With CEO departure, Lockheed is latest contractor to announce new leadership

Jeffrey MacMillan/JEFFREY MACMILLAN FOR WASHINGTON POST - Christopher Kubasik, president and next CEO of Lockheed Martin, is interviewed in Arlington on Sept. 29, 2011.

Bethesda-based Lockheed Martin, the world’s largest defense contractor, said Thursday that its chief executive will retire at the end of the year, making it the latest firm to bring in new leadership as the defense industry braces for a major contraction in Pentagon spending.

Christopher E. Kubasik, 51, Lockheed’s president and chief operating officer, has been named to succeed Robert J. Stevens, 60, as chief executive. Kubasik is part of a new crop of contracting executives who have been groomed within their companies and are being tasked with overseeing a transition that has required layoffs, buyouts and corporate restructuring.

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Jan. 26 (Bloomberg) -- Kevin Brancato, an analyst with Bloomberg Government, discusses U.S. Defense Department budget cuts and the impact of the cuts on defense contractors like Lockheed Martin Corp., L-3 Communications Holdings Inc., and Northrop Grumman Corp. Brancato speaks on Bloomberg Television's \

Jan. 26 (Bloomberg) -- Kevin Brancato, an analyst with Bloomberg Government, discusses U.S. Defense Department budget cuts and the impact of the cuts on defense contractors like Lockheed Martin Corp., L-3 Communications Holdings Inc., and Northrop Grumman Corp. Brancato speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

“When I look at future challenges, I recognize they will certainly extend beyond my mandatory retirement age,” Stevens told reporters Thursday morning.

Lockheed’s announcement means the top leadership of three of the largest local defense contractors, including Northrop Grumman and General Dynamics, will have turned over within the past several years.

“When the Defense Department goes into a transition, its industry transitions, too, to new demand trends and a new business model,” said Loren Thompson, a defense industry consultant. “That’s the logical time for the old guard to start relinquishing their jobs.”

The reductions to military spending have triggered upheaval within the industry, which has a history of ups and downs. The 1990s saw significant industry consolidation; Lockheed Corp. and Martin Marietta became Lockheed Martin, and Northrop Corp. and Grumman Corp. became Northrop Grumman.

After the attacks of Sept. 11, 2001, and the start of the wars in Afghanistan and Iraq, defense contracting sales surged, but as the conflicts come to an end and federal spending slows, contractors are again repositioning to protect their businesses.

Federal officials are increasingly pushing for lower prices, forcing large contractors to reexamine their corporate costs and staffing. In the information technology sector, in particular, traditional contractors’ government dominance has been challenged by commercial providers, such as Google and Amazon.

A defense contracting chief needs “more qualifications now than you’ve ever needed in the past,” said David J. Berteau, director of the Center for Strategic and International Studies’ international security program.

Whereas past leaders were typically engineers or technical scientists, executives today generally also bring extensive financial knowledge, he said.

“The defense industry and the Defense Department still need that technical excellence in its leadership,” he said, but “however good you are at engineering and physics, you’ve got to have a grounding in the financial side as well.”

Wes Bush, chairman, chief executive and president at Falls Church-based Northrop, was one of the first of a new class of contracting executives.

An electrical engineer, Bush, 51, became CEO and president in January 2010 after tours as chief operating officer, chief financial officer, and president of Northrop’s space technology sector.

Since his appointment, Bush has moved quickly, spinning off Northrop’s shipbuilding unit, relocating the company from California to Northern Virginia and opting not to pursue contracts that won’t provide enough profit.

“One of our biggest activities in our company that’s been underway for a number of years is to really drive an increased level of discipline in the decisions we make getting into the contracts,” Bush said in a call with investors Wednesday.

In the past several years, Lockheed also has taken a more aggressive approach. The company in 2010 offered a large buyout program to its top executives; as a result, about 600 departed.

Since then, the firm has laid off employees in multiple units, sold off some businesses and consolidated facilities.

For Stevens, the moves have proved difficult.

“Two years ago, we had 146,000 employees. We now have 126,000 employees, and that number may well continue to decline,” he said in a speech nearly a year ago. “One of the worst things that I ever have to do is tell good people that we no longer have work for them.”

Defense contractors have looked beyond their traditional strongholds into new areas of work. General Dynamics spent nearly $1 billion to buy Arlington-based Vangent, which provides health-care services, while Lockheed bought QTC Holdings, based in Diamond Bar, Calif., which provides outsourced medical evaluation services to the Department of Veterans Affairs.

Announcing his retirement Thursday, Stevens said he wanted to ensure a smooth transition and allow talent to ascend within the company. He told reporters that he will turn 61 later this year and was facing the company’s mandatory retirement age of 65.

In the past, Stevens has spoken of how fresh ideas can help a business. During a 2010 speech, he told a story from his predecessor of “graybeard technologists” puzzling over how to reduce the weight of a space shuttle.

“A young person from the back of the room said, ‘Why don’t you stop painting the expendable fuel pump?’ And people said, ‘Huh?’ he recalled, explaining that eliminating the paint would significantly trim the weight. “That comes from bringing smart people in who have different experiences and different fields of view.”

Stevens, who plans to remain Lockheed’s chairman through 2013, has been with the company for 25 years, becoming president in 2000 and chief executive four years later.

Kubasik, who spent 17 years at Ernst & Young before coming to Lockheed, served as executive vice president of the electronic systems business and chief financial officer before taking over as president and chief operating officer at the start of 2010.

Lockheed signaled that Kubasik was likely to move up when it promoted him last year to a two-person executive office with Stevens.

Marillyn A. Hewson, who heads the electronics systems unit, will succeed Kubasik. She started as a senior industrial engineer working on production of military aircraft in Marietta, Ga., in the early 1980s.

 
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