tices Act module. Each course also has a definedfrequency for how often employees need to takethe course, e.g., every one, two, or three years. Asa course becomes due, an employee receives asystem-generated e-mail reminder to completethe course, which can be taken on the company’sWeb site. A learning management system data-base tracks course completions, and the em-ployee’s manager receives an e-mail notificationof any courses the employee has not completed.

Because of the business risks associated withcompliance—or, more accurately, noncompli-

ance—in each of the 13 training areas, a key ele-ment in the compliance training program is an on-going process of assessing risk areas and updat-ing course content. To ensure further that businessrisks are properly addressed, Lockheed Martin es-tablished a risk and compliance committee to over-see the compliance program activities.

Ethics Surveys. Lockheed Martin conducts abiennial employee ethics survey to gauge em-ployees’ perceptions of the ethical culture withinthe company. The survey asks employees:

• Have they observed misconduct?• If so, did they report it?• If they did not report the misconduct,

why not?

Approximately 50 percent of all employeeshave participated in the past several surveys, whichenables us to statistically project the results to theentire employee population with a high degree ofprecision. High-level survey results are publishedin a companywide newsletter, with business unitresults published locally.

Any issues identified in the survey give riseto action plans and other initiatives. For example,in a prior survey employees indicated that whenthey observed misconduct, they most often re-ported the situation to their management; how-ever, most of them were not satisfied with howtheir managers resolved the situation. In response,Lockheed Martin developed a training course thatall leaders must take, “Ethics Tools for Leaders,”which provides guidance on how managers shouldrespond when an employee reports an ethics issue.

Rewards and Recognition. Because recogni-tion and reward are effective mechanisms for rein-forcing desired behaviors, in 2002 Lockheed Mar-tin formalized a recognition program to identifyemployees who best exemplify the corporation’scommitment to ethics and integrity. Nominees areaccepted from each of the five business areas andfrom corporate organizations. The nominations arereviewed by the chairman, president, and CEO, whoselect a winner and then present the “Chairman’sAward,” shown in Exhibit 3, at the annual seniormanagement meeting. The other nominees are rec-ognized through their respective business areas.

The first Chairman’s Award winner was a busi-ness development employee who was preparing

To ensure further that business risks areproperly addressed, Lockheed Martin

established a risk and compliance committeeto oversee the compliance program activities.



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video messages on various ethics topics. Each In-tegrity Minute, in three or four episodes, depictsappropriate and inappropriate behaviors and pro-vides guidance on how to deal with ethical dilem-mas. For example:

• One series tells the story of an overbear-ing manager who asks several subordinateemployees to go out on a date, verballyabuses other employees, and falsifies aproductivity report. The manager’s be-havior and actions result in his dischargefrom employment.

• In another series, an employee reports tohis manager that a coworker is conductinga side business on company time, usingcompany resources. The manager does notinvestigate the situation as thoroughly asshe should have, nor does she show the re-porting employee an appropriate degree ofrespect for coming forward. When the man-ager eventually discovers the coworker’sside business and realizes the reporting em-ployee was correct, she apologizes to thereporting employee and reflects upon hertreatment of her employees.

The episodes of an Integrity Minute series arereleased over consecutive weeks. Each episodebuilds on the storyline of the previous episode and

a bid for an international program when he was ap-proached by a customer representative who re-quested a cash payment—a potential violation ofthe Foreign Corrupt Practices Act. The employeerefused to make any such payment, reported thesituation to the company’s legal department, andmet with high-level U.S. and customer officialsto establish the conditions upon which LockheedMartin would continue in the competition: re-moval of the customer representative from fur-ther participation in the competition, and a levelplaying field for competitors. The customer agreedto the company’s conditions, and the competitionproceeded without further incident.

Other past winners of the award include:

• An employee who reported that a com-petitor was in possession of LockheedMartin proprietary information

• An employee who reported the receipt ofa customer e-mail, sent in error, that con-tained sensitive information that the em-ployee should not have received

• A training specialist who reported that sev-eral employees were receiving inappro-priate directions from their supervisor

The most recent award recipient is an em-ployee who inadvertently overheard the contractnegotiating strategy being discussed by two cus-tomer representatives. The employee immediatelynotified Lockheed Martin management—withoutdisclosing the details of what she had overheard.The company informed the customer about whathad happened, and negotiations continued suc-cessfully, with the customer thanking the com-pany for the ethical way in which the situationwas handled.

Communications. Clear communication aboutthe corporation’s values and expectations regard-ing how to conduct business is an important toolfor building and nurturing an ethical culture atLockheed Martin. Ongoing ethics communica-tions through various media—posters, pamphlets,articles in company newsletters, e-mails, the com-pany’s intranet, giveaways, and videos—keep em-ployees current on trends, hot topics, and otheractivities relating to the ethics program.

