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INTRODUCTION
Among the numerous scandals capturing newspaper headlines in the last decade were the procurement and overbilling charges levied against the defense industry. Tales of $600 toilet seats and $400 hammers focused the nation's attention on some of the seemingly more blatant injustices. To address these concerns, President Reagan in 1986 created a commission to provide recommendations to combat this rampant fraud occurring between defense contractors and the Defense Department. Headed by Dave Packard of Hewlett-Packard, one of the Packard Commission's major recommendation was the implementation of ethics programs.(1) The Packard Commission recognized tile limits of federal regulation and suggested that effective self-governance might help curb industry conduct (1990 Annual Report, p. 2). Defense contractors were asked to choose to participate voluntarily in what came to be known as the Defense Industry Initiative (DII), with the DII itself drafted by representatives of eighteen defense contractors. The DII's principles (see below) were intended (1) to promote sound management practices, (2) to ensure that companies were in compliance with complex regulations, and (3) to restore public confidence (1990 Annual Report, p. 3). By 1990, fifty-five defense contractors had become signatory companies and effectively made this the first industry-wide effort to formally incorporate ethics in daily business activities.(2) Many of the activities emerging because of this document are noteworthy, while others lack visible effectiveness.
Couched in theories and research in self-regulation and codes of ethics, this paper examines the DII, including those activities which have emerged as a result. More specifically, this paper explores the implications the DII has had with respect to (1) pursuing intra-industry cooperation and setting industry-wide ethical standards; (2) monitoring compliance; (3) the paradox inherent in the DII as a facilitator of industry self-regulation; and, (4) why companies have enthusiastically adopted the directive.
PURSUING INTRA-INDUSTRY COOPERATION AND SETTING INDUSTRY-WIDE STANDARDS
Industry "self-regulation exists when industry members jointly pursue regulatory or standard-setting activities, in the absence of explicit legal requirements" (Garvin, 1983, p. 37). Such regulatory efforts cat, only successfully occur if all the firms in the industry agree to cooperate with one another (Gutpa and Lad, 1983, p. 417). In other words, successful self-regulatory efforts require: (1) intra-industry cooperation and (2) industry-wide standards of conduct. Each of these is discussed in turn.
The DII...