entertainment, but in the case of the Federal officials we generally don't keep the names. Senator PROXMIRE. Can you tell us how much of a claim you made with respect to entertaining Federal officials? Mr. ANDERSON. No. I don't have that information. Senator PROXMIRE. You testified that you did try to claim that deduction? Mr. ANDERSON. Our tax department has. Senator PROXMIRE. And you did it without keeping records. It seems to me that a very efficient firm like yours and a very successful businessman like you would recognize that if you're going to make a claim against the IRS that you'd better have a record to back it up. Mr. ANDERSON. I'm not a very good tax lawyer and I don't really know the background of this matter. Senator PROXMIRE. Why wouldn't it be a fair conclusion that you deliberately followed the policy of not keeping records so that you could conceal who you were entertaining? Wouldn't that be a logical conclusion in view of the fact that you have testified now that you did make an effort to subtract this from your income in computing your tax and reduce your tax? Mr. ANDERSON. It's my understanding, first of all, it's never been allowed by IRS. As I say, I don't believe I am qualified to comment on why our tax people do some things they do. The reason the records were not kept is that it's-we do not get credit for this on our contract or our taxes. There seems to be no point in keeping additional records. Senator PROXMIRE. Will you check for the record and tell us how much you attempted to have deducted as entertainment of government officials, deducted from your income for tax purposes? Mr. ANDERSON. We will do our very best to find the answer to that question and at the same time try to determine whether my understanding that it was not allowed is correct and whether any was in fact allowed. [Additional information submitted for the record follows:] There is one additional matter on which I would appreciate the opportunity to supplement the record. As the corrected transcript of my testimony indicates, I undertook to try to determine whether my understanding that the Internal Revenue Service had not allowed deductions for entertainment of Government officials was correct and whether any in fact had been allowed. This matter has now been reviewed, and I am advised by our tax people that for the Company's fiscal year 1971 (the most recent year that has been audited) and for several previous years the Internal Revenue Service, while generally taking the position on audit that expenditures for entertainment involving Government employees (and the expenditures for Company employees and other nonGovernment personnel present on those occasions) were not allowable, has allowed some claimed deductions for certain items such as business lunches for which the average cost per person present did not exceed $5, cost of hospitality suites and some other items. Senator PROXMIRE. I'm going to yield in just a minute, but in your prepared remarks you stated that the DOD regulations have permitted acceptance of entertainment, gratuities and so forth in situations "in which, in the judgment of the individual concerned, the government's interest will be served by participation of DOD personnel in activities at the expense of a defense contractor." I would like to point out that this seems to be a misreading of this regulation, since it specifies that the invitation must be addressed to and approved by "the employing agency of the DOD." Are you trying to suggest that the invitations to hunt on the Eastern Shore were all approved by higher DOD officials? Mr. ANDERSON. No, sir. I'm not saying that at all. Senator PROXMIRE. Isn't that a misreading of the regulations? Mr. ANDERSON. Well, I don't know. I'm not in complete knowledge of all of these regulations. There's quite a stack and I'm sure we can go back and review them. Senator PROXMIRE. Well, as you know, a number of DOD people have been admonished and NASA people have been reprimanded. Don't you think you should have been aware of those regulations? Mr. ANDERSON. Well, I think we were. I think generally I'm aware of them and I think our people that are more directly involved in this area are probably aware in much more detail than I am. Senator PROXMIRE. Before I yield to Chairman Patman, let me ask you this question. This exception also refers to types of activities that may be permissible. It specifies that these activities would include only public events such as ship launchings or events that are "sponsored by or encouraged by the government as a matter of U.S. defense or economic policy." Are you suggesting that the Department of Defense may have encouraged the participation of personnel in such hunting trips as a matter of defense policy? Mr. ANDERSON. No. I'm suggesting that as to many of the official occasions-I shouldn't say official occasions-occasions sponsored by trade associations, technical associations, electronics associations with regard to hospitality suites or acceptance of a table at dinner. Senator PROXMIRE. Are you going to continue to entertain Federal