How a former North Dakotan's foreign sales landed governments across the globe in hot water
North Dakota native Carl Kotchian rose the ranks to become president of Lockheed. His foreign deals ultimately put Japan's prime minister behind bars and prompted investigations worldwide.
A president of the Lockheed Aircraft Corporation, which had been one of the world's largest aerospace companies, was born in North Dakota.
Carl Kotchian began his career with the company in 1941 as a budget analyst manager for the Vega Airplane Company, a subsidiary of Lockheed. He continued to earn promotions at Lockheed and was named president of the company in 1967, a position he held until 1976.
In dealing with so-called friendly nations, one of the shocking lessons Kotchian learned as chief executive was that government officials often demanded bribes or kickbacks before consummating a deal. His later testimonies helped spur the downfall of Japan's ruling government, discredit the monarchy in the Netherlands, and launch inquiries in Colombia, Turkey, Italy, West Germany and Saudi Arabia. It also led Congress to pass the Foreign Corrupt Practices Act in 1977.
Lockheed was not the only victim of these pay-to-play tactics. Over 400 American companies ultimately admitted to paying foreign leaders during the 1960s and 1970s. These payments are estimated to be $3 billion in today's money.
Archibald “Carl” Carlisle Kotchian was born on July 17, 1914, in Kermit, a small town in what is now Divide County, to Adolphus and Mamie “Mae” (Bonzer) Kotchian. Adolphus was a cashier for the First State Bank in Kermit and got his start in the banking business by serving as the bookkeeper for the Farmers National Bank in Lidgerwood, a bank where Alexander Bonzer was a director. Adolphus fell in love with Bonzer’s daughter, Mae, and after their marriage, they moved to Kermit in 1910, hoping to cash in on the wave of Norwegian immigrants settling in the area.
In 1910, the population of Kermit was 108, and, because it was located along the Soo Line Railroad tracks, some people believed it would grow into a much larger town. Unfortunately, that never materialized, and, on Oct. 16, 1917, when Carl was 3 years old, Adolphus died by suicide.
In Kermit at that time was Lawrence Long, a grain buyer from Kenmare who worked for the Atlantic Elevator Company. Long had been raised by a stepfather and understood that it was important for a young boy to have a good father figure while growing up. Long took Mae and her young son back to her parents' home in Lidgerwood, where he and Mae were married on Dec. 29, 1918.
The newlyweds, along with Carl, then moved to Long Beach, California, where they marketed shades and drapes. Carl attended Woodrow Wilson High School in Long Beach and excelled in debate and theatrical productions. In his senior year, from 1930 to 1931, he was elected vice president of the senior class and served as assistant manager of the football team.
Following graduation in 1931, Carl Kotchian attended Long Beach Junior College, now Long Beach City College, then transferred to Stanford University, where he was a member of the debate team. Kotchian graduated from Stanford in 1935 and received his master’s degree in business administration in 1938. He became a certified public accountant in 1940 and began working in Los Angeles for Price Waterhouse, one of the world’s largest international accounting firms.
In 1941, Kotchian was hired by Lockheed to be a budget analyst manager for their Vega Airplane division. With the involvement of the U.S. in World War II, Vega entered a partnership with the Boeing and Douglas airplane companies (BVD) and established a factory to build military airplanes. By the end of November 1943, Vega merged back into Lockheed. Kotchian climbed the ladder at Lockheed. He oversaw the rise in production at the company's Burbank, California, factory. By the end of the war, the company had produced 19,278 aircraft.
In 1951, Kotchian was named assistant director of financial operations when Lockheed began its operations in a new division in Marietta, Georgia. It was here that the company began producing the C-130 cargo plane and the F-22 fighter jet. In 1956, Kotchian was named vice president and general manager of the Marietta division. In 1959, he returned to corporate headquarters in Burbank and was promoted to executive vice president of the Lockheed Aircraft Corporation in 1965.
Lockheed was busy fulfilling U.S. Air Force needs in the 1960s during the country’s involvement in Vietnam. Because larger and heavier equipment needed to be transported, the military put out bids to build a transport plane that could handle these bigger payloads. Lockheed and Boeing received the most serious consideration, and the military selected Lockheed because its C-5 Galaxy was lower in cost. The company was awarded a contract in December 1965.
Because of many technical difficulties, the company encountered higher costs and Lockheed began to suffer considerable financial difficulties. Not long after production and testing, cracks were found in the wings, reducing payload from 220,000 pounds to 190,000 pounds. When Kotchian became president of Lockheed in 1967, he was facing some serious financial challenges.
With the company bleeding money because of the C-5 Galaxy, Kotchian hoped to recoup some losses by reentering the commercial travel industry, monopolized by the Boeing 707 and the Douglas DC-8. American Airlines wanted a transatlantic plane that could carry 250 passengers, so Kotchian had his engineers design and build the L-1011 TriStar, which could carry 400 passengers across the ocean. Unfortunately, American Airlines decided to go with the cheaper DC-10 that the Douglas Aircraft Company manufactured.
Drowning in debt in 1971, Kotchian contacted the Richard Nixon administration requesting a $250 million loan guarantee for Lockheed to avoid insolvency. President Nixon's office sent a bill titled “The Emergency Loan Guarantee Act” that was narrowly passed by the Senate. With no buyers available in the U.S., Kotchian knew he needed to generate sales overseas.
Kotchian traveled to Japan in 1972 in an attempt to interest buyers there in the L-1011. On his first day in Tokyo, he was approached twice for payoffs of 500 million yen, or $1.7 million. Most of the money was to go to Japan’s Prime Minister Kakuei Tanaka. Realizing that this was the way business was conducted in Japan and some other countries, Kotchian agreed. Lockheed sold 21 planes to Japan, worth $430 million at that time.
The purchase kept Lockheed afloat, preserved the jobs of thousands of workers and went a long way in paying off Lockheed’s loan authorized by Congress.
When word got out about this deal and hundreds of other similar deals that were made by other American businesses with foreign governments, Kotchian was summoned to testify before the U.S. Senate. In his testimony, Kotchian “maintained that no payoffs were made to American officials and no American laws were violated.” His testimony about the bribes and kickbacks prompted the downfall of the Japanese government and sealed a four-year prison term for Tanaka.
Kotchian and Lockheed became the scapegoats of the scandal, but they certainly were not the only ones making under-the-table payments to foreign officials. He may have been vilified by some, but to many at Lockheed, he was a hero — Kotchian saved the company. Sherman Mullin, president of Skunk Works Corporation, Lockheed’s advanced development subsidiary, wrote that Kotchian “was a widely admired leader, a dynamic individual who greatly contributed to the growth of Lockheed over a very long period of time.”
Kotchian retired to his home in Westlake Village, California, but stayed active in many community functions. He was very proud of his North Dakota heritage and, when he died on Dec. 14, 2008, his request was honored that he be buried in the Bohemian Cemetery in Lidgerwood.