A new communications initiative in 2005, theIntegrity Minute, is a series of one-to-two-minute

Exhibit 3. The Chairman’s Award


34 Brian Sears

ends with a “cliffhanger,” with employees leftwanting to know how the ethics issues will be re-solved in the final episode. All employees with ane-mail account (approximately 115,000) receivean e-mail notification of the release of the latestepisode, along with a link to the Integrity MinuteWeb site where they can view it. Employees with-out e-mail access can view the series on DVDs oron the external Lockheed Martin Web site.

A supplement to the annual awareness train-ing program, the Integrity Minute has proven to bean excellent tool for maintaining a high level ofethics awareness throughout the year. Feedbackon the Integrity Minute has been very positive,with more than 90 percent of employees ratingthe program as good, very good, or excellent.

Another key communications tool is the com-pany’s ethics Web site, which is accessible from theLockheed Martin intranet or from the company’spublic Web site.7 The code of conduct, ethics aware-ness training, compliance training, how the ethicsprocess works, and Integrity Minute are among thematerials available on the ethics Web site.

Ethics Film Festival. Much in an ethics pro-gram is designed to help employees understandand internalize the corporation’s perspectives andrequirements—e.g., reading and abiding by thecode of conduct attending a particular trainingcourse. In an innovative twist, the ethics officethought it would be both useful and interesting toturn the spotlight on employees and give them theopportunity to share their own perspectives onbusiness ethics. For the past four years, LockheedMartin has invited employees to produce their ownethics-related videos for the Ethics Film Festival.A poster used to promote the 2003 festival is shownin Exhibit 4. A voluntary initiative, employeesproduce the videos on their own time, using theirown resources, away from company and customerfacilities. Most of the festival videos have beenshort, usually two to three minutes in length, andmany have been produced by groups of employees,which provided each group an excellent opportu-nity for teambuilding and exchanging ideas aboutthe situation featured in the video.

An independent judging panel at corporate head-quarters reviews all submissions and selects the topthree entrants, and the creators of the winning entriesare invited to a recognition event to receive prizes.We produce a “highlight reel” of all entries to thatyear’s film festival, which we distribute to all filmfestival participants and show to various employeeand external groups throughout the year.

MEASURING EFFECTIVENESS

There is no universally accepted method for anorganization to measure the effectiveness of itsethics and compliance program or its progress to-wards creating an ethical culture. Lockheed Mar-tin has evolved a multipronged approach thatranges from tracking trends in employee percep-tions to evaluating specific practices.

The biennial employee ethics surveys dis-cussed earlier provide a statistically valid meansto gauge employee perceptions on how the com-pany is doing ethically. The 2005 survey, for ex-ample, indicated several positive trends, including

• An increased commitment to ethics• More useful ethics training• Less pressure to commit misconduct• Less observed misconduct

Exhibit 4. Promotional Poster for the 2003 EthicsFilm Festival



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From the assessment results we can identifypotential problem areas and then further evaluatewhat types of additional intervention or supportmay be needed to strengthen the ethical culturewithin the group.

Internal Peer Reviews. Because the localethics offices play such a critical role in support-ing an ethical culture at each business site, theethics organization implemented a process of self-assessment beginning in 2004. Each local ethicsoffice is reviewed by a two- or three-person teamof Lockheed Martin ethics officers from other lo-cations, including at least one experienced ethicsofficer, who serves as team lead. The assessmentshave four primary objectives:

• Share exemplary and innovative practices,knowledge, and processes.

• Identify how processes differ and why.• Utilize this review as a training tool for

new ethics officers.• Implement process improvements.

The results of the peer reviews are shared withother ethics officers through postings on the in-ternal ethics Web site.

External Benchmarking. Lockheed Martin re-cently completed a formal benchmarking of itsethics and compliance program with two other com-panies—one in the defense industry and one a com-mercial entity. The process allowed us to identifystrengths and opportunities for improvement. As amechanism for learning about best practices andinnovations and staying at the forefront of new de-velopments, benchmarking has potential benefitsfor other companies as well as Lockheed Martin.

External Feedback. From time to time thecompany has received informal feedback that re-assures us we are on the right track. In several in-stances where Lockheed Martin won the compe-tition for new business, the customer informed thecompany that the deciding factor in Lockheed Mar-tin’s favor was our firm commitment to ethical

We believe that these outcomes are favorableindicators of Lockheed Martin’s ethical cultureand are in part attributable to the company’s ethicsinitiatives.

Feedback from specific training and commu-nications initiatives helps the ethics office refine itsapproaches and develop more meaningful prod-ucts in the future. Three additional methods—or-ganizational ethics assessments, internal peer re-views, and benchmarking with external companies,all discussed below—are specialized tools that en-able us to assess program effectiveness in targetedparts of the organization; evaluate ethics officemethods; and compare our program with externalreferences to determine best practices and areasfor improvement.

