Leo Mackay, former Lieutenant Commander in the Navy turned SVP, Ethics and Enterprise Assurance, is our guest in this episode. Cindy Moehring and Leo Mackay discuss the differences and similarities in ethics and compliance in the Navy vs Corporate America. Leo also shares his thoughts on the changes he sees in the mindsets of young people entering the workforce and how that will change business ethics in the future.
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Episode Transcript:
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0:00:14.5 Cindy Moehring: I have with me today, Leo Mackay, who serves as the senior vice president of ethics and enterprise assurance at Lockheed Martin. Welcome, Leo.
0:00:24.1 Leo Mackay: Morning.
0:00:25.7 Cindy Moehring: Great to see you. Let me just tell everybody a little bit about Leo. He has an incredibly spectacular background, and we're fortunate to have him here with us today. In his current position, Leo reports to Lockheed Martin's chairman, president and CEO. He also reports to the audit committee and to the ethics and sustainability committee of the board. He leads the company's internal audit and ethics and compliance functions, and he oversees Lockheed Martin's sustainability efforts to ensure responsible growth and corporate citizenship. In addition to those big responsibilities, Leo also serves as an independent director on two public company boards, Cognizant Technology Solutions and USAA Federal Savings Bank. Leo has had a really exceptional career, began with service to our country in the US Navy for 12 years. Go Navy! Have to throw that in there 'cause I've got kids there, too. [chuckle]
0:01:18.2 Leo Mackay: Absolutely.
0:01:20.8 Cindy Moehring: Following that, he served as the vice president and general manager of Bell Helicopter, deputy secretary of the Veterans Association, which was a presidentially appointed position, and senior vice president and chief operating officer at ACS Healthcare Provider Solutions, before he joined Lockheed Martin about 15 years ago. So you've had a really long, spectacular career. Thrilled to have you here, my friend and colleague from the industry, and excited to have Leo share with us some of his insights about business ethics, governance, risk assurance from the corporate side.
0:01:56.7 Cindy Moehring: So Leo, just to set the stage for you before we jump in, I've been interviewing a number of thought leaders and academics about, really, bringing current this article that was in the Harvard Business Review about 25 years ago. It's still very regularly cited in the mainstream media, I don't mean in the faculty sense or in the academic sense, but it was titled, What's Wrong With Business Ethics. Now, it was 25 years ago, and what I'm trying to do is really get perspectives on how to bring that article current, because I think we've made a ton of progress, both on the academic side and on the corporate side. And then I wanna talk to folks about what do the next 25 years look like.
0:02:35.4 Cindy Moehring: And what I'm hoping to do then is create this feedback loop. I really wanna get your impression [chuckle] and others in corporate America as to whether or not the academics have been doing their job to better prepare students for these jobs in the last 25 years. And what do they need to be doing going forward? So let me have you roll the clock back, if you don't mind, just a little bit in your career, and tell me what your experience was like when you first got out of the Navy as lieutenant commander back in '97. And what was your experience then with the way business ethics and risk management and governance was understood and practiced in corporate America back then?
0:03:17.1 Leo Mackay: Yeah, no, I was very fortunate that my first corporate experience was with Lockheed Martin, and we had Dan Tellep and Norm Augustine, who were real... They had put together the deal to form Lockheed Martin from Lockheed and Martin Marietta, and they were both equally and foremostly devoted to the practice of business integrity and ethics. It's remarkable that someone with the title of ethics in their job description, and I mean in their title, has always reported to the Lockheed Martin chief executive. I don't know if there's another company that can say that. And for a long time, it was a vice president of ethics and business conduct, and they were the only vice president level who reported to the chief executive, the other reports were senior vice presidents, executive vice presidents, and the occasional COO when we had one.
0:04:18.6 Leo Mackay: And so the company has always had this focus on ethics, because in a tightly regulated industry where 95% plus of what become our revenue start their life as US government appropriations, there's no upside, there's nothing that can be said to ameliorate a breach of the public trust. And so that's always been a major part of the way we do business because it's the only feasible way to do business. But even before that, I like to tell people that everything I really learned about professional conduct, I actually learned in the US Navy. And I don't think that's odd because people's first professional experience really does shape them.
