Ethics issue roils council

IAC members question Balutis' consulting work<@VM>The hiring agreement<@VM>A troubling setup<@VM>Plenty of support

Alan Balutis, the executive director of the Industry Advisory Council, is coming under fire from some members of the influential industry group because he also provides paid consulting services to some IAC companies. Critics say this creates conflict of interest.

The issue has been simmering since at least November when the IAC board tried to resolve concerns about Balutis' outside consulting work. Several members said this controversy will be among the first issues addressed after the newly elected board takes office July 1.

Balutis also serves as executive director of the Federation of Government Information Processing Councils, which shares office space with and derives most of its funding from Fairfax, Va.-based IAC. As executive director of both organizations, he helps plan the conferences and meetings that bring together information technology executives from government and IAC's 300 member companies.

Balutis' hiring agreement with IAC allows him to engage in outside consulting if it poses no conflict of interest, and he "files a statement semi-annually with the boards of both organizations indicating who he has done work for in the preceding six months," according to a June 19 board statement.

"This arrangement was a condition of his employment and was discussed with and agreed to by both the FGIPC and IAC board chairs when Dr. Balutis began work as executive director and chief operating officer of both associations in March 2001," the statement said. "In no case has either board found that his outside work posed any conflict with his role in IAC or FGIPC."

Balutis provided the board statement and a copy of his financial disclosure statement to Washington Technology.

According to the financial disclosure statement, during the period April 1 to Dec. 31, 2001, Balutis served under retainer to three companies: Commerce One E-Government Solutions (since spun off into a separate company, Aquilent Inc., Laurel, Md.), Computer Sciences Corp., El Segundo, Calif., and SAS Institute Inc., Cary, N.C.

He also worked on specific projects for Accenture Ltd., Hamilton, Bermuda, and RGII Technologies Inc., Annapolis, Md., and served in salaried advisory positions for Federal Computer Week and the E-Gov Conference, both owned by 101 Communications LLC, Chatsworth, Calif. He was an unsalaried member of a federal advisory board for Sigaba Corp., San Mateo, Calif.

Balutis declined to answer further questions.

Despite the board's strong defense of Baltis, critics say there is growing dissatisfaction among IAC members about the extent of his consulting work. They worry that Balutis uses his highly visible position, with its access to top federal officials, on behalf of his clients, who then get preferential treatment over IAC's other member companies.

These IAC members spoke on condition that their names not be used, citing concerns over turning the issue into a personal conflict, as well as fear of retaliation for speaking out.

PostNewsweek Tech Media, the parent of Washington Technology and Government Computer News, is a member of IAC. Last November, Balutis was named to the PostNewsweek Hall of Fame for his contributions to government IT.

Balutis also now holds a seat on the federal advisory board of webMethods Inc, Fairfax, Va., said Ivy Eckerman, a spokeswoman for webMethods. Board members do not receive cash compensation, but periodically are given stock options at current fair market value, an arrangement that is "standard in our industry," she said.

Don Arnold, a vice president for E-Gov, said that for less than a year, Balutis has had a "modestly paid position" with E-Gov as a program advisory board chairman.

Arnold, who was re-elected to the IAC board last month, said he discussed with Balutis very early on the possibility of the appearance of conflict of interest.

"He said his integrity and honesty would not go away simply because he had left the government," Arnold said. "It's a difficult path to walk, and I expressed reservations ... but if he was going to take on the challenge, that was his challenge to take on."

Arnold also said Washington Technology might itself have a conflict of interest writing about Balutis, because PostNewsweek Tech Media and 101 Communications compete against each other in publications and trade shows.

When the IAC board met in November, Balutis was asked to excuse himself from the session while board members discussed the issue, according to sources present at the meeting. At that time, Balutis was asked to submit in writing a list of the companies with whom he was consulting and to keep the board apprised of any new companies he took on, they said.

That action, however, failed to quell concerns, at least among some IAC members, who want the new IAC board to address this issue.

Robert Woods of Affiliated Computer Services Inc. was elected chairman of the new board. The vice chairs are Renato (Renny) DiPentima of SRA International Inc., Linda Martin of Acquisition Solutions Inc., Laura Floyd of Electronic Data Systems Corp., Don Arnold and Sara DeCarlo of AT&T Corp. One last seat is unfilled because two candidates finished in a tie and a runoff must be held.

