August 13, 2012
Credit: Credit: Lockheed Martin
It was hardly surprising when Lockheed Martin announced this spring that Chris Kubasik would succeed Robert J. Stevens as CEO at the start of 2013. The world's largest defense contractor had telegraphed the move two years ago, when Stevens relinquished the title of president to Kubasik, who was once a partner at accounting giant Ernst & Young and joined the company in 1999.
But he will take the top job under less than ideal circumstances: next January also happens to be when $500 billion in automatic cuts in U.S. defense spending could begin taking place under a legislative process known as “sequestration.” Lockheed Martin has warned that if Congress does not avert the cuts, it will be forced to lay off 10,000 employees, or 8% of its workforce. The company already has reduced its staff, including senior management, during the past two years as it seeks to get ahead of leaner Pentagon budgets. Kubasik met with AW&ST Editor-in-Chief Anthony L. Velocci, Jr. and Managing Editor Joseph C. Anselmo at Lockheed Martin's headquarters in Bethesda, Md., to discuss his plans to maintain the company's strong profit margins, what he is telling its 29,000 suppliers, and his close oversight of the over-budget F-35 Joint Strike Fighter program.
AW&ST: You'll be taking the reins of the company under a difficult set of circumstances. How do you size up the challenges ahead of you?
Kubasik: Running a major corporation really is a team sport. We have a core executive management council that helps shape the direction and is involved in the operations of the company. At the end of each year, we do an analysis and ask, “How did we do?” We always end up saying, “This was a really tough year.” I've pretty much convinced myself that every year is going to be tough. If the market is growing 5%, we want to grow 6-7%. And if the market is declining, we obviously want to decline less than our competitors.
Should we expect any significant changes in the direction in which you steer the company?
I don't see any. I've been part of the executive leadership team working with Bob [Stevens] for more than a decade. I've developed the strategy with him, and over the last 3-5 years I've been very involved in all the executive placements. So the team that he has in place is also the team that I was a part of selecting and identifying. With that as the backdrop, and our eight-month transition, I don't foresee any blips or change in direction.
For the past 2-3 years, investors have been worried that the Pentagon's push to put more risk on contractors is going to eat into profit margins. But that has not happened—you just had a great quarter. What do you attribute that to?
The margins are holding up probably because we are leading the industry in making tough decisions and focusing on affordability. We have 18% fewer employees today than we did a couple of years ago. We implemented and executed flawlessly a voluntary executive separation program—26% of the executives, directors and vice presidents—to thin out the organization's structure and cut costs. When I last looked, we've taken out more than 1.5 million square feet of facility space, and we've got a plan for a couple million more. At the end of the day, people and infrastructure are what drives cost. We've reduced both.
Can you make those margins stick?