New Dynamics Chief Pledges Ethical Regime : Says All Will Adhere to Rules or Be Disciplined

Brushing aside any corporate sins of the past, the new chairman of General Dynamics pledged Thursday that all company employees will adhere to strict ethical practices in the future or face tough disciplinary measures.

Chairman Stanley C. Pace, at his first Washington news conference since taking the helm of the beleaguered defense contractor Jan. 1, said he is confident that the company “can perform in the future in a way that will be acceptable to the public and Congress, as well as to the Department of Defense.”

Target of Probes

Pace, 64, president of TRW Inc. until his retirement last May, told reporters that he would resolve all of General Dynamics’ defense contract problems on the basis that “the customer is king--in this case the United States government, which buys 90% of our products.”

Referring to negotiations with the Navy over his firm’s current suspension from further contract awards, Pace said the Navy is “the customer,” and added: “What they want to have done is going to get done.” He declined to be specific.

During the past two years, the St. Louis-based defense firm has been the target of wide-ranging congressional and Pentagon investigations into alleged overpricing of products from nuclear submarines to aircraft spare parts. It has been forced to pay back tens of millions of dollars in improper billings on defense contracts, including improper “overhead” expenses charged to the government, such as country club fees and the kennel boarding of an executive’s dog.

At least five past or present officers of the firm have been indicted on criminal charges, although one of them--former Assistant Navy Secretary George A. Sawyer--recently was acquitted of charges that he improperly dealt with General Dynamics about a job while still working for the Pentagon.

Anti-Aircraft Gun

The four others, including James M. Beggs, head of the National Aeronautics and Space Administration, have yet to stand trial on fraud charges involving a tank-mounted anti-aircraft gun. All four have entered not guilty pleas.

The Navy’s suspension of new contract awards to the company was announced the day after the four were indicted in early December. Beggs has taken a leave of absence from NASA pending disposition of the charges.

Pace, in his hourlong news conference, declined repeatedly to comment on past allegations leveled at General Dynamics.

“I don’t think that would be productive,” he said. “My concentration of time and effort is on the present and future. Our courts are the place to resolve some charges about past conduct.”

Pace, who served six months as vice chairman before replacing David S. Lewis as chairman after Lewis underwent major surgery, said he has given “highest priority to an updated and strengthened ethics program.”

He said written rules are being promulgated “to ensure that all employees understand the vital importance of the highest standards of business conduct and put them into practice.” If any employees are found in violation of ethical rules, it will be “necessary for us to discipline them,” he said.

The board of directors has established a “committee on corporate responsibility,” composed only of outside directors, to oversee the ethics program, he said.

“It is necessary for us to train our people in these rules and regulations better than we have in the past,” Pace said. “Our people are dedicated to the national defense. All they need is some guidance.”

Pace said he is taking “vigorous steps to prevent problems of unallowable billings from occurring again.” These steps, he said, include a new review of spare-parts pricing “to question and reduce any price which is higher than the apparent intrinsic value of the spare part.”

‘Money-Back Guarantee’

Pace said he has recently assured the Pentagon that “if we make a mistake and sell a spare part whose price the government considers out of line with its apparent intrinsic value, we have instituted what amounts to a money-back guarantee.”

He stressed that this policy is designed to apply to future sales. General Dynamics does not intend to review all past sales of spare parts, he said, but will honor any additional past overcharges uncovered by the Pentagon.

Sen. William Proxmire (D-Wis.), who has been chairman of congressional committees inquiring into the practices of General Dynamics, said after Pace’s news conference that the company “has to do two things to earn back its credibility.”

“It has to fully cooperate with the law enforcement agencies and congressional oversight committees,” Proxmire said. “And it must disgorge itself of any money it has taken from the taxpayer through excessive prices and fraud. Only then will it be taken seriously.”