0:05:11.4 Cindy Moehring: Yeah, agree.
0:05:12.9 Leo Mackay: And the Navy, again, and they always have this overlay about if you lie, you're very liable to kill somebody, to break something. It's just not... I don't even care if you're honest or not, but you cannot... In the breach, on the job, doing the things we do, you cannot lie. Too much on the line... And information gets exchanged all the time, rudder commands, valve settings. When everybody reports you're ready to die at the submarine, there can't be any falsehood. When you say that a flight deck is ready to receive airplanes, hundreds of people had to do things and then verify that they were done, nobody has time to check all those things, and when the captain greens the deck up and the airplanes come in and try to land, they just have trust that everything is right, or... I was a pilot. When I saluted the catapult officer and somebody hit the button, I was literally betting my life that about 300 things had been done correctly by 18 and 19-year-olds. And so it is a very high trust culture where that trust has immediate and very evident and very high stakes consequences. And so you've learned to do business that way, and after a while, it doesn't occur to you to do business any other way.
0:06:41.5 Cindy Moehring: Right, right. And do you think that your experience in the Navy, with that sort of trust and leadership and integrity built in, has that really influenced and been a part of all of the companies that you've had the pleasure of working for after getting out of the Navy?
0:07:00.5 Leo Mackay: It has, and I will praise those that have exhibited those and I will exert discretion about times when I did not see that kind of ethics in practice, and I pretty quickly dissociated myself from those firms. I'll say this 'cause it's a matter of public record, but when I left ACS, two or three years after I left there, they had a big scandal in terms of stock backdating. It cost them a couple of CFOS, a CEO resigned under a cloud, and it did not come as a shock. I didn't know anything about the particulars, but you can sense in the culture when there's this over-waning emphasis on performance almost at all costs, and it did not surprise me that certain things had happened and that were untoward.
0:08:07.7 Cindy Moehring: Are there two or three things that really stick out to you? Was anything ever said explicitly in a situation like that?
0:08:16.2 Leo Mackay: It's an attention to detail, a focus on discipline and process. And then, what's nice about Lockheed Martin is there's a lot of talk about integrity and ethics, and people get to measure the walk with the talk. The thing that's amazing about that company is we do regular surveys internally.
0:08:46.3 Cindy Moehring: Yeah, I think for students who are gonna be joining the workforce, to think about asking in an interview, [chuckle] they're thinking about what company to join, how much does your company really talk about integrity? Give me some examples of where ethics is mentioned. And do you think that your employees kind of exemplify that?
0:09:07.1 Leo Mackay: I think particularly with this generation of younger folks that we're all out there desperately trying to recruit, the cardinal sin is inauthenticity. They're fairly tolerant of all sorts of things and people and manners and the like, much more tolerant, I think, than maybe our generation was, or predecessor generations, but what they sniff out inerrantly is when somebody just is inauthentic, just doesn't mean what they say. And they don't wanna be associated with that. And closely allied point, I think they're also searching for meaning, which is... A lot of people ask about ESG issues or sustainability, kind of allied points, it's not directly ethics, but it sort of all stitches together in an ethical perspective or stance that your company stands for something and that your company does things in a certain way, and you're authentic about it, and I think people value that.
0:10:29.9 Cindy Moehring: Yeah, I think so, too. What are some other changes that you've seen for the new employees joining the workforce in the area of their attention to risk, risk management, ethics, compliance?
0:10:48.7 Leo Mackay: Well, what I think are... The two macro trends that I think I've seen in the industry over the last... One is organisational and the other is educational. And one is where I think a lot of academic treatments of ethics occur in business schools and law schools historically. I think a lot of that needs to move into faculties of technology, engineering and science, because I think there's a huge technical overlay to modern civilisation, and that impetus or acceleration is not stopping. People talk about digital transformation, you talk about AI and machine learning and the ethics of these things. I think a lot of the very pressing ethical questions about how we live and the meaning of certain things actually now attach very closely to what is technically feasible. You think about privacy issues.