officials at your various resorts? Mr. ANDERSON. We received Secretary Clement's letter about a month ago. I issued instructions to all of our operating executives that we will cease any entertainment of any type except that which is clearly spelled out, and there's no question about it, and that's the way we're operating right now and we will continue to operate that way. Senator PROXMIRE. I have some more questions, but I will yield to Chairman Patman. Mr. PATMAN. I will be very brief, Mr. Anderson. You talk a great deal about improving communications. I am very much interested in what you say about that and I expect to read everything that you say, but you think communications are improved, particularly official governmental communications, when they are out in the open in the files for everyone to see or do you really feel you can communicate only in secret at a hunting lodge? Mr. ANDERSON. Well, the hunting lodge is one area and I think a minor but certainly important one to the total concept that I'm trying to address myself to. I'm talking about communications between people that are working morning, noon and night in major programs such as the part that our company played-and we are very proud of putting a man on the moon. This program went on well over 10 to 15 years. It involved very dedicated people from NASA and within our company, together with the astronauts, working in some tight cases in crucial parts of the program around the clock. I think communication between those people when-you know we're not selling commodities or tires or something like that. We're selling know-how on the fringes of technology and I think it's very important that these people be allowed to communicate, that when they work together to this extent that they can go have a drink and dinner together. I can see nothing wrong with that and I think the conversation they may carry on during that occasion can help to_communicate, can help better understand our problems. Mr. PATMAN. Even though it's only done in secret? Why can't public officials discuss this-communicate-right out in the open? Mr. ANDERSON. I don't understand "in secret." We do nothing in secret. Mr. PATMAN. Well, a hunting lodge is not exactly the place for an "open meeting." Let me ask you something else do you know anything about the Business Round Table in New York? Mr. ANDERSON. I know of it. I'm not a member. Mr. PATMAN. Are you a member? Mr. ANDERSON. No, sir. Mr. PATMAN. Is anybody in your company a member? Mr. ANDERSON. I believe our chairman is a member, yes. Mr. PATMAN. He's a member. That's the round table that has you have to pay dues, about $35,000 a year, just to sit at that round table; is that right? Mr. ANDERSON. I'm not really Mr. PATMAN. That's what it is. Mr. ANDERSON. I have never been to a meeting. I don't know exactly what they discuss or what their dues are, to be honest. Mr. PATMAN. They discuss things like trying to defeat the audit of the Federal Reserve. That's what they discuss. And they opposethey are against most of the progressive legislation that we have up here. Dr. Burns of the Federal Reserve seemed to have been their chief lobbyist on the audit bill and we discovered that these dues ran up to $35,000 a year and the expenses were paid by the companies they represented. If you were a member or your president is a member, he, of course, pays his part of the expenses from the.company. Is that your understanding? Mr. ANDERSON. Yes, sir. I think that's true. Mr. PATMAN. And that runs into a lot of money and don't you think that there's some doubt about the wisdom of having companies like that use corporate funds in order to influence passage or defeat of important legislation in the interest of the people? Mr. ANDERSON. Well, I find it very difficult, Mr. Chairman, to comment on this because I'm not really-I have never been to a meeting and I don't know what they do, but I think, in general, business associations have a beneficial effect in that at least it allows their voice to be heard as contrasted to all the other voices which seem to be against business these days. Mr. PATMAN. I shall not pursue the questions further at this time, but I shall reserve the right-and I hope that you will cooperate with me in submitting questions I'd like you to answer. [See Appendix II (E), p. 174.] Mr. ANDERSON. All right, sir. Mr. PATMAN. And you will to the best of your ability answer for yourself and your company or those available in your company that can answer it; is that right? Mr. ANDERSON. Yes, sir. Mr. PATMAN. Okay. Thank you. Senator TOWER. Thank you, Mr. Chairman. Mr. Anderson, I think that you have presented a good, fair statement. I think that a lot of these things are well known. I know how companies operate because I was a member of the Armed Services Committee. I have been to air shows, Air Force Association gatherings, and things of this sort. I understand that this kind of entertainment is perfectly normal. I don't think anybody is unduly influenced by it because everybody does it; it's just a part of the competitive world. I think that when