Anti-Corruption Compliance

Northrop Grumman explicitly prohibits offering bribes, paying bribes or providing other improper things of value, directly or indirectly, in connection with our government or commercial business. Northrop Grumman prohibits our employees from accepting bribes or other improper things of value from any person or entity to, for example, induce or reward them for performing or failing to perform a function or activity.

We have a robust anti-corruption compliance program. It includes the following:

Management Commitment:  The unwavering commitment of our management to a strong culture and integrity lies at the foundation of our ethics and compliance program.  Our leadership demonstrates its commitment regularly through communications and actions.  Our anti-corruption program is designed and managed by the Office of General Counsel.  The Audit Committee of the Board of Directors provides broad oversight for our compliance program. Information about the Audit Committee’s Charter.

Risk Assessments and Continuous Improvement: We conduct internal risk assessments and evaluate the strength of our Anti-Corruption Compliance Program against standards informed by government authorities and industry best practices. The Office of General Counsel, including our Chief Compliance Officer, reviews these assessments and use them to help ensure our compliance processes are tailored and updated as necessary to address evolving corruption risk and our resources are appropriately deployed to implement risk prevention and mitigation strategies. Additionally, our internal audit organization regularly conducts audits of our anti-corruption program to help ensure policies and procedures are operating as designed.  Results of these audits are shared with our Audit Committee.

Employee Engagement:   Anti-corruption compliance is the responsibility of all Northrop Grumman employees. In meeting this obligation employees who participate in international business in particular are expected to:

• Complete required anti-corruption compliance training
• Be aware of and alert to the potential for corruption risk factors in the transactions and business relationships they handle for the Company
• Ensure that all business records that they prepare accurately reflect the true nature of the transaction and the relationship of the parties involved, and
• Promptly report any potential or suspected violations, unethical, or illegal activity in accordance with Company policies and applicable law

Each Northrop Grumman employee must also abide by our Standards of Business Conduct.

Trading Partners: We evaluate and carefully select third parties with whom we do business, and clearly communicate our expectations that these third parties share our commitment to the highest level of ethics, integrity, and compliance with applicable laws, rules and regulations, including those related to anti-corruption. Third parties explicitly commit to adhere to these standards and agree to comply with our Standards of Business Conduct for Suppliers and Other Trading Partners.

Policies & Procedures: We maintain a comprehensive set of policies and procedures which support our commitment to anti-corruption compliance.  Recognizing that the risk of corruption can arise in connection with many different business activities, the Company’s Anti-Corruption Compliance Program includes both broad-based components and more targeted policies and procedures aimed at particular areas of risk.

Business Courtesies – Northrop Grumman has procedures for employees to follow with guidelines that outline whether and how one can provide or accept business courtesies to or from customers, agents, consultants, suppliers and other non-employee business associates. Business courtesies are broadly defined to include gifts, meals, travel and lodging, entertainment, recreation, promotional items, or other tangible and intangible items provided to a person at no charge or below its market value.  The procedure contains a detailed matrix with prescribed limits for gifts and meals by country. Proposed business courtesies that will exceed the prescribed country limits must be approved by the applicable business unit’s management, the law department and/or the Ethics organization. The law department maintains a centralized register of business courtesies for non-U.S. government officials that exceed various prescribed country limits to assist with compliance oversight. Business courtesies are also accurately recorded in the Company’s books and records. 

Third Parties – Northrop Grumman maintains a robust procedure to ensure that  appropriate risk-based due diligence is conducted, and periodically refreshed, on third parties providing goods or performing services on behalf of the Company (sales representatives, agents, consultants, joint venture partners, lobbyists, offset consultants and fulfillment partners, customs brokers and freight forwarders, prime and subcontract teaming partners, resellers and distributors, professional and technical service providers, and all other suppliers).  Our third party diligence procedure is integrated and harmonized across the enterprise with applicable Supply Chain, Contracts, and Finance work processes and procedures.