0:11:57.3 Leo Mackay: The other thing, I think, and this is organisationally... And again, you and I have talked about this, and we were at two very, very large companies, Lockheed Martin, which is large, and Walmart, which is spectacularly large. And what I've seen is a trend on the organisation side is there are issues that reside in the overlay of governance, risk and compliance. And if you go to one of the big audit firms, they will talk about their GRC practice. And they will talk to you about governance, risk and compliance. And what I've seen happen is in a... Whereas in a smaller firm, the risk corridors are identified and guarded by some combination of the CFO and the general council.
0:12:46.0 Leo Mackay: In the larger firms, you get to a place where be it because of the overlapping jurisdictions of state and local, or then multiply that with international, the regulatory agencies, the stringencies of environmental regulation now and the like, considerations like privacy, that a role is being developed for another C-suite senior executive who sits on the same reporting chain with the CFO and the general council, and they handle these risk and compliance issues, is in a job called chief integrity officer and the like, or sometimes they string together audit, enterprise risk, compliance. But it's this whole failings of issues, and it varies by industry and the like, and a lot of times, it gets created, the position gets created in the aftermath of a large escape, because, man, we don't want that to happen again. So we have somebody to look at all of these different data streams and then identify, observe, assess, and then bring that perspective into either executive management or to the board to have a senior look at a GRC issue.
0:14:17.8 Leo Mackay: So I think for me, operating in the industry I'm in, the two things are the heightened salience of ethical issues with a technical overlay, and then also this... For large companies, let's say, Fortune 200, certainly, Fortune 100 and Fortune 50, that they have to think very hard about how they organise to understand the relevant risk corridors, and then communicate that so it's actionable information for the executive management and then the board.
0:14:58.3 Cindy Moehring: Right, because when that information, from my experience, and I'm sure you've seen the same, if it gets too siloed, and you've got different views of risk and assurance, there is no aligned assurance, and with boards being as busy as they are, what they wanna know is that management's done the homework to dot the Is and cross the Ts and figure out, if they've got a different view, why, what's causing it, and then what's the aligned view? So being able to come in with that comprehensively, and sitting between the CFO and the legal, which are gonna be looking at big issues of their own, what's the rest of that enterprise-wide risk assurance lens and view? I think you and I both know this, but I would love it if you can talk a little bit about how you guys think about it from a, let's say, a hiring perspective, is this, we've built a profession and a lifetime of living within these risk assurance functions, but I think the keyword there is assurance in many respects, because I certainly know, when I was at Walmart, and I know you at Lockheed Martin, we really expect our frontline leaders to be holistic leaders and to lead on these risk-related issues. So when Lockheed Martin is looking to hire, let's say, some new young frontline engineers or other frontline leaders, what do you think are three important attributes that Lockheed Martin would want to see in those types of new recruits to understand whether or not they have a grasp of this risk assurance?
0:16:37.1 Leo Mackay: I think the thing is we expect people to come with expertise in their chosen discipline, but what we really look for is a learning mindset, because we actually will teach the approach that we want. And this is not... This is just what works for us. If you look at the way we produce ethics officers, the people that run our programme and conduct ethics investigations, or if you look at the way we do internal audit, what we do is we take SMEs, subject-matter experts, and people that are inculcated in the culture. And then we train with our own internal programme to create an internal auditor or an ethics officer that conducts that job the way we want it conducted. And we don't do very much outsourcing, almost no co-sourcing in internal audit, which is for a company our size, that's somewhat unique. With like an internal audit, what we found is when we co-source, it takes us so long to get the experienced internal auditors but not up to speed with our stuff. We invest so much time and overhead in training them that it's not very cost-effective for us. So we actually look more for potential than for somebody to be fully formed along some of those parameters.
