CONTENTS Page Dr. Wynn Laurence LePage, emeritus chairman, Board of Managers, the 2, 68 William H. Meckling, dean of the graduate school of management, Uni- (III) INQUIRY INTO POSSIBLE CONFLICTS OF INTEREST INVOLVING THE CENTER FOR NAVAL ANALYSES MONDAY, SEPTEMBER 20, 1971. U.S. SENATE, SUBCOMMITTEE ON CENTER FOR NAVAL ANALYSES, OF THE COMMITTEE ON ARMED SERVICES, Washington, D.C. The Subcommittee on Center for Naval Analyses composed of Senators Byrd, Jr., of Virginia (chairman), and Smith, met, pursuant to notice, at 2:30 p.m., in room 224, Old Senate Office Building. Present: Senators Byrd (presiding) and Smith. Also present: Senator Schweiker. Staff present: L. B. Garcia, counsel, Hyman Fine, and Charles J. Conneely, professional staff members, and Mary E. Keough, staff aide. Senator BYRD. The committee will come to order. This subcommittee was appointed on September 3, 1971, to inquire into matters on possible conflicts of interest involving the Center for Naval Analyses. This organization is a federally funded contract research center providing services for the Department of the Navy under contract with the University of Rochester. The Center for Naval Analyses is one of several federally funded contract research centers which function under contractual agreements with the military services and the Department of Defense. These centers are of particular interest to the Senate Armed Services Committee because funds for their continued operation are a part of the annual defense authorization bill. For some time there has been a growing apprehension about salaries paid by these so-called nonprofit organizations, as well as their size, which operate under annually financed defense contracts. While these organizations are nongovernment in nature, most, if not all, of their income is from defense contracts. Even today there are those who feel that Federal contract research centers provide a means to circumvent civil service compensation salary scales. The Congress is responsible not only for surveillance of that portion of the budget which provides for their funding but the management and operation of the centers as well. During consideration of the fiscal year 1970 authorization bill, the committee recommended the enactment of section 407 of Public Law 91-121 which imposed a ceiling of $45.000 per annum on the compensation of officers and employees of these centers. The law further provides that exceptions to this limitation would require approval by (1) the Secretary of Defense under regulations prescribed by the President. Following the passage of that law, the Congress was informed that the salary of the President of the Center for Naval Analyses had been raised to $50,000 per year. This notification is required under the above-cited law. The documentation which accompanied the notification raised a number of questions in both Armed Services Committees of the House and Senate concerning possible conflicts of interest. It is not the salary itself that resulted in these hearings but the documentation that accompanied this notification. Thus, the purpose of this inquiry is to determine the propriety of certain actions which we will discuss here. I want to welcome the witnesses who will testify at these hearingsDr. Frosch and Admiral Zumwalt, we are always happy to see you. The first witness will be Dr. Laurence LePage. Dr. LePage, we want to welcome you and I understand we have interrupted your vacation, for which we express our regrets. STATEMENT OF DR. WYNN LAURENCE LE PAGE, EMERITUS CHAIRMAN, BOARD OF MANAGERS, THE FRANKLIN INSTITUTE Dr. LEPAGE. May I have my associate, Dr. Dees, accompany me? Senator BYRD. You may. Dr. LEPAGE. Before I sit down, may I say that only the privilege of meeting you, sir, and, particularly, the distinguished Senator from Maine, could possibly draw me away from that beautiful island that she knows all about up there. I am very glad to be here. Senator BYRD. Thank you sir. You must have been to Maine; is that right? Dr. LEPAGE. I came down the day before yesterday from Northeast Harbor. I am going back as soon as these proceedings are over, sir. Senator BYRD. Do you have a statement you would like to make to the committee? Dr. LEPAGE. Any statement that I might make I would prefer to make when the questioning is over. Is that satisfactory to you? Senator BYRD. That is perfectly satisfactory. I have several questions, Dr. LePage, and I will call on Senator Smith later. Dr. LePage, you were president of the Franklin Institute in 1962. Would you tell us how long you served in that position and what is your current status with respect to the institute? Dr. LEPAGE. I became president in 1958. I may say it is customary to name the president of the institute from among the board of managers. I was a member of the board of managers from January 1953 to this date and still am. I served as president until 1967. My successor is Dr. Dees, who is sitting by me here today. I became chairman of the board in 1967. I voluntarily asked to be relieved of that post this past JanuaryJanuary 1971-and I was promptly and most surprisingly accorded the honor of being named emeritus chairman, which I am now. I am still a member of the board in that capacity. Senator BYRD. Could I ask what size staff the institute has at the present time? Dr. LEPAGE. About 600, including some 150 part-time workers. Senator BYRD. Can you tell us briefly what were your duties as president of the Franklin Institute? Dr. LEPAGE. Mr. Chairman, as president I was responsible for the overall guidance and activities of the Franklin Institute and I reported to the board of managers. Senator BYRD. For the record, it would be helpful to have the general background of the Franklin Institute, when it was founded and its principal fields of endeavor. Dr. LEPAGE. I have a very full statement that I would like to submit later for the record, but I have a somewhat briefer one here, if I may read it. The Franklin Institute has a long and distinguished history. It was founded in 1824 for the purpose of "promoting the mechanic arts." That is a quotation from the charter, to use the language at that time. The institute is a membership society of nearly 7,000 members which functions as a scientific and educational organization for public service. It is a private organization, independent of any other. No part of the net earnings of the institute inure to the benefit of any private shareholder or individual. Today our activities encompass a teaching museum which emphasizes the physical sciences and technology, including a planetarium and a national memorial to Benjamin Franklin-I might say a very appropriate one and one that is unique in this country. The museum has a usual annual attendance of about three-quarters of a million persons. A unique scientific and technical library is part of the Franklin Institute available to the public and used by those requiring information from it from all sections of the United States. A program of scientific lectures is part of the institute's activities, including seminars and demonstrations. The dissemination of scientific information is another institute function carried out in part through the 145-year-old Journal of the Franklin Institute, and in part through papers prepared by our staff and published in other technical journals. The regular program of instruction for students and adults is another part of the institute's program, as also the annual medal awards which go for the outstanding contributions to science and "the mechanic arts" across the world for notable achievement in technology; and basic and applied research-as well as development work—are carried out through our research laboratories. May I continue this statement, sir? Senator BYRD. You may continue. Dr. LEPAGE. During the years between 1829 and 1924, the institute undertook a great number of scientific investigations. These investigations, initiated either by the institute itself or at the request of local, State or Federal Governments are, in themselves, a clear reflection of the Nation's growing scientific and industrial maturity. It may be of interest to note that the subcommittees that handled this research in those days paid the expenses themselves or encouraged |