The procedure requires trading partner relationships to be properly characterized in written agreements, recorded accurately in the Company’s books and records, and employ a legitimate, market-based, and legally compliant basis of compensation for goods and services provided. We screen third parties seeking to work with Northrop Grumman against multiple risk factors, including but not limited to, the corruption risk of the country where the third party is located and where they will be working with Northrop Grumman; the nature of the proposed transaction; the third party’s ultimate beneficial owners and whether the relationship would create a conflict of interest; the relevant experience and capability of the third party; proposed compensation and payment arrangements; whether the third party is deemed to have an effective anti-corruption program; and Northrop Grumman’s experience working with the third party, among other factors. We seek to establish ultimate beneficial ownership of agents and intermediaries. If we are not satisfied with the information received regarding such beneficial ownership or control, or other due diligence information on a prospective trading partner, we may determine not to enter into an agreement with that party.

We refresh due diligence periodically during the life cycle of the third party relationship and conduct additional due diligence if the risk profile of the third party increases. Each approved third party is asked contractually to commit to anti-corruption compliance undertakings, to notify us of material changes to its due diligence information (including ultimate beneficial ownership) and promptly to provide additional information related to such changed information. In the event of a material change to the ultimate beneficial ownership or other due diligence information, we reserve the right to suspend performance under the agreement. We also reserve the right to terminate agreements for violation of anti-corruption compliance representations, warranties, and covenants, among other reasons. Northrop Grumman also conducts due diligence on second and lower tiered subcontractors for certain higher risk transaction types and may require the third party to “flow-down” anti-corruption compliance undertakings to its subcontractors in those circumstances.

Our policies and procedures require that third parties’ compensation be commensurate with the value of the goods or services provided.  We design compensation structures for agents to promote ethical behavior and discourage corrupt practices. For example, commission rates are evaluated against comparable local data, commission and expense caps are utilized to ensure total compensation remains commercially reasonable, and remuneration is paid by wire transfer in the name of the contracting party to a bank account located in the country of the agent for transparency purposes. Commission payments are generally made in stages based on contract completion milestones.  Northrop Grumman also administers a heightened scrutiny diligence program for third parties operating in high risk markets which triggers, among other items, more frequent training, compliance certifications, media searches, and may require audits of trading partners meeting certain criteria. Additionally, we provide for audit rights in contracts with commission sales representatives and marketing consultants along with termination provisions for violations of law and breach of compliance representations, covenants and warranties.

Industrial Participation and Offsets – Northrop Grumman has procedures that require a review of proposed industrial participation and offset transactions and agreements to assess the business rationale prior to making any binding commitments. We also conduct risk based anti-corruption due diligence on trading partners involved with industrial participation and offset programs, such as, brokers, fulfillment partners, and technology transfer recipients.   

Trade Associations and Lobbying – Northrop Grumman is a member of various trade associations. Northrop Grumman pays regular dues to these organizations but does not typically make additional, non-dues contributions to support the organization’s political activities. In the event that Northrop Grumman does make payments to trade associations that are designated for political purposes and are beyond the annual dues, Company policy requires the trade association to disclose such contributions as part of its annual reporting. We publicly disclose and update annually a list of those trade associations to which Northrop Grumman paid $25,000 or more in annual dues, the total contribution to each such trade association and the amount of our contributions that each such association estimates are used for non-deductible or lobbying purposes. Information about Northrop Grumman’s trade association activity.

Northrop Grumman generally does not engage in political activities outside the United States, including lobbying activities to influence a legislative process. However, when deemed appropriate to do so, and only as permitted by and in compliance with all applicable laws and Company policies and procedures, Northrop Grumman has a policy regarding the prior written approvals required by senior executive management, including the law department.

Prohibition of Facilitating Payments – Although they may be permitted under the U.S. Foreign Corrupt Practices Act, Northrop Grumman’s Anti-Corruption Compliance policy prohibits facilitating payments. Only in the event of a threat to an individual’s life, health or safety may a personal safety payment be made and in that case the facts and circumstances of the payment must be reported to the law department as soon as practical and recorded accurately in the Company’s books and records.

Employment Conflicts – Northrop Grumman has procedures regarding conflicts of interest that might arise when hiring employees. Decisions regarding hiring an employment candidate may not be used to induce a party to provide an improper business advantage to the Company. Additionally, hiring procedures require consideration of any post-government “revolving door” requirements for recently departed public officials to ensure they comply with applicable rules and regulations related to their former government employment. Our procedures also require current employees to disclose if such a new potential conflict arises. Our Standards of Business Conduct.

