166. "Shady Corporate Practices" The New York Times (November 15, 1985). Reprinted in Buffalo News (NY), November 18, 1985; The Plain Dealer (OH), November 18, 1985; Houston Chronicle (TX), November 25, 1985.


Do recent reports of check-kiting (E.F. Hutton), overcharging on defense contracts (General Dynamics), failing to inform authorities of deaths to patients who took Oraflex (Eli Lilly) and employee deaths from cyanide poisoning (Film Recovery Systems) involve only a few rotten apples, or is the corporate core corrupt?

The conventional wisdom is that these are isolated incidents. But my own survey suggests that roughly two-thirds of our 500 largest corporations have been involved to some extent in illegal behavior over the last 10 years. And once the public realizes the true scope of the problem, demands for a large-scale clean-up campaign, involving stricter enforcement and higher penalties, are sure to follow.

The survey, which focused on Fortune magazine’s 1984 list of America’s largest 50 0industrial corporations, drew exclusively from the public record: court cases, rulings by regulatory agencies, determinations by the Energy Department and Defense Department, and documents issued by the corporations themselves.

Between 1975 and 1984, 62 percent of the 50 corporations were involved in one or more illegal incidents, 42 percent, in two or more; 15 percent, in five or more. The episodes included, among others, price-fixing and overcharging, domestic and foreign bribes, fraud and deception (for example, falsification of tax records to conceal political contributions and deceptive bookkeeping) and patent infringements. One might have expected the largest corporations, those that regard themselves as pillars of American society, to display greater caution. But the survey showed that the top 100 corporations were involved in more incidents (55 percent) than all the others combined.

One reason for this sad state of affairs is that the companies have so little to fear. If and when they are caught, penalties are often puny compared to their total income: a $25,000 fine, for example, for a corporation whose annual revenue runs into billions. In 43 percent of the incidents studied, one of two things happened: Either no penalty was imposed, or the company was merely enjoined from engaging further in the illegal practice and required to make amends by, for example, returning funds gained through overcharging.

The current political climate also encourages shady practices. The White House, the Congress and public opinion all strongly support the private sector. There’s noting wrong with that; what is wrong is that the regulatory agencies charged with overseeing business ethics have become increasingly supine.

Not all businessmen believe that they must engage in shoddy practices “because our competitors do” - a common argument used to defend overseas bribes and the lavish entertainment and fees provided to members of Congress for so-called lectures. Some businesses have internal prohibitions against such practices and see them as morally unacceptable, whatever the climate. But there are many who regard the bottom line as supreme and have few compunctions about the methods they use to enhance it.

The damage cannot be measured in dollars and cents alone. Drugs remain on shelves even after it is established that they cause serious illness; toxic wastes are allowed to seep into ground water or dumped at night at the roadside; mercury vats are kept on the market even after they have caused numerous injuries.

To be sure, corruption exists in other areas of our society, and on the whole we are cleaner than many other countries. But clearly our corporations are playing with fire.

Indeed, according to one survey in 1983, a majority of retired executives conceded that “industry cannot regulate itself” and that Government regulation is required. Ultimately, no part of the community, even one as powerful as our top corporations, can do business without public trust and acceptance. Nobody is expecting the corporations to lead a life of untarnished virtue, but if they will not put their own house in order, at least to avoid significantly increasing risks to life and limb, a public and regulatory backlash is sure to follow.

 

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