MARCH 1991 - VOLUME 12 - NUMBER 3
C O R P O R A T E P R O F I L E
MARCH 1991 - VOLUME 12 - NUMBER 3
C O R P O R A T E P R O F I L E
The "Patriots" at Raytheonby Jim DonahueRaytheon Corporation has recently become known throughout the United States as an outstanding defender of democracy thanks to its Patriot missile, which has attracted so much media attention for its role in the Persian Gulf War. In one of the corporation's many recent public relations coups, President George Bush travelled in February to Raytheon's Patriot manufacturing plant in Andover, Massachusetts to thank his "friend," retiring Raytheon chairman Tom Phillips, and a large crowd of flag-waving workers for building what Bush called the "Scud Busters," a "triumph of American technology." Bush's accolades and the pictures of the cheering Raytheon family helped obscure the defense manufacturer's real record. The company has been stingy and coercive with its workers and has repeatedly attempted to defraud the federal government, which gives it about half of its business. Even the excitement about the Patriot's success against Iraq's Scud missiles is somewhat misplaced. Military analysts say the Patriot's removal of the Scud as a military factor in the war is not an adequate test of its capability against the more powerfully destructive and modern Soviet missile arsenal for which the Patriot was originally designed. Greg Williams of the Washington, D.C.-based Project on Military Procurement describes the more modern Soviet re-entry vehicle as "ten times as fast and one-tenth as large" as the "large, slow-moving" Scud missile. In the mid-1980s, in fact, Congress almost cancelled funding of the Patriot because of its high cost (each Patriot missile costs $1.1 million) and because it was thought to be inaccurate against the latest Soviet aircraft and missiles such as the SS-20. Nevertheless, Raytheon and the Bush administration have been quick to hype the Patriot as a great success story in order to build support for continued government expenditures on high-tech weaponry and to certify that the world's largest peacetime military buildup was not in vain. For example, after citing the success of the Patriot in his State of the Union address, President Bush re-affirmed his commitment to the costly Strategic Defense Initiative. Similarly, Raytheon spokesperson Ed Powers told Multinational Monitor that the Patriot's performance proves that "high-tech electronics is a cost-effective way" to defend the United States. The war machine Raytheon, the fourth largest U.S. defense contractor, has come a long way since its founding in 1922, when its primary product was the radio vacuum tube. Like the war with Iraq, World War II was good for the company, which became the leading manufacturer of radar systems and eventually established the field of missile guidance systems. Raytheon is currently the leading Western manufacturer of surface-to-air missiles and a key supplier of radar systems to the Navy. The Patriot accounted for 15 percent of Raytheon's 1990 sales of $9.3 billion. Its missile systems division is Raytheon's largest and, in addition to the Patriot, manufactures the Hawk and Stinger surface-to-air missiles, the Sidewinder and Phoenix air-to-air missiles and the Maverick air-to-ground missile. In the mid-1960s, 83 percent of Raytheon's business was with the government. During the late 1960s and 1970s, however, Raytheon began diversifying from its defense base into other fields such as publishing, home appliances and energy. It soon became a pioneer in non-defense related products; the corporation invented the microwave oven and manufactured the first electronic depth sounder. In 1990, only about half of Raytheon's sales came from its business with the Pentagon, with its civilian aircraft and energy divisions performing especially well. The company's aircraft division, which includes Beech Aircraft, reported 1990 pre-tax profits of $80 million, an 82 percent increase from 1989. Raytheon's energy services division, which includes United Engineers & Constructors, one of the largest engineering and construction companies in the United States, reported pre-tax profits of $49 million, an increase of 58 percent The energy division also includes Seismograph Service Corp., which has formed a joint venture with the Soviet Union to explore for oil and natural gas. Raytheon's appliances division, which includes the famous Amana Company, reported a deficit of $8 million for 1990, largely the result of a plant closing in Topton, PA by its Caloric Co., a maker of gas and electric ovens. The division also includes Speed Queen, a laundry equipment manufacturer. Working over the workers Raytheon is the second largest employer in its home state of Massachusetts, where 31,000 of its 70,000 workers reside. Raytheon's Massachusetts workers are represented by three unions: the International Brotherhood of Electrical Workers (IBEW), the International Association of Machinists (IAM) and the Raytheon Guards Association. The IBEW represents about 10,500 Raytheon workers in Massachusetts while the LAM union has about 300 members and the Guards about 100. Although Raytheon has enjoyed six consecutive years of record profits, it has successfully foisted a portion of health insurance costs onto its workers. In 1989, the IBEW agreed to a two-year concessionary contract which requires workers to pay a half percentage of their wages for an individual health plan or one percent of their wages for a family health plan. Today, all Raytheon employees pay a part of their health insurance. Ed Powers says employee