CORPORATE CRIME REPORTER
Ben
Heineman High on Integrity
22 Corporate Crime Reporter 25, June 20, 2008
Think Ben Heineman Jr.
Think private attorney general.
For twenty years he was general counsel at General Electric.
For twenty years, he policed GE’s worldwide operation.
Now, Ben Heineman is at Harvard University, teaching, reading, and writing.
He’s also senior counsel at WilmerHale in Washington, D.C.
And he’s just completed a remarkable little book – High Performance with High Integrity (Harvard Business Press, 2008)
After reading it, you think that Heineman must have been the most public spirited of any of the hundreds of world’s multinational corporate general counsel.
Heineman, it turns out, was a driving force behind the international movement to ban public and private corporate bribery.
He helped create the world’s foremost public interest group on the subject – Transparency International.
And he has campaigned relentlessly against foreign bribery.
Heineman disagrees with corporate executives who are constantly trying to beat back tougher public regulation.
He says that sometimes, tough uniform public regulation helps the high integrity corporation by leveling the playing field.
“If each company has its own standards, that then can lead to competitive disadvantage,” he says. “It might be better to have a uniform law than the ad hoc crazy quilt pattern.”
We interviewed Heineman earlier this week.
And we read to him the following passage in his book:
“Global capitalism must candidly face a fundamental problem of integrity,” Heineman writes. “At the very heart of high performance lie fundamental forces that, if left unconstrained, cause corporate corruption.”
Do you disagree? he asks.
No, no, we agree.
But doesn’t high integrity undercut the drive for high performance?
“They are not in tension,” Heineman says. “Without high integrity, without financial discipline, companies are in constant risk of going through these horrible cycles where greed wins, the forces of corruption win, and the company has huge problems.”
“Great products have got to be safe, right?” he asks “Are you telling me that if we develop an aircraft engine we shouldn’t develop it to the highest degree of safety? That’s insane. It’s not in the company’s interest to do it. There is enormous benefit inside the company, the marketplace, and the global society to having high integrity. High performance and high integrity are not in opposition. They are complimentary. They have to be fused. But without high integrity, the pressures to make the numbers, to cut corners, are great. So wise leaders have to create a system that has both.”
And that is what Heineman’s book is about – driving the high integrity system deep within the giant corporation.
And to do that, leaders within the company have to create the systems and processes. But they also have to shape the culture.
“The two are complementary and inseparable,” he writes. “Company leaders create a culture by forcefully and consistently articulating the organization’s code of conduct, guiding principles and policy standards.”
“Setting a verbal ‘tone at the top,” without such effort, is just window dressing.”
It’s not just punishing acts of wrongdoing, Heineman says. More important is punishing managers for failure to act – acts of omission – failure to drive high integrity deep within the organization.
Two cases from Heineman’s tenure at General Electric are illustrative – the Israeli Air Force corruption case and the Japanese nuclear safety case.
“The Israeli case involved a fraud on the U.S. government,” Heineman says. “It involved the Foreign Military Sales Program. The U.S. gave the Israelis money. And the Israelis then procured U.S. military product. In this case it was military engines on F-16s and other kind of fighter planes. The foreign marketing manager for GE and the Israeli procurement general committed a fraud, siphoned off funds, and had a Swiss bank account.”
“The minute we heard about it, we took it on with the utmost seriousness. This was a huge potential problem. I went within 24 hours to the Department of Defense and asked – are there any national security issues? They said no, none.”
“Then, we went to the Justice Department, disclosed it, and worked with the Justice Department to uncover all of the problems. We ended up having to pay both a civil and criminal fine to the Justice Department and the SEC. But the hardest part of the question was not whether to fire all of the people who knew about it and had discussed it. We did that.”
“The question was – how do we deal with the leader of the military engine company within GE? He did not know about it.
There was a great debate in GE about whether or not to fire the person, because he did not take part in the illicit acts. But he was responsible for the whole organization.”
“And at the end of the day, Jack Welch made the most important decision he ever made – and that was to ask the person to leave. That said to the entire organization – you not only will be fired for acts of commission, but if you are a leader, you will be fired for failure to create a culture of compliance where people come forward and report problems.”
“That was an incredibly important message. It’s not just commission. It’s omission. You are responsible for creating a high integrity culture. That means paying attention, creating the systems and processes, building it into the businesses, hiring the right people, having the resources.”
Then came the Tokyo Electric Power Company case.
“It was under Jeff Immelt,” Heineman says. “After the U.S. government, the Tokyo Electic Power Company (TEPCO), was our biggest customer. Our nuclear power people in Japan were asked by TEPCO to falsify safety data that would go to TEPCO, but that TEPCO would in turn send on to the regulators.”
“It turns out, thank God, that this data was not really safety critical. It didn’t raise any issues about terrible problems. But the fact that it involved safety problems, the fact that they asked us to falsify it, the fact that people, to please the customer, did in fact falsify the data, was a nightmare. It was terrible.”
“And so, once again, there was an investigation. As many as 20 to 25 people were fired for failure to report this, deal with it. It was commission, but also failure to report. And again, we faced the problem of officers of the company, senior leaders, who weren’t aware of it, but had not created a culture that would have stopped this thing in its tracks very early. And so both the former leader of that business and the then current leader of that business were asked to leave the company. And that sent a tremendous message that we were serious about it.”
“It raises a second important principle in the book, which is the critical importance of employee voice. Most problems inside companies, at least the ones that go on too long, and many do, are due to a culture of silence.”
What if you are a lawyer for the tobacco industry, or for a military contractor? Where’s the high integrity in that?
“That is a question of moral choice,” Heineman says. “From a lawyer’s perspective, do you choose to participate in the work of that particular enterprise? And that is a question that everybody faces every day. We say – every person deserves a lawyer. But not everybody deserves me of any of the lawyers who are reading this interview. You have to make choices. “
“We used to have this discussion a lot. Would we represent the tobacco companies? And it was my personal view that I would not, because they are selling something which kills people, is addictive, and despite the fact that it is individual choice, people get hooked. There is no question about that.”
“On the other hand, people who make products for national defense – that’s a different issue. But I want to stress that those are individual choices. I do not believe that it is the lawyer’s responsibility to take any given client. It is the lawyer’s responsibility to make sure everybody gets representation. But normally there are plenty of lawyers out there who will take cases even if you don’t. And you as a lawyer are entitled to exercise your personal conscience and discretion.”
[For a complete transcript of the Interview with Ben Heineman Jr., see 22 Corporate Crime Reporter 25(9), June 23, 2008, print edition only.]
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