Autonomy of Teledyne Divisions Questioned : Some Industry Experts Say Indictment May Indicate Inadequate Control of Firm’s Units

Ever since wealthy scientist Henry E. Singleton founded Teledyne in 1960, he has allowed the Los Angeles firm’s far-flung divisions to operate with virtual autonomy from corporate headquarters in Century City.

On Friday, one of those far-flung units--the Teledyne Electronics division in Newbury Park--was indicted on bribery of a government official and other charges. In addition, three Teledyne vice presidents were indicted on conspiracy, bribery and other charges. A former Teledyne employee also pleaded guilty to bribery.

Teledyne and its vice presidents were quick to deny the charges on Friday and vowed a strong defense. But, meanwhile, industry experts suggested that the indictment and guilty plea may signal that one of these business units may have become more independent than executives at Century City had realized.

$1.3 Billion in Sales to U.S.

With sales of $3.2 billion in 1987, Teledyne makes thousands of products ranging from electric toothbrushes to drone jets. It sold $1.3-billion worth of goods to the Pentagon and other U.S. agencies in 1987.

Although Teledyne’s decentralized system has won praise from admirers in the investment community, they also wondered whether such autonomy may have left Teledyne without proper controls to prevent activities such as those spelled out in the charges.

Singleton, 71, was reached by telephone at his Century City office but declined politely to answer any questions about the indictment and referred them to company spokesman Berkley Baker.

Baker was quick to defend Teledyne and its procedures. “We feel that we have good controls in place,” he said. “If people would abide by the rules we have in place, these problems wouldn’t occur.”

Ranking as the nation’s 41st-largest defense firm, Teledyne is far from the ranks of the major prime contractors that build multibillion-dollar systems. But it has a reputation of effectively finding profitable niches and protecting them from undesired competition, a former high-ranking Navy official said.

‘Bound to Have Problems’

“They are considered the masters of the niche market,” the former admiral said. “When you have so many divisions all presenting a different face to the Navy, it is like feudal barons. Sooner or later, you are bound to have problems with one of them.”

Others familiar with the company describe it internally as a cutthroat environment. Though divisions are granted autonomy, they are constantly being evaluated for their performance by corporate financial executives. “It is a pretty tough place to survive,” one source said.

Teledyne said the electronics division in Newbury Park contributes less than 2% of the firm’s sales and has about 500 of the firm’s 44,000 employees. Its principal products are identification systems that tell military aircraft and ships whether targets are friends or foes.

The indictment accuses Teledyne and Vice Presidents George Kaub, Eugene Sullivan and Dale Schnittjer of a scheme to obtain a Navy contract for electronic test equipment by paying $160,000 to an industry consultant who then bribed a Navy official.

Guilty Plea to Bribery Count

In addition to the three accused vice presidents, former Teledyne marketing representative Michael Savaides in suburban Washington pleaded guilty to a single count of bribery of a public official.

Teledyne reacted sharply Friday, saying it “will defend itself against the charges and expects to be acquitted.” The firm also said it expects the three vice presidents to be acquitted and will support their defense.

“Teledyne believes that Teledyne Electronics and its employees have not been engaged in criminal conduct and that the charges unfairly attempt to implicate them in actions that may have been taken by others,” the company said.

Even if Teledyne avoids a conviction on the charges, the allegations in the federal indictment are likely to cause some internal reassessment of its corporate policies.

The very name of the corporation, which is a Greek word meaning “force applied at a distance,” reflects Singleton’s decentralized management style. For example, the company has a corporate staff of only 150 to manage its 44,000 employees around the world.

Some Procedures Changed

The company started an internal investigation last year and some company procedures have already been changed, but Baker declined to discuss any specific changes that have occurred. He said, however, that Savaides was fired from his Teledyne job in November.

“The worst that you could accuse Teledyne of was improper controls or bad management,” said Laurence W. Lytton, an analyst at Drexel Burnham Lambert. “But I don’t think you could accuse them for the actions of an individual.”

Robert Hanisee, an analyst at Amdec Securities, said that the indictment will certainly be a major embarrassment to senior management but that the decentralized management system is likely to remain intact.

“It happens in companies that are highly structured and controlled,” he said. “It is people who cause these problems.”

The allegations have focused a bright spotlight on Teledyne, which normally goes to great lengths to avoid attention of any sort, even from Wall Street investors. Singleton, who has been chairman of Teledyne since he founded it, routinely declines to do interviews with the press.

Little Attention Paid

The company is so stingy with information it discloses to the investment community that only two securities analysts at major brokerages even pay close attention to the company.

“They could care less if anybody follows them,” Lytton said.

Lytton predicted that the indictment is unlikely to have any lasting negative effect on the company. Indeed, Teledyne stock jumped 87.5 cents per share in trading on the New York Stock Exchange on Friday and closed at $335.50.

“In some respects, bribery is better from a corporate standpoint,” Lytton said, suggesting that it may be easier to explain than “esoteric allegations like controls and reporting issues. It would seem to be a matter of an individual straying off the path.”