* CEO change caps months of behind-the-scenes wrangling
* Novakovic becomes top-ranking woman at big US defense firm
* Johnson to get $3.6 million bonus, plus consulting fee
By Andrea Shalal-Esa
WASHINGTON, June 6 U.S. defense contractor
General Dynamics said on Wednesday that Chief Executive
Jay Johnson would retire at the end of the year, to be succeeded
by Phebe Novakovic, who took over as president and chief
operating officer just last month.
Johnson, who celebrated his 66th birthday this week, will
receive a bonus of $3.6 million, plus an additional $825,000 for
consulting services through the end of June, General Dynamics
said in a filing with the Securities and Exchange Commission.
Novakovic, a one-time CIA officer named by Fortune magazine
last year as one of the "50 most powerful women in business,"
was running the company's marine division before being named to
her current role in March. She will take over as CEO on Jan. 1.
The management changes cap months of behind-the-scenes
wrangling about the future leadership of the company, which
builds everything from Navy destroyers and nuclear submarines to
Army tanks and Gulfstream business jets.
In March, General Dynamics said it was splitting the
company's leadership to make Novakovic, 54, president and COO.
At the time, sources predicted that Johnson would leave his
position within a year, making room for Novakovic to move up to
the top spot. But Wednesday's announcement came earlier than
expected, amid mounting concerns about slowing sales and a fall
in the company's share price.
The latest move will also make Novakovic the highest-ranking
woman to run a major U.S. defense contractor, following a path
blazed by Linda Hudson, a former General Dynamics official, who
now heads the U.S. unit of Britain's BAE Systems.
"The defense industry is undergoing a demographic revolution
in which women for the first time ever are rising to the most
senior jobs at places like General Dynamics and BAE Systems and
Lockheed Martin," said defense consultant Loren Thompson.
"Twenty years ago you wouldn't have believed that this
industry was capable of such a transformation."
Lockheed Martin Corp announced in April that
Marillyn Hewson, who has held a wide array of leadership posts,
would become president and chief operating officer in January.
Novakovic, who joined General Dynamics in 2001, had the
strong backing of Nick Chabraja, the powerful former chief
executive of the company who still holds a seat on the board,
according to sources familiar with the process.
The General Dynamics board made the decision at a regular
meeting on Wednesday.
Johnson, a former Navy F-14 fighter pilot who rose to become
a four-star admiral and chief of naval operations, said the
timing of the changes made sense.
"The company is on an excellent financial footing, our
operational performance is unmatched and our leadership team is
very robust. This is the right time to transition," he said in a
statement released by the company.
EARLIER THAN EXPECTED
But defense consultant Jim McAleese said Johnson's
earlier-than-expected departure reflected the board's concern
about first-quarter declines in sales and earnings in the
information systems sector, which generates about a third of
Those results, and signs that a key customer, the U.S. Army,
was slowing spending even before tough budget cuts take effect,
had driven General Dynamics shares down by about $3 in April.
"Clearly the company needs a catalyst to reenergize the
stock," McAleese said, adding that Novakovic was seen by
investors as shrewd, charismatic and decisive.
Before joining General Dynamics, Novakovic spent nearly four
years as a special assistant to the defense secretary and deputy
secretary of defense from 1997 to 2001.
General Dynamics shares closed $1.64 or 2.46 percent higher
on Wednesday at $63.62, still well below a year high of $75.92
reached in July 2011.
General Dynamics cited development of a new double-V hull
Stryker combat vehicle, which protects soldiers from roadside
bomb attacks, as among its most significant operational
achievements during Johnson's tenure.
It said Johnson also oversaw the start of two-per-year
production of Virginia-class attack submarines, and the final
development of two new aircraft for Gulfstream, the
ultra-long-range Gulfstream G650 and the super mid-sized
Gulfstream G280. Both aircraft are scheduled to enter service
Johnson, who joined General Dynamics' board in 2003, was the
chief executive of Dominion Virginia Power before taking a top
management job with General Dynamics in 2008. He moved into the
CEO job in June 2009 when Chabraja retired.
Johnson said he felt he met his objectives to extend the
company's "excellent performance, enhance the relevance of the
products and services we deliver to our customers and continue
the development of a strong group of well-qualified executives
who would be ready to lead the company into a new era."
Thompson said Novakovic would face tough challenges when she
assumes power, including the prospect of $500 billion in
additional defense spending cuts on top of $487 billion already
slated to take effect over the next decade.
"Johnson is leaving General Dynamics in pretty good shape,
but his successor is going to face some really daunting
challenges in terms of budget sequestration and declining
military demand," he said.