Patrick Gnazzo on United Technologies, Computer Associates and His Mom Asking Him Whether He Was a Crook
25 Corporate Crime Reporter 30, July 25, 2011

It was the era of waste, fraud and abuse.

Patrick Gnazzo was working at United Technologies.

Ronald Reagan was President.

Stories were in the paper about the Pentagon buying $7,000 coffee makers, $500 hammers, and $700 toilet seats.

“I was born and raised in Pittsburgh,” Gnazzo told Corporate Crime Reporter last week. “And my mother called me one day while I was at United Technologies Corporation and asked me if I was a crook. In her mind, and in everyone’s mind in the country, anybody who worked with the defense industry was cheating the American taxpayers.”

To stem the tide, the CEOs from the top 30 defense contractors got together and formed the Defense Industry Initiative.

They agreed that they would investigate any report of waste, fraud or abuse and report their findings to the Defense Department.

Gnazzo at the time was working in the general counsel’s office at United Technologies.

And he urged the executives not to join the Defense Industry Initiative.

“But part of the DII program was that the corporations were supposed to make voluntary disclosures whenever they found something that was wrong,” Gnazzo said.

“From a lawyer’s perspective, making voluntary disclosures meant giving up your right not to self incriminate.”

“So, from a lawyer’s perspective I was giving advice to my corporation saying – why would give up that right without even knowing what the problem was within the company?”

“You are in effect saying – from this point forward, every time you see a problem where somebody might be cheating the defense industry, we are going to do an investigation and then report it to the Defense Department.”

“In effect, we were giving up a constitutional right. And so my recommendation was not to join the Defense Industry Initiative.”

“But the CEOs were smart enough to say – this is our customer. And the customer was extremely important to the company. And they all agreed to do exactly that – give up their constitutional right not to incriminate themselves.”

Gnazzo now advocates for a separate office of the chief ethics and compliance officer – outside of the general counsel’s office.

“As a lawyer, my job is to do everything I possibly can to protect my client,” Gnazzo explains. “A general counsel should make sure that their client is doing the right thing. But they also have a responsibility to use whatever means they have within the law to protect their client. And one of those means is to not self-incriminate.”

“Unless it is to your advantage, why would you go ahead and report yourself? Fix the problem internally. But why self-report?”

“The lawyer’s role is to protect the corporation.”

“My role as a compliance officer is also to protect the corporation. But I come at it from a different perspective. I’m asking employees to come forward and report.”

“But from a lawyer’s perspective, in effect what you are doing is asking them to come forward and tell the lawyer about problems which just generate the kind of legal activity you don’t want.”

“We are not just talking about fraud and illegal activity. We are talking about things like patent infringement. Lawyers would prefer that people don’t come forward and say – we have a problem. If the problem comes forward, they have to deal with it.”

“From a compliance perspective, the chief compliance officer wants to know if there is something that is going on that needs to be fixed. And that’s why he wants a culture of open communication. You are telling your employees – feel comfortable about coming forward. We are not going to shut you down. We are not going to shut you up. And there is not going to be any kind of retaliatory action. We want to know if there is a problem and we want to fix it.”

“That is the role of a compliance officer.”

After leaving United Technologies, Gnazzo went on to become the chief ethics and compliance officer at Computer Associates.

That office was set up as a condition of CA’s deferred prosecution agreement.

Gnazzo is not happy that the office was broken up when CA got out from under that agreement.

“Am I going to say that move is going to cause them a problem?” Gnazzo asks. “No. But it does dilute the organization and it does dilute the power of the organization when it is spread to two or three or four different people to have that kind of responsibility.”

“You want a full time chief ethics and compliance officer with a staff that is able to maintain these kinds of programs and do the kinds of investigations that need to be done. But if you move the investigations under the legal department, they have a conflict. And that is part of the problem.”

The best set up a corporation can have is a strong ethics and compliance office and a strong ombudsman’s office.

Gnazzo related a story as to how it worked at United Technologies.

“This is a true story with United Technologies Corporation,” Gnazzo said. “The company had an ombuds program. And the ombuds person is a neutral. That is someone the employees can feel comfortable about going to, telling their problems to. And the neutral protects the employee’s identity.”

“In this particular instance, an administrative assistant called on the anonymous hotline and said – my boss is cheating the company. But if I tell you, I’m going to be fired, because I’m the only one who knows. He’s going to know I did it. And my career is done within the company.”

“And the ombudsman came to me and said – here’s the problem Pat. This individual wants to do the right thing. This individual wants to tell us who is doing this. But this individual is fearful for their career. I suggested that I set up a time to call back. And I explained to this person that if they told me who it was, and what they were doing, I would call for an audit of all of the vice presidents within that particular organization on their expense reports over a six month period. We would catch that particular individual and anything else that might come up.”

“That made the individual comfortable. And that is exactly what we did. We found that person and we found a couple of others that were cheating the company.”

“The company did the right thing by firing those individuals. The administrative assistant’s name never came up. And her career went on and she was never impacted.”

[For the complete transcript of the Interview with Patrick Gnazzo, see 25 Corporate Crime Reporter 30(12), July 25, 2011, print edition only.]



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