The Dark Side of the Force
Sylvester, David
The Dark Side of the Force by David Sylvester Lean and aggressively committed to results, National Semiconductor represented the best in American capitalism until it started cheating...
...Even when mil-aero showed a large profit for another group, it didn't get much credit...
...For example, there was nothing on the civilian side of the company that compared with "salt spray," a test in which an inspector submerged a chip in hot salt water and tried to rub off its identifying part number...
...Just ship me the parts" In November 1981, Mollerstuen left National to become a vice president and corporate officer at Signetics, another semiconductor company, and was succeeded as head of mil-aero by Cushing...
...Perhaps the most instructive example of how uncontrolled the cheating became occurred in the spring of 1980, when some mid-level mil-aero managers, including Sharon and her boss, tried to find better ways to keep track of testing documents...
...He didn't just do it for the exercise...
...The problem of cheating was compounded by sloppy record-keeping...
...military chips accounted for less than 8 percent of National's business last year...
...Mollerstuen, a longtime veteran of electronics companies, was considered a friendly and capable man who demanded quick action...
...two former employees had decided to tell federal agents about the cheating...
...I still do not know whether the investigator found her story accurate, but I found her telephone call, the distraught sound of her voice, the conviction and long-suppressed anger, as haunting as anything we turned up in our research...
...He was a peer, but a peer without portfolio," says Charles Cushing, Mollerstuen's successor and a close personal friend...
...Within 18 seconds, the terminals showed 22 Soviet missiles...
...It was only he and I in the building...
...The director of this division later left to found his own private firm...
...The successful chip-maker is the one who can shave a tenth of a penny off manufacturing costs to cut prices...
...He had harder evidence on lower-level employees, but concluded, paradoxically, that it would be unfair to prosecute lower-level employees and not higher-level employees...
...Another story goes that during the company's early days, it didn't mow the lawn in front of its buildings...
...It had no reserved parking for executives, and Sporck maintained a cubicle of an office that looked no different from any other cubicle and was divided from the others by five-foot high partitions...
...I think it is a legal issue rather than a moral issue...
...National had agreed to do the tests and it had not done them...
...Years later, when National was landscaping the lawn with an artificial pool (see photograph, page 32), some wondered why Sporck would spend the money...
...It was just a lack of adequate control!' One problem was the rapid turnover within the department...
...While some employees sat at their desks making up these documents on the ground floor of Building D, the managers supervising quality control in the basement were also cutting corners...
...The largest mini-company produced logic chips, an inexpensive circuit massproduced in the millions each week...
...They have become the nuts and bolts of the electronic military age...
...Cushing remembers that one shipment was held up four months because he couldn't find an ink tough enough to adhere to one particular type of chip that was sealed in stainless steel...
...Now that chips are used in computers, telecommunications, home appliances, automobiles and home electronics, the military is less than ten percent of a staggering $20 billion market...
...People like us How rampant is cheating like National's...
...We didn't like it...
...But Sporck was proud of his company...
...This paperwork was then shipped with the chips to the customers to show that all the tests were performed as specified...
...He could hear the clatter of typewriters, the talk of secretaries, and bits of conversations all around him...
...One middle manager wanted to measure how quickly the individual employees were working by following the number of times each person stamped his testing documents along the testing line...
...The work to be done in mil-aero had little cachet for ambitious and bright engineers, because the chips sold to defense contractors already were outdated in the faster-moving commercial market...
...Peer without portfolio On the ground floor, directly below Sporck, sat Robert Mollerstuen, the group director of the military and aerospace operations...
...I retell this story here because, although unconfirmed, it gives a picture of the kinds of stories that float to the surface in bits and pieces...
...At monthly profit-and-loss meetings, other product managers would pound the table and shout at Mollerstuen for running a division that was a drag on their productivity...
...Today, National employees work under a Sporck decree that anyone found intentionally cutting a corner in testing will be immediately fired...
...That was cheating...
...But the linear managers called mil-aero's profits "funny money" because they believed mil-aero took credit for the sales of other groups' products but assumed only part of the costs...
...This question has nagged at me and at my colleague, David Willman, ever since we reported on the fraud at one of these companies—National Semiconductor—in a series we wrote last June for the San Jose Mercury News...
...Sometimes, they had been photocopied so poorly that they were scarcely legible...
