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March 15, 2013

In trying times, defense companies turn to women

WASHINGTON — At a time of national debate about women's struggle to land top corporate jobs, an unlikely industry is leading the change in the executive suite: defense contractors, where three of the biggest firms are now led by women.

General Dynamics, BAE Systems and Lockheed Martin have defied a long history of male-dominated culture and appointed female chief executives. But that new crop of leaders arrives as the industry faces destabilizing change involving the federal budget.

All three executives must reshape their firms to deal with military procurement cuts, including those recently triggered by the sequester. In her first two months at the helm of General Dynamics, for instance, Phebe Novakovic declared the company had lost its way, halted a years-long string of new acquisitions and eliminated executive positions.

 "I think it's a chance for all of us . . . to make an imprint on an industry," said Linda Hudson, the chief executive of the American branch of BAE Systems, who became the first woman to lead a top U.S. defense company when she assumed the job in 2009.

She and her counterparts - including Marillyn Hewson at Lockheed - must prove themselves in companies that remain far more male-dominated than the economy as a whole. The defense industry has been slow to promote women to its highest levels, in part because of its close connections to the military. Many retired officers eventually become executives at contracting firms, and only recently have women been promoted to the top military posts.

The executive compensation data firm Equilar analyzed financial filings for almost 20 of the largest publicly traded government contractors, at the request of The Washington Post. The analysis found that one in eight executives (at any level) at those firms is a woman. In the economy at large, two of every five managers is a woman, and one in four chief executives is, according to the Labor Department.

"There is a dearth of female CEOs at these companies" in the defense industry, said Aaron Boyd, Equilar's director of research. "It's certainly trending. We're seeing more females. But we're certainly not at the point where anyone would say there's not a gender gap."

The release of Facebook executive Sheryl Sandberg's new book, which bemoans the lack of women leading companies, and the debate over Marissa Mayer's telecommuting ban at Yahoo have focused attention once again on female executives.

In the broad economy, female managers earn about 71 cents for every dollar their male counterparts make. That's a 10-cent larger gap than exists across all occupations.

Female executives in the contracting industry appear to earn about the same at the median as male executives do, according to Equilar. But that's probably because the female executives are concentrated in the largest firms in the industry, which tend to pay more. The typical female executive in defense works at a firm with revenue that is 50 percent higher than the firm where the typical male executive works, Equilar found.

All three women who lead big defense contractors worked their way up in the industry for at least a decade, watching firsthand as federal spending swelled industry profits after the attacks of Sept. 11, 2001.

Hudson took a job out of college as a research and development engineer for the military communications firm Harris. She worked for several defense giants before joining BAE as head of its land and armaments unit in 2007. At the time, business was booming for armored vehicles.

 By the time she took over as chief executive in 2009, the market was starting to sour. Hudson began integrating and streamlining the company, which was an amalgamation of about two dozen businesses cobbled together through acquisitions. At the same time, Hudson has made it a priority to get BAE national recognition for its work environment - a move the company casts as a departure from the rest of the industry.

A former operations officer at the CIA, Novakovic was a top aide to the defense secretary and deputy defense secretary from 1997 to 2001, managing budget and policy decisions. She came to General Dynamics in 2002 and was steadily promoted, to senior vice president of planning and development, then to chief of the company's marine systems unit and then to president and chief operating officer. She took over the chief executive job in January.

In her first earnings call, Novakovic reported to investors that the company was writing down the value of its information systems unit by $2 billion. She said that the firm's acquisition process is "somewhat broken" and that certain buys the company has made would not have happened under her leadership. Later, she shuffled corporate positions and accepted the retirement of the head of the IT unit.

"We are not going to chase revenue. We're going to stick to our knitting and do what we know how to do," she told analysts in January. "It's our job to right-size our businesses, drive costs out and perform for our customers and our shareholders and our people."

Hewson, a 30-year Lockheed veteran, started as chief executive the same day as Novakovic. She arrived under very different circumstances: After the last chief announced he would depart, she was originally picked to be chief operating officer. But she was quickly promoted when the chief executive-to-be was dismissed for an improper relationship with a subordinate.

Hewson has not promised far-reaching departures from the existing strategy. Her immediate predecessor, Robert Stevens, has stayed on as a strategic adviser and continues to draw a salary larger than hers. Still, she has made changes, including restructuring the corporate office and cutting its staff by about 50 in her first month.

More changes are coming at Lockheed. Already, two of the five unit chiefs who report to Hewson have said they are retiring. The company's biggest program, the F-35 fighter jet, remains under fire for cost and performance issues, and the company is continuing to reduce its managers and executives.

After 10 years of growth, it has become clear that contractors simply must reshape for tighter times. The Pentagon is increasingly focused on cost, pushing contractors to stay within already determined prices, moving a portion of its work in-house and basing some of its acquisition decisions mainly on price.

Defense contractors have been preparing for downsizing since it became clear that U.S. forces would exit Iraq and Afghanistan. But that process has become more painful as the Pentagon takes a more cost-conscious approach to contracting - especially since sequestration has bitten heavily into IT and other lucrative areas.

Some analysts say investors will keep the overall trajectory of the industry in mind when judging the performance of the new wave of female chief executives.

 "Whatever their gender may be, the executives who run these companies must respond to the same incentives," said Loren Thompson, a defense industry consultant who has worked with Lockheed, BAE and General Dynamics. "If expectations are low, then it might actually be easier to surprise on the upside."

 Jolynn Shoemaker, a non-resident fellow at Women in International Security, said the challenging environment will distinguish the best leaders.

"We can't stop - nor would we want to stop - progress on gender equality because it's an inconvenient time," she said. "There's always different phases and crises."

 

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