2 Breakout Session # 302 Michael Zazaian, Contracts Director, Oracle USA, Inc. April 23, :40 – 2:40 The Business of Ethics

3 Mark Twain’s Perspective on Ethics: February 16, 1901

4 What is “Ethics”? Merriam-Webster Definition –“The principles of conduct governing an individual or a group; a guiding philosophy.” Developing need to better define and regulate ethics –Laws –Statutes –Codes

5 Recent and Continuing Erosion of Ethical Standards BUSINESS –WorldCom $11Billion Accounting Fraud –Enron Loss of thousands of jobs $60 Billion in market value $2 Billion in pension plans –Tyco International CEO and CFO convicted of Grand Larceny and Fraud, total losses of $550 Million.

6 Ex-WorldCom CEO Checks in for Prison Term Bernard Ebbers –Former WorldCom CEO –Sentenced to 25 years: Securities Fraud Conspiracy Filing False Documents with regulators

7 Sarbanes-Oxley Act of 2002: Key Ethics Legislation Prompted by Corporate Ethics and Accounting Scandals Amends U.S. Securities and other laws significantly Section 406 –Implemented guidelines and standards Requires companies to disclose whether they have an ethics code –Code of ethics should be designed to deter wrongdoing –Accountability for adherence to the code –Promote “honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest….”

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9 Recent and Continuing Erosion of Ethics Standards GOVERNMENT –Rep. Randy “Duke” Cunningham (R-CA) Collected $2.4M in homes, yachts, bribes, antiques Sentenced March 3, 2006 to 8 years., 4 months –Defense Contractor Mitchell Wade Plied Cunningham with >$1 Million in Bribes Made $80 thousand in illegal campaign contributions

10 Ethics in Government Principles of Ethical Conduct for Government Officers and Employees –Presidential Executive Order 12674, April 1989 Federal Gov’t. has host of laws and regulations governing: –Gov’t. employees –Contractors United States Office of Government Ethics –Compilation of Federal Ethics laws Pages of Statutes

11 “Executive Order of April 12, 1989 (as modified by E.O ) ‘PRINCIPLES OF ETHICAL CONDUCT FOR GOVERNMENT OFFICERS AND EMPLOYEES’ ‘By virtue of the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to establish fair and exacting standards of ethical conduct for all executive branch employees, it is hereby ordered as follows: ‘Part I Principles of Ethical Conduct ….”

12 Government Contractors Defense Federal Acquisition Regulation Supplement, subpart : –Contractors should have: 1.Written code of ethical conduct 2.Ethics training for all employees 3.Periodic reviews of compliance with its ethics code 4.Systems to detect improper conduct 5.Processes to ensure corrective action is taken

13 Boeing, USAF Case Study: A Violation of Ethics Laws Darleen Druyan –Second most senior U. S. Air Force procurement official –Leveraged negotiations for a $20 Billion Contract with Boeing for her employment at Boeing –Sentenced: Nine months in prison, $5,000 fine and 150 hours of community service; illegal conflict of interest.

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15 United States of America v. Darleen A. Druyan Criminal Case No A, Supplemental Statement of Facts: –“The defendant [Darleen Druyan], since July 28,2004, now acknowledges that she did favor the Boeing Company in certain negotiations as a result of her employment negotiations and other favors provided by Boeing to the defendant.”

16 Boeing, USAF Case Study: A Violation of Ethics Laws Michael Sears, Boeing Aerospace, Chief Financial Officer –Sentenced to four months in prison Sears met with Darlene Druyan to discuss employment opportunity during Contract negotiations –Advised Boeing Sr. Officers in “Had a non-meeting [with Darlene]” Court Documents state Boeing Sr. Mgt’. “did not confront the obvious legal and ethical issues presented in the employment negotiations.” Congress cancelled the $20 Billion Contract Award

17 Elements of an Ethical Organization Lessons from the Druyan / Boeing scenario: An ethical organization: –Does more than merely avoid illegal practices –Fosters and encourages exemplary conduct “Sunlight is the best disinfectant”

18 The Milgram Experiment

19 The Milgram Experiment Yale Univ. research from –Psychology experiment investigating “memory and learning” –The “teacher” is instructed to read a list of two- word pairs and ask the “learner” to read them back –If the answer is incorrect, the “teacher is supposed to “shock” the “learner” with 15 volts –The “learner” is an actor –Generator “labeled” to 450 volts

20 A Case Study: “Bay of Pigs” Case Study –Failed military plan –Publicly acknowledged –President Kennedy took full responsibility –Per Gallup poll, Kennedy's popularity went up

21 Ethics in Business Code of Ethics and Business Conduct –Symbolizes an organization’s regard for adherence to a prescribed code of business ethics Compliance and Ethics Helpline and Website –An avenue to report concerns relating to: Conflicts of Interest Unauthorized use of Confidential Information Violations of Commercial or Government Contracting Any activities that may violate the Code of Conduct

22 Ethics at Acme, Inc. Code of Ethics and Business Conduct –Financial Integrity: “Accurate and reliable financial and business records are of critical importance in meeting Acme’s financial, legal, and business obligations. No false entries shall be made on the books or records for any reason.”

23 Ethics at Acme, Inc. Ethics challenges for Contracts Professionals: –Requested to sign documents on customer’s behalf: “We have an stating that they’ll sign the contract, isn’t that sufficient?” –Advised to disregard corporate / business policy –Prompted to “be creative” to expedite contract completion (implying to bypass approved processes )

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25 Ethics Issues to Consider Not merely common sense –“Common Sense is not too common,” Voltaire The “New York Times Test” –Presume that the action and associated communications will be reported on the front page of the New York Times “Unethical Behavior, Stress Appear Linked” –Emotionally healthy executives tend to score higher on ethics tests; Wall Street Journal, April 1991

26 A Q & Q U E S T I O N S A N S W E R S