...But it would be simplistic to conclude that the fraud at National is just an example of corporate skullduggery in a morality play about an evil corporation taking advantage of an unsuspecting defense establishment...
...He said, 'Well, then just fake the report.' " Instead, she simply dropped the tray on the floor, ruining the chips: "I didn't want to be responsible to have my stamp on it:' Although she expected Bob to ask her to test another 50 chips, he never did...
...They devised new filing systems, redesigned forms, set up methods to track each batch of chips more closely...
...New equipment would arrive each year and take months to operate properly...
...The procedures were largely a question of detail: recording the date the chips entered the testing area, the date the sample was pulled, the number of chips pulled, when the "mother lot" moved to another testing area, even noting the four digits of the mother lot's identification number...
...These actions are all encouraging...
...With her staff, this woman, whom I'll call Sharon, selected samples of the chips running through the testing area on the ground floor for a series of grueling tests (such as exposure to moisture or 1,000 hours of burnin) required by the Defense Department...
...We went through boxes and people's desks and the cabinets and shelves and underneath desks," Sharon said...
...The manager picked up the telephone, and the next thing people knew, a bulldozer was plowing under the fine carpet of grass...
...Just ship me the parts and give me a piece of paper that says you did it ."' According to Cushing, the contractors were motivated less by conscious irresponsibility than by a belief that National had always provided them with good working chips before...
...Other records were on a production planner's desk...
...I said these things are failing, and I don't know what to do...
...they couldn't understand what the fuss was about...
...And mil-aero has moved its central assembly and testing plant to Tucson, Arizona, where managers and line workers concentrate solely on the special requirements of the military...
...says one former National mil-aero manager...
...limo weeks later, an investigator for the Defense Criminal Investigative Service showed up at National's corporate headquarters with a subpoena from a U.S...
...A materials manager at a major electrical company called to say, "I have $30 million worth of aircraft engines I can't ship because of your damn ICs [integrated circuits], and I want to know how to clear them [for shipment] ." Sometimes the calls were even more blunt...
...As a joke, one executive bought a goat to graze on the grass...
...We decided this was it," Sharon told us...
...What the workers at National did was unquestionably wrong...
...Yes, this year we would dummy the reports...
...I said, 'I can't do that...
...The chips and processes were constantly changing...
...For example, Mollerstuen had little trouble making money for the linear group, because fewer companies made these chips, which were difficult to manufacture and test...
...Perhaps it was the reminder that when there's a terrifying malfunction in our defense network—as there was that day five years ago in Cheyenne Mountain—the reason might be no more sinister than a company's eagerness to keep its shipments moving...
...Most of these operated as independent businesses, producing one type of chip, and to be the manager of a particularly successful mini-company was to be a company star...
...Its director eventually rose to run the entire semiconductor division, second in position only to Sporck...
...As if to reinforce the isolation of mil-aero, Mollerstuen did not always report to the vice president running the company's semiconductor division, as the other product managers did...
...By the time the computers were reporting the approach of 2,222,222 Soviet missiles, SAC was convinced that something was wrong with its computers...
...It was a Saturday...
...Just walking into Building D, where mil-aero's semiconductors were assembled and tested, was a shock to the uninitiated...
...While the DLA was looking into the possibility of debarment in 1984, National was banned for another three months from selling chips to the Defense Department—with the fairly large loophole that the company could continue to supply chips if it was the sole source...
...It illustrates an atmosphere that must radically change in some of our "best-run companies" if they are to continue to deserve the praise currently heaped upon them...
...As one Defense Department attorney ruefully put it, "Corporations don't do things...
...otherwise, he admitted, National's quality was acceptable...
...It's a pain in the ass, all the paperwork ." Since taking over mil-aero in 1977 Mollerstuen had done better than his immediate predecessors in drumming up business and recruiting well-trained engineers, but the division remained, in the words of another former National manager, the "bastard step-child ." Like many entrepreneurial companies, National Semiconductor was actually a loose confederation of several mini-companies...
...There was nothing to be done about it ." Not satisfied, he went higher up and confronted the manager in charge of burn-in...
...On performing the tests for the supervisor, she found, unbeknownst to him, that the chips were failing...
...unlike a defective chip in a video game, a failed military chip could conceivably undermine the national defense...