Charitable Donations – Companies often participate in charitable giving programs, especially to give back to the communities in which they operate. However, due care must be taken to ensure that the program is a bona fide program. Northrop Grumman has a procedure with regard to charitable contributions which seeks to ensure that the recipient organization has a reputation for honesty and fair dealing and that the donation will not create a conflict of interest with regard to business that the Company is seeking or currently engaging in. Information about Northrop Grumman’s charitable contributions guidelines.

Political Activity and Contributions – As a general matter, Northrop Grumman does not retain the services of serving politicians or government officials on its Board, as employees, or as third party consultants. The Company has onboarding screening procedures to identify current and former government relationships in order to address conflicts of interest and to help ensure compliance with laws and regulations related to government post-employment cooling off periods, activity restrictions and prohibitions.  Northrop Grumman seeks to ensure that any political activity in which we engage and make contributions are consistent with our high ethical standards and in full compliance with applicable law.  Information about Northrop Grumman’s political activity and contributions.

Training: Northrop Grumman’s global anti-corruption training program includes an array of training resources, both online and in-person tailored for different job functions.  Pursuant to industry best practices, we strategically identify, among our 90,000 employees, employees of all levels who participate in international business.  On a recurring basis, these employees are required to complete training requirements relative to their job function and level of involvement with international business. These employees include, but are not limited to, senior executive management; employees based in our foreign subsidiaries; employees involved in business development, program management, or finance; employees who have been transferred or promoted into a new job function involving international business;  employees traveling outside of the United States; and new hires. Training modules include scenario-based hypotheticals to enhance the effectiveness of the learning experience. Training modules also include scored quizzes to test material effectiveness and comprehension and include information about the Company’s OpenLine reporting options. The internal audit organization tests the effectiveness of training as part of their annual audits of our Anti-Corruption Compliance program. Results from the quizzes, internal audit testing, and real life situations are utilized to update training content to continuously improve the effectiveness of our training program.

Investigations & Reporting Obligations: Allegations of possible misconduct or compliance violations are reviewed by dedicated teams of full-time professionals, including, but not limited to, Northrop Grumman law department personnel, and the ethics department and Employee Relations.  At least annually, the Audit Committee of the Board reviews with the General Counsel and her team the status of significant pending claims, litigation, and other significant legal, compliance or regulatory matters.  The Audit Committee also annually reviews the Company’s compliance program with the Chief Compliance Officer, or a senior member of the law department.  Company management and the Audit Committee periodically review and discuss the Company’s implementation of global compliance policies, practices and programs, including those related to anti-corruption compliance. The Company’s executive management, including its General Counsel, makes determinations involving disclosures to external regulatory authorities of potentially criminal matters.

In accordance with Company policies and applicable law, it is the responsibility of all Northrop Grumman personnel immediately to report concerns regarding corruption or the Company’s compliance program to the Law Department, the ethics office, the cognizant Business Conduct Advisor, their management, Human Resources or via the Company’s OpenLine. The Company provides individuals who report such concerns or issues in good faith with status reports as appropriate.

We Don’t Retaliate:  Northrop Grumman encourages employees to ask questions or raise concerns on ethics and compliance issues that may be contrary to our values or reflect potential misconduct.  Our policy regarding retaliation is very clear: Northrop Grumman will not tolerate retaliation against an individual who seeks to observe our Standards of Business Conduct by sharing or reporting genuine concerns and issues regardless the potential impact to Company business. Northrop Grumman conducts anonymized annual employee engagement surveys administered by an independent third party, which among other things, help us to assess employee confidence to report concerns without fear of reprisal.  Anyone found to have taken part in retaliatory acts against someone who has reported genuine concerns in good faith faces serious disciplinary consequences, up to and including termination. Our Standards of Business Conduct.

Industry Engagement: Northrop Grumman is a working group member of the Defense Industry Initiative on Business Ethics and Conduct (DII) and a steering committee member of the International Forum on Business Ethical Conduct (IFBEC).

At Northrop Grumman, Anti-Corruption Compliance is inextricably woven into our corporate values. More information about Northrop Grumman’s strong ethical culture and comprehensive compliance and governance programs can be found in our Corporate Responsibility Reports.

Information about integration of our corporate values in our compensation philosophy can be found in our annual proxy statement.

Information about our business operations, including non-wholly owned entities included in our consolidated financial statements, can be found in our U.S. Securities and Exchange Commission Form 10-K.

For questions about Northrop Grumman’s Anti-Corruption Compliance Program, please contact us at: NGIL@ngc.com