A JAPANESE BRIBE

In July 1976, Kukeo Tanaka, former prime minister of Japan, was arrested on charges of taking bribes ($ 1.8 million) from Locjheed Aircraft Company to secure the purchase of several Lockheed jets.Tanaka's secretary and serial other government officials were arrested with him.The Japanese public reacted with angry demands for a complete disclosure of Tanaka's dealings. By the end of the year, they had ousted Tanaka's successor, Takeo Miki, who was widely believed to have been trying to conceal Tanaka's actions.

In Holland that same year, Prince Bernhard, husband of Queen Juliana, resigned from 300 hundred positions he held in government, military, and private organizations.The reason : He was alleged to have accepted $ 1.1 million in bribes from Lockheed in connection with the sale of 138 F - 104 Starfighter jets.

In Italy, Giovani Leone, president in 1970, and Aldo Moro and Mariano Rumor, both prime ministers, were accused of accepting bribes from Lockheed in connection with the purchase of $ 100 million worth of aircraft in the late 1960s.All were excluded from government.

Scandinavia, South Africa, Turkey, Greece, and Nigeria were also among the 15 countries in which Lockheed admitted to having handed out payments and at least $ 202 million in commissions since 1970.

Lockheed Aircraft's involvement in the Japanese bribes was revealed to have begun in 1958 when Lockheed and Grumman Aircraft (also an American firm) were competing for a Japanese Air Force jet aircraft contract.According to the testimony of Mr. William Findley, a partner in Arthur Young & Co. (auditors for Lockheed), in 1958 Lockheed engaged the services of Yoshio Kodama, an ultra right - wing war criminal and reputed underworld figure with strong political ties to officials in the ruling Liberal Democratic Party.With Kodama's help, Lockheed secured the Government contract.Seventeen years later, it was revealed that the CIA had been informed at the time (by an American embassy employee) that Lockheed had made several bribes while negotiating the contract.

In 1972, Lockheed again hired Kodama as a consultant to help secure the sale of its aircraft in Japan.Lockheed was desperate to sell planes to any major Japanese airline because it was scrambling to recover from a series of financial disasters. Cost overruns on a government contract had pushed Lockheed to the brink of bankruptcy in 1970.Only through a controversial emergency government loan guarantee of$ 250 million in 1971 did the company narrowly avert disaster.Mr. A. Carl Kotchian, president of Lockheed from 1967 to 1975, was especially anxious to make the sales because the company had been unable to get as many contracts in other parts of the world as it had wanted.

This bleak situation all but dictated a strong push for sales in the biggest untapped market left-Japan.This push, if successful, might well bring in revenues upward of $ 400 million.Such a cash inflow would go a long way towards helping to restore Lockheed's fiscal health, and it would, of course, save the jobs of thousands of firm's employees. (Statement of Carl Kotchian)

Kodama eventually succeeded in engineering a contract for Lockhed with All - Nippon Airways, even beating out McDonnell Douglas, which was actively competing with Lockheed for the same sales.To ensure the sale, Kodama asked for and received from Lockheed about $9 million during the period from 1972 to 1975.Much of money allegedly went to then - prime minister Kukeo Tanaka and other government officials, who were supposed to intercede with All - Nippon Airlines on behalf of Lockheed.

According to Mr. Carl Kotchian, " I knew from the beginning that this money was going to the office of the Prime Minister." He was, however, persuaded that, by paying the money, he was sure to get the contract from All-Nippon Airways.The negotiations eventually netted over $1.3 billion in contracts for Lockheed.

In addition to Kodama, Lockheed had also been advised by Toshiharu Okubo, an official of the private trading company, Marubeni, which acted asLockheed's official representative.Mr. A. Carl Kotchian later defended the payments, which he saw as one of many "Japanese business practices" that he had accepted on the advice of his local consultants.The payments, the company was convinced, were in keeping with local " business practices."

Further, as I've noted, such disbursements did not violate American laws. I should also like to stress that my decision to make such payments stemmed from my judgment that the (contracts) ...... would provided Lockheed workers with jobs and thus redound to the benefit of their dependents, their communities, and stockholders of the corporation.I should like to emphasize that the payments to the so-called " high Japanese government officials" were all requested y Okubo and were not brought up from my side.When he told me " five hundred million yen is necessary for such sales," from a purely ethical and moral standpoint I would have declined such a request.However, in that case, I would most certainly have sacrificed commercial success..... (If) Lockheed had not remained competitive by the rules of the game as then played, we would not have sold (our planes) ......... I knew that if we wanted our product to have a chance to win on its own merits, we had to follow the functioning system.(Statement of A. Carl Kotchian)

In August, 1975, investigations by the U.S. government led Lockheed to admit it had made$ 22 million in secret payoffs.Subsequent senate investigations in February 1976 made Lockheed's involvement with Japanese government officials public.Japan subsequently canceled their billion dollar contract with Lockheed.

In June 1979, Lockheed pleaded guilty to concealing the Japanese bribes from the government by falsely writing them off as "marketing costs".The Internal Revenue Code states, in part." No deduction shall be allowed..... for any payment made, directly or indirectly, to an official or employee of any government .... If the payment constitutes an illegal bribe or kickback.'Lockheed was not charged specifically with bribery because the U.S. law forbidding bribery was not enacted until 1978.Lockheed pleaded guilty to four counts of fraud and four counts of making false statements to the government.Mr. Kotchian was not indicated, but under pressure from the board of directors, he was forced to resign from Lockheed.In Japan, Kodama was arrested along with Tanaka.

Questions :

1. Fully explain the effects that payment like those which Lockheed made to the Japanesehave on the structure of a market.

2. In your view, were Lockheed's payments to the various Japanese parties "bribes" or "extortions" ?Explain your response fully.

3. In your judgment, did Mr. A. Carl Kotchian acts rightly from a moral point of view ?(Your answer should take into account the effects of the payments on the welfare of the societies affected, on the right and duties of the various parties involved, and on the distribution of benefits and burdens among the groups involved.) In your judgment, was Mr. Kotchian morally responsible for his actions ?Was he, in the end, treated fairly ?

4. In its October 27, 1980, issue, Business Week argued that every corporation has a corporate culture - that is, values that set a pattern for its employee's activities, opinions and actions and that are instilled in succeeding generations of employees (pp.148-60) Describe, if you can, the corporate culture of Lockheed and relate that culture to Mr. Kotchian's actions.Describe some strategies for changing that culture in ways that might make foreign payments less likely.