...In an industry where huge volumes of merchandise must be moved quickly, National's military group, with its special testing requirements, was inevitably tempted to cut corners...
...Mollerstuen himself refused to be interviewed...
...That's the way we've been doing it for some time...
...I said, 'You're saying on the paperwork that you're doing it ."' When Ed took it up with yet another manager, he was told, "This is a business decision that has been made...
...Some subordinates admired Sporck's form of autocracy because they thought he was fair...
...I always felt uneasy about it, but not so much as I should have, because it was so out in the open," she recalls...
...The controller of the linear group put it this way to Cushing: "You don't pay your way...
...Later in the day, she called again to tell me an investigator would visit her house soon to take her story...
...The price could range up to $8 each for some types...
...Among them on a typical day in 1981 would have been National's president, Charles E. Sporck, driving his pickup truck through the bumper-to-bumper traffic on Semiconductor Drive...
...But a paper trail remained in National's employee logs and telexes and memos between managers...
...I knew if I was the recipient of his tonguelashing, I probably deserved it," one executive told me...
...Naturally, his boss quickly ordered him to retrieve every copy...
...He said, 'Lie...
...On June 3,1980, three miles inside Cheyenne Mountain, Colorado, the computers of the Strategic Air Command signaled that Soviet nuclear submarines had launched two missiles toward the United States...
...Rather, I see the story of how dozens of National employees became involved in deception and fraud as a subtle and complex example of what happens when men and women are subjected to certain unchecked institutional pressures...
...And some were just plain gone...
...No one knows for sure, but consider an anonymous telephone call from a woman who worked in another semiconductor company that David Willman and I received after the Mercury News series ran...
...One 22-year-old woman supervised half-a-dozen quality inspectors...
...One military plant supervisor remembers how exhausting it was to keep hitting the difficult sales goals...
...This could mean an entire new group of tests and delay of a shipment to the defense contractor by two to three months...
...no one stayed at his job for more than a few months at a time, including the top managers...
...But the Defense Department had bought and paid for the massive testing to weed out "the wild ones," the few that had any chance of failure, because it justifiably felt that it had little margin for error...
...One afternoon at the plant in Danbury, Connecticut, a manager noticed that workers were still using the company's putting green at around 2 p.m...
...At Signetics, Mollerstuen was not affected substantially by the agreement because he was involved in only the manufacture of commercial chips...
...If too many chips failed, the entire batch from which they came, called the "mother lot," had to be rejected...
...But in production meetings Sharon had quickly learned that "the whole emphasis was on shipping and getting the parts out the door...
...Whether Mollerstuen knew is unclear...
...federal grand jury for National's military testing records...
...David Sylvester is a business writer for the San Jose Mercury News...
...The people who feel these pressures are not Strangelovian madmen, but people like this woman: people like you and me...
...Don't ask me to explain it," Sharon says...
...This demoralized some subordinates...
...From the National plant in Singapore, where the less sensitive military chips were made, documents were sometimes blotted with erasures and mistakes or marked in pencil rather than ink, which was required...
...Things had changed considerably since the early days of semiconductor manufacturing, when the military had been "the creative first user" of the integrated circuits, from which today's semiconductors evolved...
...In the offices of Building D, it was called "regenerating the paperwork ." "Basically, we took a clean copy and transferred the information we could, but changed the burn-in hours and added in any testing they may have missed," said one supervisor...
...It was going to stop...
...He found failures primarily among some quirky types that always tested poorly...
...Where once chip-makers concerned themselves with making a few carefully produced chips that could command premium prices, today chips are produced by the millions at a few cents each...
...National was taken off the Defense Electronics Supply Center's Qualified Products List for three months in 1982, but, as a spokesman for DESC told me, "A lot of people depend on those parts...
...The result: to meet a particularly important deadline, Sharon would replace chips that failed tests and select new chips that would pass...
...To win and maintain their place in the market, they helped refine attitudes that are now widely studied and imitated: they are lean organizations that offer high reward for individual performance and an inspiring orientation toward results...
...He produced nothing...
...In this constellation, Mollerstuen couldn't hope to shine...
...Among the pieces of testing equipment and the engineers and managers scurrying around in white smocks, there were tall metal shelves filled with unshipped chips in cardboard boxes...
