By CRAYTON HARRISON Technology Writer
Publshed: March 17, 2006
Reprinted with permission of The Dallas Morning News.
There are two ways to look at Affiliated Computer Services Inc.’s legal woes.
On the one hand, the bribery allegations in Canada and a recent Securities and Exchange Commission inquiry would seem to suggest that the Dallas company can’t stay out of trouble.
But ACS chief executive Mark King says it’s important to put things in perspective.
The company handles tens of thousands of contracts and has 55,000 employees, and it has experienced legal troubles on only a handful of deals.
“It’s frustrating,” Mr. King said. “We have zero tolerance as it relates to unethical behavior by employees. But sometimes it happens in organizations.”
ACS, which counts Dallas’ city government as a client, gives its workers ethics training.
But in a competitive industry involving money and politics, even the best ethical policies can’t weed out every bad seed, management experts said.
“You can’t regulate knuckleheaded behavior,” said Greg Bustin, a Dallas business consultant. “It’s hard when you’ve got thousands of employees working for you.”
ACS’ latest headache arose last week, when the company announced that the SEC had launched an informal inquiry into ACS stock option grants.
ACS didn’t provide more information but said that the inquiry did not imply that the SEC suspected any illegal action.
The company is also defending itself against Canadian charges that it gave “secret commissions” to two Alberta police officers.
ACS believes there is no truth to the bribery allegations against the company, spokeswoman Lesley Pool said.
However, the company did fire some employees after an internal investigation revealed other inappropriate behavior.
Those are only the latest cases ACS has faced.
State and local investigators in Florida looked into the company’s contracts to operate workforce services in several counties, and a state agency said in 2004 that the company had overbilled some counties.
Most of those problems have been resolved, Ms. Pool said.
That same year, a New York ACS executive was sentenced to 37 months in prison in an overbilling scheme. The executive resigned after ACS discovered the fraud, the company said.
The legal issues haven’t seemed to hurt ACS’ financial performance.
Its stock is up about 7 percent this year, and in December it completed its highest-ever total for quarterly contract bookings.
But the bad press does take its toll, Mr. King said.
“We would certainly want to do everything we can to not have stories like that,” he said.
And when long investigations turn up little or no wrongdoing on the part of the company, “you never hear about how we’ve been exonerated,” he said.
Fierce competition
Roughly half of ACS’ more than $4 billion in annual revenue comes from local government clients, with the rest coming from the corporate world.
Competition to run technology for local governments is fierce because only a few companies specialize in the work.
With millions of dollars at stake and local politics in play, ethical problems - and negative headlines - occasionally surface.
“By being in the state and local business, we’re going to have stories like this,” Mr. King said. “It’s the nature of the beast.”
And ACS hasn’t become one of the industry’s top companies by playing nice. It’s known as one of the most competitive firms in the business.
Darwin Deason founded ACS in 1988 after Electronic Data Systems Corp. bought MTech, the computer services firm he previously ran.
The business titan, who used to refer to himself as “Mr. Hustle,” disagreed strongly with the sale and set to work building a new company from scratch.
By the late 1990s, he was encouraging ACS executives to wear baseball caps that said “1B X 2K,” his slogan for the goal of $1 billion in annual sales by the year 2000.
When ACS reached the goal early, Mr. Deason had “2B X 2K” hats made.
Mr. Deason turned over the job of chief executive to Jeff Rich in 1999, and Mr. Deason’s longtime associate Mark King took over the post last year.
Mr. Deason remains chairman, and his competitive spirit continues to guide the company.
Such high-growth companies can put pressure on employees to cut corners, management experts said. Executives must make it clear that they place a higher priority on appropriate behavior than they do on sales, they said.
“That culture is set by leadership,” Mr. Bustin said.
Some companies have ethics rules in writing, but the unspoken attitude toward ethics is “a kind of a nod and a wink - do what it takes to get a contract,” he said.
Mr. Deason has always behaved ethically and encouraged others to do the right thing, Mr. King said.
“Does he have a hustle mentality? Absolutely. Is he hard-charging? Absolutely,” he said. “Is he an ethical businessman? Absolutely.”
Ethics efforts
ACS began a series of ethics initiatives in 2001. Employees are required to take ethics training courses, and the company has a hotline where employees can report bad behavior. Managers have to take additional ethics courses.
Is there more that companies like ACS could do to prevent ethics problems?
Maybe, management experts say.
In addition to firing employees who break the rules, companies should make examples of workers who make the right decisions in tough situations, Mr. Bustin said.
“You have to make it acceptable for people to push back, acceptable for them to walk away from deals” that violate the company’s principles, he said.
Companies can also do a better job of screening potential employees - or potential acquisitions - to make sure they’re not bringing unreliable people on board, said Michael O’Connor, founder of consulting firm Life Associates Inc.
“You’ve got to look at the values of the organization you’re looking at buying, acquiring or merging with as well as the leaders of that organization,” he said.
Copyright 2008 by Greg Bustin & Co., unless otherwise specified. All Rights Reserved.
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