somebody in Government is invited to some sort of function sponsored by a defense contractor that the burden falls on the person who is invited to know what the regulations are and know whether or not he can, consonant with the regulations, accept this kind of hospitality. So I don't think that the burden falls on the company involved. It's my observation that most of the defense contractors bend over backward trying to keep out of hot water rather than trying to get into it. I might say that I myself have been the beneficiary of hospitality by Mr. Rockwell from time to time, usually in connection with the fact that we are both national officers of the same college fraternity and, to my knowledge, he has never asked me to do anything for Rockwell. As a matter of fact, I have opposed that company on a couple of contracts that I thought should go elsewhere for programatic reasons. I think that these things are not a question of any real influence but rather very often these personal associations grow up after a company has already gotten the contract. Then they get to know the people who are involved on the DOD side. Then there's little continuing value to the company from the standpoint of maintaining these relationships with these people because of the enormous turnover in the Department of Defense. I don't see anything untoward here in these company activities. I think that Mr. Anderson has presented a fair statement. I think he represents a highly reputable company, one that is a reflection of the American free enterprise system. Mr. Rockwell's father started the company on a shoestring, built it from scratch by virtue of his own ability, and Mr. Rockwell subsequently has expanded it through tremendous managerial and corporate talent. I think it's the kind of national asset that we should be glad to have. And I have no questions to ask of Mr. Anderson. Senator PROXMIRE. Let me ask you, Mr. Anderson, did any officials of the DoD or NASA contact Rockwell International before these forms of entertainment came to light to remind the company of the provisions contained in the standards of conduct regulations and suggest that you not entertain Government officials? Mr. ANDERSON. Not to my knowledge. As I said earlier, I had expected that this was pretty much the norm within the industry. I don't believe we go any further than some of the other companies I'm aware of, but I'm not an expert in that area. But we have never, to my knowledge-I have not been approached nor has any of our executives reported to me that we were admonished that we were bordering on violating the regulations or rules. Senator PROXMIRE. Do you think a suggestion of that kind may have helped you avoid some of the problems that you're facing now? Mr. ANDERSON. Well, I think that's obviously true because we did get a very firm suggestion from Secretary Clements that any appearance of violation be stopped and we have stopped it. Senator PROXMIRE. I realize you don't run your corporation as a charitable organization, and that very little is done without some business purpose in mind. You have an obligation to your stockholders, especially when you spend money. Therefore, I'd be interested to know what it was that the company hoped to accomplish by hosting Federal employees at these hunting lodges? You state in your remarks, and I quote, "provides an opportunity to get to know better the people with whom we are working and to achieve a better understanding of mutual problems." We don't know about the officials who may have attended your hunting lodges, but the guests of the Northrop Corp. all said that these occasions were strictly social and that no business was discussed. Are you suggesting that you considered these hunting trips to be working weekends! Mr. ANDERSON. No, I couldn't construe it as a working weekend. I guess sitting in a marsh isn't exactly the place to do the best work. I think that we do view the opportunity to get to know these people better, to share mutual problems and possible solutions that we may have within the company maybe to better explain our company Senator PROXMIRE. You say "share our mutual problems." Would you say a duck blind isn't the best place to really discuss any kind of business? Mr. ANDERSON. Well, it's certainly a very enjoyable place to people who like hunting and there are many intervals there, I assume, when they have an opportunity to discuss their mutual problems. Senator PROXMIRE. Was there an implied effort to place Government guests in a position where they might feel they owed the company a small favor? Mr. ANDERSON. Under no conditions. I thought I made that very clear in my prepared testimony, and I would emphasize it again. That is not the intention of any Senator PROXMIRE. Was there any effort while on such hunting trips to discuss company production problems, future service needs or similar business arrangements? Mr. ANDERSON. I don't know. I doubt it. I think the efforts were more in line with program oriented solutions. I think that perhaps a discussion of our capabilities as a company, perhaps the fact that |