...That's always a consideration on our part—we try to get them back on [the Qualified Products List] as quickly as possible...
...After three sleepless nights of scouring, technicians discovered the culprit: a No...
...Like many rationalizations for evading a formal rule, those offered for National's cheating on the tests have some truth in them...
...If he did know, it seems certain he never suspected how seriously it would be regarded later...
...Of course, National's conviction did have an intangible ripple effect on its business as new contracts that it might have won before the scandal broke went to other companies...
...The cheating might be easier to understand if it were done by more established defense contractors like General Dynamics and Pratt & Whitney, whose relationships with the Pentagon have grown cozy over the years...
...These chips were required to be baked at 125 degrees centigrade night and day for one week while electricity coursed through their circuits, a process that weeded out "weak sisters...
...They used other employees' stamps, switched pens, changed their handwriting on blank new forms to create a phony paper trail...
...But mil-aero created many of its own problems through disorganization...
...I was floored...
...But National's soul-searching has been accompanied by little punishment from the government...
...The DLA action set off a wave of transfers and personnel changes within National, including shifting the mil-aero group to another vice president...
...We were going to bite the bullet...
...How could records just disappear...
...This last reform had been in the works since the late seventies...
...I really felt like we were selling a good product," said one former manager who knew about the cheating...
...During one period when chip orders turned soft, he required all spending requests for more than $2,000 to carry his personal signature...
...He accepted the lot without looking through the microscope himself to see what he was buying: "He didn't know it was bad!' I gave her the hotline number of the Defense Criminal Investigative Service and implored her to call me back if she felt she didn't receive a satisfactory show of interest...
...One day on the new job a quality supervisor from a major defense contractor visited to check a set of chips...
...B-52s carrying nuclear bombs were prepared for takeoff while SAC frantically sought to confirm the impending attack through its other monitoring sites...
...An independent quality group now reports its findings directly to the board of directors...
...As Sharon found herself facing an approaching deadline for filing annual testing reports to the Defense Electronics Supply Center (an electronics warehouse that oversees military procurement), the employees undertook an earnest search for the original testing documents...
...So he wrote a memo listing these illicit employee stamps so his supervisors would know which ones were the fakes...
...But the five companies—Texas Instruments, Advanced Micro Devices, Signetics, Fairchild Camera & Instrument, and National Semiconductor—are all young, entrepreneurial firms of the sort currently being hailed in books like the best-selling In Search of Excellence...
...I can't remember exactly what he said, but the gist of it was, 'We burn in these parts because failure rates justify it.' He showed me on a graph how the bad parts would be detected [in just a few hours] and that the extra burn-in wasn't needed...
...I would tell them, 'You don't know I'm borrowing your stamp,' she said...
...How can these companies drift from the diligent attention to quality and detail for which they are so often touted to violate safety agreements so brazenly...
...You couldn't go back and ask someone what happened six months ago because they weren't there:' Finally, with the government deadline only a few days away, good intentions crumbled...
...Then 222...
...She and her two most trusted line operators spent at least a couple of weeks in another department faking the documents...
...The Animals of the Valley Every morning just before 8 a.m., nearly 10,000 employees choke the highways near the main corporate headquarters of National Semiconductor in Santa Clara, California...
...The Defense Logistics Agency launched an investigation into whether to prevent National and seven individuals, both current and former employees, from doing further business with the government, a formal procedure called "debarment ." Among the DLA targets were Mollerstuen and his direct boss at National, the vice president of international operations...
...Such attention to cost-cutting has become increasingly important to chip-makers over the years as they have aquired more efficient production methods to accommodate an exploding demand...
...Over the past four years, five semiconductor companies have admitted to "irregularities" in their procedures, ranging from minor infractions to full-scale cheating on critical heat tests...
...The false alarm at Cheyenne Mountain was a harrowing lesson in how failure in the smallest link in the system can cause the machinery of nuclear war to whir into action...
...He only assembled and tested parts that the other product managers manufactured...
...But the defense contractors were not calling to denounce Cushing for undermining the integrity of their products with inadequately tested chips...
...Even when he did well, "it was like, 'if you are doing a good job, we know you can do better, so let's increase the goals,' " he says...
...Stories about Sporck's tight-fisted spending habits are the stuff of legend at National...
