Northrop’s Top Officers Reprimanded by Board : House Panel Told CEO Thomas Jones Was Among Those Rebuked for Roles in Payments to S. Koreans

Northrop Chief Executive Thomas V. Jones and other top corporate officers have been reprimanded by the company’s directors for their roles in paying $6.25 million to South Koreans in a deal under investigation as possible foreign bribery, according to congressional testimony Wednesday.

In a six-hour hearing by a House of Representatives subcommittee, Northrop director O. Meredith Wilson testified that the aerospace firm’s top management had misinformed or failed to inform the board concerning several important aspects of the Korean deal during two board meetings in 1984.

Northrop management had exercised “bad business practices” and had displayed inadequate “corporate sagacity,” Wilson said at the hearing before the Energy and Commerce Committee’s subcommittee on oversight and investigation.

The problems to which Wilson referred apparently included personal assurances to directors by Jones, who is also chairman of the board, that the South Koreans involved in the deal could be trusted. But only weeks after Northrop paid the $6.25 million, the money disappeared. Wilson said Jones’ apparent trust in the Koreans was “misplaced,” even though the board felt that Jones did make some type of inquiry into the reputation of the Koreans.

Heightened Interest

Asked repeatedly if he could assure the subcommittee that the $6.25 million was not intended or used for lobbying and or political payoffs, Wilson finally acknowledged that it would be “imprudent to assure that under oath” and that the board is still investigating the matter.

The hearing, rather than resolving the growing controversy over Northrop’s foreign deals, heightened the panel’s interest in further investigation. “I anticipate additional subpoenas and more testimony,” said Rep. Thomas J. Bliley Jr. (R-Va.).

Wilson declined to say during the open hearing specifically what action had been taken against Jones and the other company executives, except to say that some had their salaries or bonuses reduced. After the hearing, he made a confidential statement to the panel.

In addition, a number of top executives have relinquished their titles or abruptly retired during an internal investigation of the Korean deals. They include former Chief Financial Officer William McGagh, former Executive Vice President Welko E. Gasich, Vice President James Dorsey and several other officials.

Many Findings Confirmed

Wilson, who is chairman of the Northrop board’s executive committee, also refused to provide the House subcommittee with a report on an internal investigation conducted for the executive committee by the Cleveland-based law firm of Jones, Day, Reavis & Pogue. Although Rep. Ron Wyden (D-Ore.) told him that he “may be found in contempt of this committee,” Wilson said he was acting with the unanimous consent of Northrop’s outside directors.

Nonetheless, Wilson confirmed many of the findings of the executive committee, which has been investigating the Korean deals for several months.

Northrop agreed to invest $6.25 million in a joint venture with a South Korean partner to construct a hotel in Seoul, ostensibly to help South Korea finance purchase of Northrop F-20 jet fighter planes. It also paid $1.5 million to a Korean company to terminate a sales commission agreement involving the planes, even though the company had earned no commissions.

The hotel was never built, the money is unaccounted for and Northrop never sold any F-20 jet fighter planes.

Summarizing the findings of the subcommittee’s investigation, staff member Bruce Chafin said the Korean payments were actually made “for something other than the construction of a hotel. We believe that the elementary financial mistakes of Northrop officials represented an effort to put them in a position of having plausible deniability regarding what really happened to those funds.” The deals are also under investigation by a federal grand jury in Los Angeles for possible violations of the U.S. Foreign Corrupt Practices Act. The Securities and Exchange Commission is also looking into whether the deals violated a consent decree that Northrop signed in 1975 after it had been accused of paying $30 million to foreigners without the financial controls required by securities laws.

House Energy and Commerce Committee Chairman John D. Dingell (D-Mich.) said Wednesday that the current controversy strongly resembles the scandal of 1975.

“Unhappily, Northrop was one of the companies whose conduct led to the passage of the Foreign Corrupt Practices Act in the first place,” Bliley said. After the hearing, he added: “Either these Northrop officials acted with extreme naivete or something much worse.”

Board Not Informed

Wilson acknowledged that Northrop executives did not submit the Korean deal for the board’s approval until July 18, 1984, five days after it had been signed by the executives. The directors were not informed that the deal had already been signed, he said.

When the board members were presented with the deal, they asked that half a dozen concerns be addressed, including that the Korean partners be checked out, that appraisals be conducted on the value of land that the Koreans were contributing to the hotel joint venture and that Northrop share in the control of the joint-venture organization.

But before those concerns had been fully addressed and the board satisfied, Northrop management wired the $6.25 million to its South Korean partners on Aug. 8.

‘Just a Lap Dog’

At the next board meeting, on Sept. 19, board members were assured that all their concerns had been satisfied or would soon be satisfied, Wilson said. The board was not told that the money had been wired and ultimately the concerns were not all satisfied, according to testimony by Chafin of the subcommittee’s investigative staff.

“The board was just a lap dog of management,” subcommittee staff member Peter Stockton said.

The congressional panel was indignant that Jones had refused to appear before the panel, and staff members vowed to subpoena him for a later hearing. In the meantime, they subjected the 79-year-old Wilson to rigorous and prolonged interrogation Wednesday.

“After sitting here listening to your testimony for the last five hours, I get the impression that the (Northrop) management committee should be called the mismanagement committee,” Wyden said.