0:18:25.3 Leo Mackay: Now, what we have to fight is the other side of that. There are a lot of times when people will come to us and they're at the mid-career point or they've had significant experience otherwise, and we have a hard time valuing that correctly. That becomes the issue for us, is fighting an attitude that, "If you didn't learn it here, well, we don't think you learned it." And that is just not true.
0:18:49.3 Cindy Moehring: You mentioned expanding ethics into engineering and some of the more technical disciplines, and you're spot on because ethical AI is kind of the next frontier or one of the next frontiers for ethics generally. So let me ask you, if I could, just for a minute about ethical AI, how you, at Lockheed Martin, are wrestling with that issue, but also at, say, Cognizant, which is a tech company, I know that's from the board perspective... And it also affects financial services, so USAA would be there as well from your board perspective. So how are both senior management teams and boards dealing with this topic of ethical AI these days?
0:19:30.1 Leo Mackay: I'll talk about it from a Lockheed Martin perspective because that one's the most clear, in that we have a very important customer to us, the US Government overall is our principal customer. And within that, DoD is about 70% of that, is DoD. And the rest of it is national security affiliated. So it helps tremendously when DoD speaks and they have put out guidance about the ethics of AI, some attributes that they are going to commit to engineering and to engineering the systems. And since we build a lot of their systems, by association, we will, too. And it's around things you might expect about transparency, traceability, explainability...
0:20:18.1 Cindy Moehring: Explainability, yes.
0:20:20.1 Leo Mackay: That you always have to understand why the AI did what it did. One of the really interesting things is when you start to unpack the technology, AI is... And this is the terminology, the way our chief technologist talks about them. He doesn't talk about AI as a field. He's talking about AI as independent instances because an artificial intelligence will be different based on what it is, what data it's exposed to, how it learns, it almost... It's not the same, of course, but it's almost like two children. You can take two identical twins, raise them on opposite sides of the world, and what they're exposed to and what habits they're taught, they will act very differently and their perceptions of what is normal will be very different.
0:21:16.4 Leo Mackay: And then datasets are important, clean datasets and the like. We're actually in early days and we're... Everyone's setting out policy, overarching policy. The real work is going to be in getting to the equivalent of QM, QA, quality management, quality assurance, so that you can build those traits into the individual AIs. And then another dimension with AI is you got machine-to-machine instruction and learning. And so now you're... It's another generation beyond and you're trying to assure those same characteristics. It is a first-class technical problem, the ethical principles of which are fairly... Are coming pretty clearly into view. But how that's gonna be mechanised and more importantly, how you're gonna assure that in terms of quality management, and then from an audit standpoint and assurance standpoint, how you audit those things, so that you can then say, "We have a robust QM/QA process." And then my audit team's gonna go out and say, "And it was observed in the breach in these instances."
0:22:38.5 Leo Mackay: Now, the great thing where technology is actually helping is that with the data analytic tools now, the way you do auditing has been flipped on its head. It used to be, you would use probability and you would sample a subset and make an inferential conclusion about the general population based on this statistically significant subset of data. What's possible now, as the tools are so possible, is you can go and examine every instance or every transaction if you're auditing something financially, and what you can do is look for anomalies or a certain set of departures, and then go inspect the things that don't look quite as you think they should.
0:23:27.8 Leo Mackay: So everything is changing simultaneously, and just as you get this problem for assurance that seems to be... That would have been almost too hard to handle for the techniques of 10 or certainly, 20 years ago. You have this evolution in the methodology and the power of the tools that gives you some hope of being able to provide proper assurance and to do the traditional job that you've done. You're gonna do it in wildly different ways with vastly more powerful tools, but you're still gonna provide the assurance in a traditional sense. And so that's exciting. There's...
0:24:07.4 Cindy Moehring: Yeah. In fact, I've even heard there could be jobs in the future called algorithmic auditors, those who truly just spend their time auditing algorithms to make sure they're not biased, and that's very interesting. Yeah.