...In 1982, when the Defense Department investigated National's fraudulent testing, one military engineer who is a violent critic of National checked his computer data base for the history of bad National chips...
...Still, one can imagine punishment harsher than six months'-worth of restrictions on doing business with the military...
...Bit by bit, some—not all—turned up...
...But there was no getting around the fact that his division was not considered the fast track at National...
...Corporations don't do things" In March 1984, after more than two years of investigations by the Defense Criminal Investigative Service and a San Francisco grand jury, National was indicted on 40 counts of fraud for cutting short its burn-in tests and for faking quality reports to the Defense Electronics Supply Center...
...When a manager was not meeting his sales goals, Sporck's voice would be heard over the partitions and in the stairwells...
...But the manager's attempts were foiled because workers were using so many stamps of former employees...
...In some ways, Sporck's National still resembled the struggling company of 1967...
...attorney defended the decision not to indict individuals on the grounds that it could not be proved that National's top managers knew of or approved the fraud...
...Instead, he was shuffled around among a number of vice presidents and finally wound up reporting to the vice president of international operations...
...The case against the seventh was dropped...
...When I came from [another company], I had very good training, and I was adamant about following the government regulations," she said...
...None of National's corporate officers or managers were indicted or even fined, a fact that aroused some justifiable indignation among many involved in the investigation...
...I can remember running around the building trying to find him to get his signature," remembers one manager, who wanted to spend $20,000 on a piece of military testing equipment...
...Others, particularly at the lower levels, just wore out...
...In a war, they would navigate pilots, aim guns, guide and detonate nuclear warheads...
...These stamps came to take on a life of their own...
...74175 silicon chip in a communications multiplexer, an electronic device that converts information into messages for transmission...
...But the twos kept on coming...
...Sales came to a halt, and National was headed for its first loss ever...
...When Sporck first arrived at National in 1967, leaving a job as general manager at Fairchild, National was a small, floundering company...
...It is thus especially disturbing to learn that semiconductor companies have regularly been caught cutting corners in testing military chips...
...Over the past 30 years, they have outsmarted and outcompeted the old guard in developing semiconductor technology...
...Inside the mil-aero group, many managers had long thought that some of the military testing, particularly for older, highly reliable chips, was not essential...
...Everything had to click in a certain amount of time," he remembers...
...He basically told me to ignore it," he remembers...
...Printed circuit boards filled with chips ready for a heat treatment called "burn-in" were stacked on tables, on carts, on chairs, waiting to be put into the ceiling-high ovens...
...Mil-aero's response was to forge new documents...
...We decided at this point it would be a waste of time to go back," recalls Sharon...
...The U.S...
...As Cushing recalls, "I guess the biggest shock to me was dealing with some of the major defense contractors and having very senior people say to me, 'I don't give a shit whether you do the burn-in or not...
...And chips are not just in the SAC computers...
...Disappearing documents One day, when his boss was on vacation, a midlevel production supervisor (whom I'll call Ed to honor his request for anonymity) received complaints from some of his quality inspectors that supervisors had taken chips out of the burn-in ovens after only 48 hours, well before the 160 hours required by Defense Department regulations...
...The same day the indictment was handed down National agreed to plead guilty and pay $1.8 million in fines and penalties...
...Machines would break down, and he would fight to replace them...
...After the scandal broke, Cushing conducted many tests on the chips in question under the watchful eye of Defense Department engineers...
...As the military had grown less important to National, mil-aero had developed a reputation for collecting the deadwood employees...
...It had grown like a juggernaut and never lost money...
...At times, Sharon would slip into her department and borrow another worker's stamp showing the employee number and initials to indicate when a test was done...
...Some of these chips had failed tests and were waiting for "failure analysis" But because of the disorganization, much failure analysis was never done...
...Ed complained to his boss's manager...
...No one has traced a failure in the operation of a weapon or military communications to these shortcuts, but the incident at Cheyenne Mountain illustrates the potential dangers they raise...
...His findings: "We had data coming out our ass to show it didn't matter...
...Still others were in the corners of rooms...
...A further handicap for the department was that the heart of its work was tracking the chips through an endless array of government forms that far exceeded anything in the civilian end of the business...
...they were calling to denounce Cushing for holding up shipments of chips, any chips, so they could move their own merchandise...