Woods declined to say whether the new board would take action on the matter. "We're going to work to learn things from the current board ... and areas where we need to pay attention," he said.When Terri Beck, the previous IAC executive director, left in April 2000, FGIPC Chairman James Buckner of the Army Materiel Command and IAC Chairman Robert Lohfeld of OAO Corp. (now part of Lockheed Martin Corp.) agreed to combine the organizations administratively, so they could afford a higher-profile executive, according to members.

Beck had been paid $70,000 per year with a $5,000 performance bonus. Balutis, who joined IAC after retiring as director of the Advanced Technology Program with the National Institute of Standards and Technology, reportedly received a salary of $135,000 a year, a $13,500 signing bonus and a performance bonus of $20,000, of which he was recently awarded about $18,000, sources said.

Balutis struck a handshake deal with the two chairmen of the groups, allowing him to engage in outside consulting as part of the job offer, several IAC members said.

But one source close to the matter said the new executive director's hiring negotiations, both written and verbal, did not have the full board's participation or endorsement, one reason the current difficulties have arisen.

As for Balutis' base salary, by comparison, Harris Miller, president of the Information Technology Association of America, earned compensation of more than $329,000 in fiscal 2000, according to the National Journal's March survey of association executives' salaries. That year, Norman Wood, then-president of the Armed Forces Communications and Electronics Association, was paid more than $227,000, while Bobby Harnage, national president of the American Federation of Government Employees, earned almost $123,000.

Roger Baker, an executive vice president with CACI International Inc. of Arlington, Va., said Balutis had several employment opportunities when he retired from the government, but IAC "was the most attractive to him, specifically because they would let him consult."

Baker, who previously served as chief information officer in the Commerce Department, where he was Balutis' boss, said IAC has a very low dues structure.

"If IAC wanted to pay the full freight, they would probably have to double or triple his salary [for Balutis] to make what his peers make," Baker said. "The same people who are [complaining about conflict of interest] are making a whole lot more than Alan."Although the board expressed satisfaction with the consulting arrangement, experts in business ethics see trouble.

"Certainly, there's a perception of a conflict," said Philip Cochran, director of the Center for the Study of Business and Public Issues in Penn State's Smeal College of Business. "Theoretically, somebody might be able to perform those roles and keep them at arm's length, but like Andersen and Enron, there's too big a chance that a conflict could emerge."

Richard Coughlan, a management professor at the University of Richmond's Robins School of Business, who specializes in business ethics, said that whether or not Balutis has a conflict of interest, if members perceive there is one, "then, in one sense or another, there is a conflict."

And James Post, director of the Doctorate in Business Administration Program in the School of Management strategy and policy department at Boston University, said: "If this is a full-time employee with performance clauses in his contract, he's expected to give his full time and attention to the business. Anything that conflicts with that per se is a conflict."

ITAA's Miller said he reviews with his board any outside opportunities. "I would not accept anything the board doesn't approve," he said. The only responsibility he has taken on outside ITAA is to serve as an associate member of the board of directors of a non-IT company, he said.

"I would not ever take a consulting job with [a member company]," he said.

Similarly, Dan Heinemeier, president of the Government Electronics and Information Technology Association in Arlington, Va., said he and other staff each year are supposed to sign a conflict of interest statement, and that there are restrictions on any consulting that might be considered germane to his full-time position.

"This is pretty uncommon," Heinemeier said when told that an association director had more than one consulting agreement with member companies. "I've never run across a colleague at our level who does this."In its recent statement supporting him, the board said: "[Alan] Balutis has always been a person of high ethical conduct and behavior. He has brought new stature, visibility and professionalism to both FGIPC and IAC during his tenure. ..."

Balutis' former boss, Roger Baker, echoed this view. "I don't think there's ever been a better suited person for a position or a position for a person," he said. "Government [executives] are the first to say he's just done a tremendous job. ... I'd be the first to agree he would need to be sensitive to the issues, [but] I think he can keep it straight."

Baker serves on the federal advisory board of Sigaba with Balutis. He declined to discuss his own compensation, but said it is indeed customary to receive stock options in lieu of money for serving in that capacity.

Ann Altman, managing director of IBM Corp.'s U.S. federal business, praised Balutis as well. "I think [he] has been a great addition to that organization and has really made an impact in the programming and value ... to industry and government," she said.

IBM has not engaged Balutis for any consulting services, she said.

Baker also suggested that Balutis had strong support in the government, where he worked for many years. Baker, in fact, said he was present when "very senior government people have made it very clear to members of [the IAC] board that they would be cutting off their noses to spite their faces" if the board took any action against Balutis because of conflict-of-interest questions.

Staff Writer Patience Wait can be reached at pwait@postnewsweektech.com.

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