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Lockheed’s Incoming CEO Kubasik Quits After Relationship

By Gopal Ratnam
November 10, 2012 12:01 AM EST
Christopher E. Kubasik, who was to become the next chief executive officer of Lockheed Martin Corp., resigned after a “ close personal relationship” with a subordinate.
Source: Lockheed Martin Corp. via Bloomberg
Christopher E. Kubasik, who was to become the next chief executive officer of Lockheed Martin Corp., resigned after a “ close personal relationship” with a subordinate.

Lockheed Martin Corp. (LMT) said its incoming chief executive officer resigned after the company discovered a relationship with a subordinate and named one of its unit heads to the position starting next year.

Christopher E. Kubasik, Lockheed’s chief operating officer who was slated to become CEO on Jan. 1, left following a probe that confirmed a “lengthy, close and personal relationship” with someone who worked for him, current Chairman and CEO Robert Stevens said on a conference call yesterday. The board named Marillyn A. Hewson, who had run Lockheed’s electronic systems business, as president and COO effective immediately. She will become CEO when Stevens, 61, steps down at yearend.

Kubasik’s departure from Lockheed, the world’s biggest defense contractor, follows similar exits from CEOs at companies including Best Buy Co. (BBY) and was announced the same day CIA Director David Petraeus resigned from his position because of an extramarital affair. Lockheed competitor Boeing Co. (BA) ousted then- CEO Harry Stonecipher in 2005 for having an affair with an employee, 15 months after he returned from retirement to lead the company’s recovery from a purchasing scandal.

“I regret that my conduct in this matter did not meet the standards to which I have always held myself,” Kubasik, who is married, said in a statement yesterday.

Hewson’s Promotion

Lockheed picked Kubasik, 51, to be its next CEO in April after nearly a year of grooming him for the job, including the creation of a joint executive office with Stevens in October 2011. The Bethesda, Maryland-based company is facing declining U.S. defense budgets, as well as criticism of its F-35 Joint Strike Fighter program, which at an estimated $395.7 billion is the Defense Department’s largest weapon system.

Shares of Lockheed rose less than 1 percent to $89.98 at the close in New York yesterday, to give a gain of 11 percent this year.

Hewson, 58, will be among the first women to serve as CEO of a leading defense contractor when Stevens retires from that role in January. Also in January, Phebe Novakovic will become CEO of General Dynamics (GD) Corp.

The investigation into Kubasik’s behavior began after “an employee came forward at the end of October with an expression of concern,” Stevens said on a conference call with reporters. “We conducted a thorough investigation after hiring an outside, independent firm.”

The person involved in the relationship with Kubasik is no longer at Lockheed, Stevens said.

Severance Payment

Kubasik, who previously had the trust of the board, appears to have violated the company’s policies, said Loren Thompson, a defense industry analyst who is also a consultant to Lockheed.

“If an executive breaks the rules and attempts to conceal the fact then they’re automatically disqualified from the top job,” Thompson said in a phone interview.

All executives at Lockheed have to sign an annual certification saying that they understand the company’s ethics rules and are in compliance, Jennifer Whitlow, a spokeswoman, said by telephone yesterday.

Molly Weaver, a spokeswoman for Kubasik, declined to comment when contacted by e-mail.

Kubasik will receive $3.5 million as a severance payment, Lockheed said in a filing with the Securities and Exchange Commission. He will forgo a bonus for this year as well as any unvested portion of his stock options, the company said. Kubasik will be eligible to continue receiving the company’s medical and dental benefits for as long as 18 months, according to the company.

Naval Systems

Kubasik became president and COO in January 2010 after heading Lockheed’s electronic systems unit, the business currently run by Hewson. He joined the company in 1999 after serving as a partner in the accounting firm of Ernst & Young LLP. Electronic Systems is the company’s largest business and includes missiles, naval systems, systems-integration and energy programs.

The board also yesterday elected Stevens as executive chairman effective on Jan. 1. In that role he will work with Hewson to “facilitate a smooth CEO transition,” the company said in a statement.

“I will remain very active and involved in our company’s work, playing any role that would be of value, and I will do this throughout 2013,” he said.

In almost three decades with Lockheed, Hewson has worked her way up the corporate ranks. Since joining the company in 1983 as a senior industrial engineer, she has held leadership positions, including executive vice president of global sustainment for Lockheed Martin Aeronautics and president of Lockheed Martin Logistics Services.

‘The Challenge’

In 2009, as president of Lockheed Martin Systems Integration in Owego, New York, Hewson, faced with program terminations and cuts, eliminated almost a quarter of her workforce.

“It’s easy to be a leader when everything is going great,” Hewson said in a speech at Binghamton University in New York that year. “The challenge is how you act when things go wrong.”

Separately yesterday, Central Intelligence Agency Director Petraeus said he “showed extremely poor judgment by engaging in an extramarital affair.” The retired four-star general, widely commended for his oversight of the U.S. wars in Iraq and Afghanistan, said President Barack Obama accepted his resignation.

In April, Best Buy former CEO Brian Dunn stepped down after a relationship with an employee at the Richfield, Minnesota- based electronics retailer. Best Buy’s chairman, Richard Schulze, also left a month later after a probe found he failed to tell the board about the allegations involving Dunn.

To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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