...Some Defense Department officials felt differently...
...Its aggressiveness had earned National the nickname "The Animals of the Valley" in Fortune magazine, and the marketing department had responded by issuing "Animal of the Month" awards to top performers...
...It is interesting to note how the customers reacted...
...Indeed, every National employee I spoke with, whether defender or critic, repeated this sentiment...
...When you make it, I don't have any confidence in the numbers" Worst of all, mil-aero was always late in getting finished chips out to the customers—the defense contractors who built the weapons in which the semiconductors were placed...
...People in the halls are moving twice as fast at National," is how one former employee puts it...
...Sporck hated to waste money on things like fancy offices...
...It was largely his traffic jam...
...If you are recruiting at a college campus, and you say you can make whizz bang MOS microprocessors or you can make military semiconductors, what would you choose...
...Sporck has also instituted a system by which an employee can anonymously report suspected violations to the management for investigation...
...High volume was a key to this goal, and Sporck could be ruthless in its pursuit...
...Fourteen years later, the orchards that had surrounded National were gone, replaced by a small city of flat bunker-like buildings...
...National was probably never in any great danger of losing its business with the Defense Department as a result of its crimes, if only because some of the projects at stake—Rockwell's B-1B bomber, for example, or Lockheed's $1.1 billion Milstar communications satellite—were high priorities at the Pentagon...
...Even more chaotic was the paperwork: crucial government reports documenting the long testing procedures were scattered on desks and in boxes or, perhaps, sent to a room grandiloquently called Archives that one employee called "a big black hole" because documents sent there might never be seen again...
...When I make [a sale], I know the numbers are right...
...A disorganized group under extreme pressure to ship chips—it was a recipe for difficulties...
...Cushing had to inform defense contractors awaiting semiconductor shipments that National could not ship any more military chips until its procedures were set straight...
...It wasn't like knowingly sending a defective engine to the Air Force," said another former top executive...
...You don't have to mow water," he reportedly said...
...National was now a $1 billion company, number 287 on the Fortune 500...
...In 1981, some military systems were still using the 1K random-access-memory chip, which had been invented more than five years earlier and had been succeeded by two new generations of chips...
...in just six short years, from 1962 to 1968, military demand for integrated circuits had gone from being 100 percent of a $4 million market to being 37 percent of a $312 million market...
...For example, mil-aero regularly lost money for the logic group because the price of logic chips did not cover the cost of running them through extensive military testing...
...Rumors had circulated for some time among other National employees about what was going on in mil-aero...
...When the chips stopped flowing, Cushing started receiving angry phone calls day and night, at the office and at home...
...One reason for the late shipments was the rigor of military testing as compared to civilian testing...
...The issue was settled when six of the seven agreed to an informal, voluntary type of debarment that prevented them from having anything to do with government contracts for three years...
...Those people who were very critical of mil-aero didn't have the foggiest idea of what we had to do," he recalls...
...While this was obviously an enormous increase in business, the explosion of commercial uses for integrated circuits had deflated the relative significance of the military as a customer, with the result that by the late 1970s, Defense Department officials were beginning to worry that the chip industry was losing interest in supplying military needs...
...I said, 'Hey Bob, what happens when these fail?' That's when he told me about the back-up system [in a warhead's guidance system]" Becoming nervous, she slipped away to call her boss at home...
...I went through situations where I had 15 to 18 people literally ready to give me physical abuse for not shipping the product," he says...
...The Dark Side of the Force by David Sylvester Lean and aggressively committed to results, National Semiconductor represented the best in American capitalism until it started cheating the government—and threatening our safety...
...National is, in the eyes of the law, the only criminal among the five semiconductor companies—the only one to face indictment, plead guilty to 40 counts of fraud, and pay fines and penalties for not testing its military chips fully...
...This article grew our of an investigation for the Mercury News by Sylvester and David Willman...
...But after I got through examining what they knew and when they knew it, I found myself wondering something else: why did they do it...
...That was the last I heard from her...
...The testing records were mislabeled and stored in an obscure corner of Archives...
...Once a batch of papers was mangled in the transportation from the Far East...
...The second-largest mini-company produced linear chips, far more difficult to make and commanding higher prices...
...people do things...
Vol. 17 • February 1985 • No. 1