0:24:18.5 Leo Mackay: Right. Because the tool becomes all important because you just can't have a... A human can't digest that much data.
0:24:26.2 Cindy Moehring: No.
0:24:27.4 Leo Mackay: But the tool can. So the tool, it's critically important that the tool is right. So it's a brave new world and we're a lot farther into it than I think people realise.
0:24:40.0 Cindy Moehring: Yeah, I think so, too. Well, I wanna wrap up here by asking you just some fun questions about books and podcasts and movie series you may have been watching recently, either just good resources or something that's a good release, given how much time we're all spending cooped up in our houses with COVID right now. And I'd love it if they all had an ethical dilemma to them in some way, shape or form, but what do you think is the best book you've read in the last few months?
0:25:11.7 Leo Mackay: Well, I'm reading something by Peter Frankopan called The Silk Roads, and it's a world history where what he's really talking about is that the West and the East didn't evolve insulated from each other, and there's much more co-development and the membrane between them is much more porous. It's a different type of history of the West. It's kinda dry, but I'd be a dry person. [chuckle]
0:25:46.6 Cindy Moehring: Yeah, yeah. [laughter]
0:25:48.6 Leo Mackay: It's fascinating if you care about those kind of things.
0:25:50.7 Cindy Moehring: That's cool. That's good. Okay, what about podcasts? Do you listen to any podcasts?
0:25:56.6 Leo Mackay: I'm going to listen to my first podcast. My goddaughter is Kelley O'Hara. She was a long-time member of the Women's National Team in soccer. She's a two-time world champion and an Olympic gold medalist, and she has a podcast on women's sports. And so I'm gonna listen to her podcast.
0:26:19.2 Cindy Moehring: What sport did she gold medal in?
0:26:21.1 Leo Mackay: I think it's called W Sports. W Sport.
0:26:23.0 Cindy Moehring: I'm sorry?
0:26:24.3 Leo Mackay: W Sports.
0:26:25.9 Cindy Moehring: W Sports. Women's sports. And what did she gold medal in, in the Olympics?
0:26:30.4 Leo Mackay: Soccer.
0:26:31.3 Cindy Moehring: In soccer. So she was on the... Oh my gosh. That's huge.
0:26:34.8 Leo Mackay: She was in the 2012 team that won in London and she's been in the last two World Cup teams that have won the World Championship.
0:26:43.7 Cindy Moehring: Wow. Well, tell her congratulations from me. That is fantastic. I'm a huge fan of the Olympics and I hate that they got cancelled this year. I hope we see them back in 2021. Okay, what about a movie or a video series?
0:26:58.4 Leo Mackay: On Netflix, I watched The Last Kingdom. An Englishman gets killed and he's raised by Vikings. And so for three or four seasons, he alternates between the Vikings and the English. This is in the 10th century, when Alfred the Great is king of Wessex in England. And the big dilemma with him is, does his real allegiance lie with the Vikings or does it lie with the English? And his actions are guided by what he has sworn to do. And he lays aside moral questions of what is good and bad to focus on ethical questions of what is right and wrong. And in his view, once he's given his word, the right thing to do is to abide by his word. And so to watch him struggle with that is a bit of an ethical dilemma.
0:27:47.0 Cindy Moehring: Yeah, it is.
0:27:48.0 Leo Mackay: It's mainly about Vikings and raiding and swordplay. [chuckle]
0:27:54.1 Cindy Moehring: That's fun, though. I'll have to add that one to my list. Alright. Well, this has been fantastic. I really appreciate your time. Thanks for your insights on the way Lockheed Martin used all of these risk assurance issues and your own views on this, and your wealth of experience. And I appreciate you, my friend and colleague, taking time out to have the conversation with me. So have a good weekend and it was great to have a conversation with you today.
0:28:17.8 Leo Mackay: Alright. Thank you, Cindy.
0:28:19.5 Cindy Moehring: Alright, see you later. Bye-bye.
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