Organizational Ethics Assessments. Whilethe companywide employee ethics surveys pro-vide a high-level assessment of the ethical envi-ronment across the corporation and within themajor business areas, they do not always provideuseful information at the department or workinggroup level. To fill this gap, Lockheed Martin de-veloped an Organizational Ethics Assessment toolfor specific, targeted work groups. The Assess-ment uses survey responses from three levels in agroup—employees, their immediate supervisor,and the next-level manager—to gauge where onthe following five-point scale each of these levelsviews the organization’s ethical maturity:

• Ad Hoc: No ethics program is in place;ethics is not integrated into the group’s op-erations.

• Compliance: A basic ethics program is inplace; the primary focus is on compliance.

• Values-Based Ethics: The group hasadopted a values-based approach to ethics;the focus is on “doing the right thing”(ethics) in addition to “doing things right”(compliance).

• Integration: Ethics is embedded in thegroup’s culture, with visible role modelsand leaders; there is a strong ethical “toneat the top.”

• Competitive Advantage: The group’s rep-utation for ethics and integrity is widelyrecognized by customers, shareholders,the public, and others, leading to a com-petitive advantage for the company.

Feedback from specific training andcommunications initiatives helps the ethics

office refine its approaches and develop moremeaningful products in the future.


36 Brian Sears

business conduct. For us, this is the best measureof the effectiveness of an ethical culture in creat-ing competitive advantage.

CHALLENGES AND OPPORTUNITIES

Organizations need to maintain an ongoing com-mitment and vigilance to keep their ethics andcompliance programs viable and relevant. To movebeyond the basic elements specified in the FederalSentencing Guidelines criteria and towards a per-vasive “culture of ethics,” companies need to re-spond to the dynamics of the business environ-ment, adapting to changes and new challenges andmodifying their program elements in response.

A number of current and emerging challengesbear mentioning:

• “Tone at the top” remains one of the mostcritical elements in establishing the ethi-cal culture of an organization. Senior com-pany leadership needs to be actively en-gaged in supporting the ethics program byallocating adequate funding and spread-ing the ethics message through their ownwords and deeds.

• Pressure on businesses for financial re-sults will continue or even increase intoday’s highly competitive marketplace,with employees—including managers—possibly tempted to cut corners to meet fi-nancial objectives.

• Additional regulatory oversight is likelyto increase if existing measures (i.e., Sar-banes-Oxley, Sentencing Guidelines)

prove ineffective, which might entailhigher compliance costs to produce thesame results now possible through a com-pany’s voluntary efforts.

• International operations present sub-stantial risks, as some countries do not al-ways conduct business in accordance withthe highest ethical standards.8 As compa-nies become increasingly global in theiroperations, they must be prepared to ad-dress more complex ethical challengesthan in the past.

The advantages and opportunities an ethicalculture brings a company also continue toevolve. For example, as recruiting and retentionbecome more diff icult in a shrinking laborpool—an especially relevant concern for com-panies that rely on knowledge workers with spe-cialized skills—companies that have strong eth-ical reputations should have a competitiveadvantage if all other factors (salaries, chal-lenging work, etc.) are equal.

Lockheed Martin believes that a strong ethi-cal culture will emerge as a key attribute of em-ployers of choice, much as diversity and inclu-siveness are becoming distinguishing attributesof the best places to work. It is a positive differ-ence that all constituencies are coming to appre-ciate—employees, customers, shareholders, com-munities—and one that is making a difference inthe decisions stakeholders make about where towork, buy, and invest. But even more importantly,building an ethical, positive work environment issimply “the right thing to do.” �

NOTES

1. An overview of the United States Sentencing Commission and the federal sentencing guidelines, Organizational guidelines (Washington, D.C.: United States Sentencing

Commission, 2004). These requirements as initially promulgated in 1991 tended to place the most emphasis on compliance with the law, i.e., preventing and de-

tecting criminal conduct such as fraudulent financial reporting, antitrust violations, prohibited insider trading, and other illegal acts.

2. Major provisions of the Sarbanes-Oxley Act of 2002 include senior executive certification of financial statements, strengthening external auditor independence, stiffer

penalties for intentionally misstated financial statements, and reporting requirements on the existence and condition (reliability) of financial internal controls.

3. U.S. Sentencing Commission.

4. Executive summary, 2005 national business ethics survey (Washington, D.C.: Ethics Resource Center, 2005), 3.

5. U.S. Sentencing Commission.

6. For a copy of Lockheed Martin’s Code of Ethics and Business Conduct, go to http://www.lockheedmartin.com/wms/findPage.do?dsp=fec&ci=13120&sc=400.

7. To view these materials, visit our external Web site at http://www.lockheedmartin.com. Click on “About Us” and then “Ethics.”

8. Each year, Transparency International publishes a Corruption Perception Index, indicating which countries are perceived as corrupt by business people and country

analysts. (The United States ranked seventeenth least corrupt for 2005.)

Documents

A culture of ethics and integrity: Lockheed Martin moves beyond Sarbanes-Oxley and the sentencing guidelines