U.S. Military Contractors Assailed by Admiral Rickover in Parting Speech

Admiral Hyman B. Rickover, habitually described as "the father of the U.S. nuclear navy," attacked the abuses of giant corporations when he addressed the joint economic committee of Congress on January 28, 1982 shortly before retiring as director of the naval nuclear propulsion program.

Following are excerpts from his speech, which focused on what he called "the problems growing out of the increasing power and influence of large corporations in our society:"

. . . If our free enterprise, capitalistic system is to survive, it is incumbent upon corporate executives to exercise greater self-restraint and to accept moral responsibility for their actions, many of which appear to be having a negative influence on our economy and our society.

A preoccupation with the so-called bottom line of profit and loss statements, coupled with a lust for expansion, is creating an environment in which fewer businessmen honor traditional values; where responsibility is increasingly disassociated from the exercise of power; where skill in financial manipulation is valued more than actual knowledge and experience in the business; where attention and effort is directed mostly to short term considerations, regardless of longer range consequences.

Political and economic power is increasingly being concentrated among a few large corporations and their officers - power they can apply against society, government, and individuals. Through their control of vast resources these large corporations have become, in effect, another branch of government. They often exercise the power of government, but without the checks and balances inherent in our democratic system.

With their ability to dispense money, officials of large corporations may often exercise greater power to influence society than elected or appointed government officials - but without assuming any of the responsibilities and without being subject to public scrutiny. . .

. . .If we are ever to get corporations to act as a "responsible individual" to use [President Woodrow] Wilson's phrase, we will need to attach full responsibility to the human beings who speak and act for it.. .However, in today's large corporations, managerial performance too often is measured solely in financial terms. In their world of financial statements, statistical reports, stock certificates, tender offers, press releases, and so on, managers of large corporations often lose sight of the men, materials, machines and customers of the companies they control. Preoccupied with reports and numbers rather than people and things, there is a tendency to oversimplify operating problems and their solutions. Further, by focusing too strongly on so-called bottom line results, corporate officials can generate pressures that cause subordinates to act in ways they would not consider proper in their personal affairs.

Under pressure to meet assigned corporate profit objectives, subordinates sometimes overstep the bounds of propriety - even the law. The corporate officials who generate these pressures, however, are hidden behind the remote corporate screen, and are rarely, if ever, held accountable for the results.

. . . The reason I mention these problems is to question an increasingly popular notion: namely, that the so-called forces of the marketplace are enough to motivate large corporations to act responsibly and exercise self-restraint.

Businessmen regularly complain that overregulation by government inhibits their freedom and accomplishments, yet it is the very acts of some of them that have made the regulation. necessary. Adolf Berle perceptively observed that when business threatens to engulf the state, it forces the state to engulf business.

The notion that we have a self-regulating, free market economy that will itself prompt a high standard of ethical business conduct is not realistic in today's complex society. . .

Often the largest businesses - those least subject to the restraints of free enterprise - are the most outspoken advocates of the capitalist, free enterprise system as an effective safeguard against these excesses. They want the public to believe that they behave in accordance with the free enterprise system, when in fact they escape many restraints of that system. Consistently they lobby against new government regulations. They herald the virtues of competition and the marketplace as if they were small businessmen subject to these forces. Yet at the same time, they lobby for government - that is, taxpayer - assistance in the form of tax loopholes, protected markets, subsidies, guaranteed loans, contract bailouts, and so on.

Admiral Rickover's outspoken comments seemed to have been fueled by his experience in naval procurements. In the same speech before the joint economic committee, Rickover made the following remarks about excessive charges by the armaments industry:

In recent years, several major Navy shipbuilders, when faced with large projected cost overruns, resorted to making large claims against the Navy. These large claims were greatly inflated and based on how much extra the contractor wanted rather than how much he was actually owed. Ignoring their own responsibility for poor contract performance, they generated claims which attributed all the problems to government actions and demanded hundreds of millions of dollars in extra payments - enough to recover all their cost overruns and yield the desired profit.

Sometimes the claims were many times the desired objective so that the company could appear to be accommodating the Navy by settling for a fraction of the claimed amount.

In evaluating these claims I found numerous instances of apparent fraud. I documented these instances in great detail and, in accordance with Navy directives, sent these so-called reports of fraud to my superiors, recommending that they be referred to the Justice Department for investigation. Other Navy officials made similar reports. The Navy, after carefully reviewing these reports, formally referred them , to the Justice Department.

In the 1970's the Navy referred the claims of four large shipbuilders to the Justice Department for investigation. The Justice Department, however, seems incapable of dealing with sophisticated procurement fraud - or perhaps undesirous of doing so. After nearly a decade of work, the status of the Justice Department's record in these cases is as follows:

• Litton was indicted four years ago for fraud, but the Justice Department has taken no action to try the case.

• The Justice Department conducted a lengthy investigation of Lockheed claims but did not issue an indictment. By now, the statute of limitations has expired.

• After investigating General Dynamics for four years, the Department of Justice recently announced they could find no evidence of criminal intent, although the claims were almost five times what the Navy actually owed.

• The Newport News was recently dealt a serious blow when the Justice Department split up the investigating team and assigned the leading investigators other work. This happened shortly after they had reported their findings in the Newport News case and had asked the Department for more help to track down other promising leads., (Newport News is a Virginia-based shipbuilding and dry dock company.)

Rickover went on, in a question and answer session with the legislators, to assert that the world arms race was "illogical" and that nuclear weapons and reactors should be outlawed because of the dangers of radioactivity to the environment.