contributions to the health plan are justified, regardless of the corporation's record earnings, because health costs "have been rising dramatically." In 1988, Raytheon refused to recognize democratically elected unions at its plants in Manchester and Pelham, New Hampshire, where non-union guards voted to join the Raytheon Guards Association. Raytheon disputed the certification of the election by the National Labor Relations Board (NLRB) on a frivolous charge that the certification was "improper." In November 1990, the U.S. Court of Appeals for the First Circuit upheld an NLRB ruling that found Raytheon in violation of U.S. Labor law. The court forced Raytheon to bargain with the guards' elected union. In 1987, California's Fair Employment and Housing Commission found Raytheon's Goleta, CA plant guilty of illegal discrimination for firing an employee who had AIDS. Although a doctor told Raytheon the employee could return to work without posing a risk to other employees, corporation managers feared that coworkers would "catch" the AIDS virus. The Commission ordered the corporation to rehire the employee and pay him $6,000 in back wages. The Commission's ruling came too late, however, since by this time the employee was dead. Criminal defense Though it has been widely heralded for its "Patriot" missile, Raytheon's criminal record of defrauding the government raises questions about the company's own patriotism. In March 1990, Raytheon pleaded guilty in a U.S. District Court in Virginia to one felony count of illegally obtaining secret Air Force budget and planning documents. U.S. District Judge Albert V. Bryan,Jr. imposed a $10,000 criminal fine for one felony count of "conveyance without authority" and $900,000 in civil penalties and damages. The case may have barely touched the surface of Raytheon's wrongful behavior. Although the plea only involved 1983 Air Force documents, U.S. Attorney Henry Hudson said Raytheon also illegally obtained a wide range of secret Pentagon documents from 1978 to 1985. The documents gave Raytheon an unfair edge against its competitors in bidding for defense contracts. Ironically, only months before its guilty plea, Raytheon's publishing company, D.C. Heath & Co., the sixth largest publisher of school textbooks in the United States, published the "Defense Procurement Mess" by William Gregory. The essay argues that defense contractor crime and indiscretion is the result of excessive government regulation and oversight, not corporate greed. Raytheon has been embroiled in other defense-related litigation. Roland LeBlanc, a former government quality assurance specialist for the Defense Contract Administrative Service (DCAS), is suing Raytheon, alleging the corporation defrauded the Pentagon. The suit was filed under the 1986 False Claims Act Amendments, a law that allows private citizens to file lawsuits against, and to share in the damages collected from, corporations which cheat or steal from the government. Unfortunately, it is possible that no court will ever hear LeBlanc's allegations. In February 1991, the U.S. Court of Appeals for the First Circuit ruled that because LeBlanc allegedly uncovered fraud through the course of his employment with the government, it is the government that must file suit against Raytheon, not LeBlanc. But the government has resisted LeBlanc's attempts to have it pursue the case; long before he filed the suit, LeBlanc confronted his superiors with the alleged fraud, and they took no action. LeBlanc has petitioned the Supreme Court to decide whether the 1986 False Claims Act Amendments preclude present or former employees from prosecuting corporations based on information gained through government employment. The federal government did join an earlier suit against Raytheon initiated by a private citizen, however. In October 1987, the Justice Department signed on to a $36 million suit which alleged that Raytheon submitted false claims for work done on missiles. Originally filed by Karel Schwarzkopf, a former Raytheon employee, the suit alleged that, from 1979 to 1983, Raytheon overcharged the government, diverted materials and submitted bills for repair work never done. The Justice Department eventually closed the case, citing a lack of evidence. However, the real reason the government dropped the case, according to John Phillips, a Los Angeles attorney who represented Schwarzkopf until the government took over, was that it "decided basically that it was just too much effort [to prosecute Raytheon] for the dollars at stake." Although he concedes that some of the allegations in the suit "turned out not to be accurate," he says that the main problem was that the more promising allegations involved cost-accounting methods and became "extremely labor-intensive" to prosecute, requiring "a tremendous amount of review of time sheets" and other documents. "Patriots" won't be enough Despite the war with Iraq, the immense size of the Reagan military buildup and the end of the Cold War are likely to result in the flattening of defense spending in coming years, with perhaps an eventual decline. Consequently, defense contractors with reduced dependency on government defense spending will be in the best position to survive the end of the Cold War. Raytheon has steadily reduced its reliance on military spending, but it still derives over half of its sales from the Pentagon. For the company to continue to grow and profit, squeezing its workers and defrauding the Pentagon will not be enough; Raytheon will need to diversify its business far more than it has.
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