File No. 33-8150.wp
Mr. Chairman and Honorable Commissioners:
As a licensed professional engineer for the last 40 years, I have continuously worked in the trenches of the specific domain of reference. As you know, the proposed "new" standards of professional conduct for attorneys have been an integral part of the code of ethics for professional engineers (PE) for almost a century. We swear foremost to protect the safety, health and welfare of the public. We take an oath to identify those material projects on the road to certain failure, report this determination "up the ladder," and effect a "noisy withdrawal." This PE experience can serve you as a reliable preview of coming attractions.
Regarding the record of important and complex projects in commerce, material violations and breaches of duty are routine and commonplace. No engineer in association with a project significant to the financial health of his corporation could fail to observe the rampant unprofessional conduct that is an intrinsic characteristic of business as usual in inappropriate application. Several billion copies of Dilbert cartoons adorn corporate cubicles worldwide, including those of the SEC, as a testament to this ordinary experience. Since the inevitable outcome of material misconduct is the financial failure of significant projects, they are one and the same thing to the corporate balance sheet.
As corporate malfeasance always leads to failed projects and dramatic cost overruns, the professional engineer is often challenged to meet his personal pledge. Unfortunately, our society makes no distinction between faithful professional service and what it punishes as whistleblowing. Any professional engineer caught in this bind who meets his pledge is going to be severely penalized and the outcome intended by the code of ethics, namely to protect the public, is served in reverse. History is filled with examples.
To avoid the cardinal sin of taking pay for services on a project certain to fail, the PE is required to make this determination in advance on a daily basis. It is a simple matter to determine the potential of project success by evaluating current activities, which is how the PE can unerringly predict project outcomes a necessary condition for him to continue association with the project. This routine assignment of every PE is the basis of all corporate governance and forward-looking strategies. We are, accordingly, puzzled by the great fuss being made over arranging the chairs on the decks of the various corporate governance standards. It is a very simple matter of method and we wonder at all the deliberate ignorance.
The fact of the matter is that status determination and forecasting outcomes, done by auditing ongoing methods (not the books), is a widely held and completely objective skill. The same engineering principles we must learn to obtain license are entirely suitable for the task. The point for protecting stakeholders is that it never has been a problem of detecting malfeasant activity in process before the costly damage is done. For example, every PE knew the Big Dig in Boston was going to be a monumental disaster before the first million was spent. The process put in place at the outset could attain no other outcome.
The issue is, and always has been, what happens next to this forward-looking knowledge. The answer, of course, is nothing much of benefit to the stakeholders. The knowledge of malfeasance, freely available and timely, is captured and held hostage by the system. Senator Edwards knows this. Note well that the clamor by attorneys for the status quo places great emphasis on professional freedom to act as necessary for their clients a freedom denied by the system to the PE whose clients happen, by law, to be all stakeholders.
A professional engineer soon learns, plan A, that taking the "news" of a material project materially failing, "up the ladder," (in the proverbial manner of bringing bad news to the King) has nothing to recommend it. On subsequent occasions, survivors of plan A usually implement plan B, which is to take the facts to the in-house attorney. While this occasion often does provide a temporary emotional release for the truth, the outcome is always the same. Either the matter goes no further or the attorney promptly tells corporate management that a cannon is loose and you get the ax. In several dozen attempts, regarding various huge projects, such as nuclear power plants, for four different corporations over a 50 year career, no instance of appropriate professional response to material misconduct involving billions of dollars of waste was ever attained. The "noisy withdrawal" only served the aims of management to set an example for any other professionals inclined to be diligent in their duty. The PE goes, the attorney stays. Lesson learned.
You already have ample evidence that this proposed rule reaches down to the central principle of corporate governance. The atypical level and intensity of response says it all. Unlike other matters of Sarbanes-Oxley with little impact on performance, the new rule provides an opportunity to make a significant operational difference in the allocation of responsibility for handling corporate malfeasance to stakeholders' benefit. When you level the professional playing field between the engineer and the attorney, you make a viable connection between the identification of important projects running amok and timely remedy a connection that has never before existed.
One critical test of your rule is, if it were in place, would the connection have avoided the ruthless crucifixion of the whistleblowers who predicted the Challenger disaster and, accordingly, spared the lives of the astronauts? If the answer is yes, you can substitute PE/attorney for whistleblower and substitute stakeholder for astronaut and consider the entire problem solved. If the answer is no, change the rule.
There is no need for the Qualified Legal Compliance Committee. It is a trivial matter for the PE to collect ample factual evidence to start the proceeding on an incontrovertible basis. In the typical case, the problem is not to find the evidence but to avoid drowning in it. The rest is now up to the corporate lawyer and the system. If the factually equipped attorney meets resistance up the ladder, no committee will save him from punishment. If the leadership appreciates the professional services, there is nothing the QLCC needs to do. The idea for this organizational appendage itself shows a fear that your rule might backfire on the diligent attorney. PE experience teaches that it will. So what.
You have come to the center of professionalism, the reason Hamurabi formed this social distinction four thousand years ago. You can only let a professional do his duty. He cannot be forced. Like the good PE, the good lawyer will figure out how to cope with the operational reality and keep true to his oath. Professional licenses are awarded to individuals, not organizations. Ethics is an effect, not a cause. Enron showed us in clear terms that there is a difficult and important job to be done to preserve our society. That, exactly, is what professionals are for. Get on with it.
When you protect the corporation from its own self-inflicted project malfeasance, you automatically safeguard the stakeholders. There is no reverse gear to this prime mover of resources. There is no regulation or rule that is going to shield the interests of the stakeholders when the corporation can endlessly mismanage significant projects with impunity. As we joint victims of the 401K carnage know, once the resources have been wasted, the money is gone.
Planned or not, you are currently in the process of deciding your own standard of care in relation to the one now in effect for attorneys that practice before the Commission. You can only raise the bar of professional conduct of an attorney to a level you willingly abide yourself. Are you prepared to take these truths up the ladder, come what may?
W. L. Livingston, P.E.