With more than 12 years of experience in the executive office of Lockheed Martin, CEO and Chairman Robert J. Stevens has worked closely with a number of executives and directors who have made the transition from the battlefield to the boardroom. He cites their aptitude, character and leadership abilities as indispensable to corporate governance today, as everyone’s sights are set on growing the American economy.
Stevens, who also served as presiding or lead director on the Monsanto board for a decade, has announced his intent to retire from the aerospace company at year’s end. During his address to the NACD audience, he noted that the climate of the boardroom has become more intense in recent years, with investors and regulators calling for more accountability and a wider range of skill sets.
He imparted some advice from colleagues who have successfully transitioned from military to corporate service, emphasizing the value of strategic battlefield experience, but noting that the implementation might seem foreign. “You work for the shareholders,” he said. “They want, contrary to what some might think, only one thing: They give you a dollar and they want more than a dollar in return for that, and they want you to guarantee that they will, to the best of your ability, get positive returns on their capital investment. The CFO can help translate what investors want and expect from the board.”
In addition to Stevens’ informative presentation, he hosted a lively question-and-answer session with program attendees. What follows is an edited transcript of the Q&A.
In what committees may military officers be most effective?
Beyond the basic audit, nominating and governance, compensation and executive committees, [at Lockheed] we’ve added other committees. This is where, frankly, the military leaders on our board have been brilliant.
Lockheed Martin is not a financial institution, but, because we in fact receive taxpayer money, there’s a public-trust issue involved here. So we established an ethics and corporate responsibility committee. Now that’s asking our directors to do more, but it’s the right allocation of director time and resources that, frankly, I wouldn’t have come up with on my own without having had that conversation with the directors. [And] our classified business and security committee, which is very unique to our business, looks behind the curtains to make sure that we’re properly balanced.
More From Battlefield to Boardroom Coverage:
What are emerging skill sets are being sought in board members, other than the established law and finance experience?
Boards like diversity, but I don’t know that I’d call that a skill set. It’s a little harder to manage as the chairman of the board because you don’t drive to the central tendency—you sort of drive to the periphery. Committee chairs have to do that too. If you can pull all that back, you get a much more robust assessment of the circumstances.
My concern is [that] boards tend to over-weight attorneys and accountants. It’s helpful to have people who actually know the customer community in our business, because it’s unique. We need better, multi-experienced, well-versed people.
I’ll tell you, the trend is global. Small businesses are scratching their heads, saying, “Anybody know anything about Eastern Europe? We’d better get a map out…where’s Estonia?” You can’t be detached from the global economy today. You’d be surprised at how a number of very good directors just don’t possess the awareness of what’s happening in India or China or the Middle East. If you’re going to get into business there, you better know what’s going on there. It’s awfully good to have somebody who either knows or knows how to find out in good form. You are all lifelong learners, which I attribute as a huge advantage.
Lockheed Martin has done a great job of recruiting former military leaders to the board. Do you plan to work with your suppliers to follow your lead?
There’s an interesting line that I think we have to respect a little bit. When I engage with suppliers, it’s on a contract basis. That relationship falls short of my necessarily encouraging them “to continue to do work with me, you’ve got to change your board of directors.” That really doesn’t work very well. The responsibility chain comes from the investors of capital to determine who the board is for that company that I buy from.
How do you feel prospective directors should go about finding, becoming visible to and connecting with a board that we might be interested in?
The approaches I am most familiar with and have seen most frequently are word of mouth among people who know you and serve on boards, and networking. That is one opportunity horizon. I don’t know how broad that is. I know a lot of companies use search firms for directors, including a desire to find, even if it’s a niche kind of capacity, experience and unique judgment. So I would think pursuing both of those to broaden that opportunity horizon as much as possible would be a pretty smart thing to do.
If you feel you can make a contribution to the mission of the business, [that] the culture of the business is part of your value structure, that’s the best resonating frequency. Honestly, you’ll learn the accounting—that is not the threshold issue. I think the threshold issue is, “Is this something I want to devote time and energy to because I resonate to the mission, to the purpose, and to the goals and aims of what we’re trying to accomplish here?”
What is your perspective on tensions between competing views, particularly between the company and the government or Wall Street?
We made a decision a long time ago in this country that we were not going to fund all our security needs from public money. We don’t have arsenals. We have businesses. We want those businesses to run. Once you made that decision, [you’ve] got to go out and issue debt and equity. I have returns on equity, returns on debt and revolving lines of credit. To run the business effectively, it requires a rate of return or we extinguish this model.
The quarterly earnings call versus the long-term health of the corporation is a dynamic tension that you will all be exposed to on the board. Now, in our company, that contrast is particularly acute. I have to always balance the “what are we doing over the next quarter, the next two quarters, the next fiscal year?” with what we’re trying to do 20 years from now. We need to be in place as an institution 20 years from now. I have great conviction about that.
Profit is part of the essential mission of a business. If we don’t return a profit, we extinguish this business model.
I’ve had to tell investors, “If [funding dividends rather than employee pension programs is] your expectation, you probably shouldn’t own our stock.” That’s not a wise thing for the CEO to be telling investors. It’s a constant tension. This is where a good board, I’ve got to tell you, for me, is everything.
We’ve been brought up to be very agnostic of anything political and move on from there. Is that something that should be rethought in light of calls for cognitive diversity on boards?
There’s a distinction between political awareness and understanding and overt partisanship. I’m not a big fan of overt partisanship. I don’t want to use our boardroom as a political rallying point for fundraising or anything else. What I encourage from our board members, and frankly, from our executive team, is: “Understand the political dimensions in America. Understand where you think this country ought to go and why. Get in the game and vote.”
It’s important to understand the nature of politics and how politics influences process. Different parties obviously have different approaches to the regulatory regime. That may be an advantage or a disadvantage and potentiate the business in different ways. I think we all have to know how to navigate that and understand that.
What kind of interaction would you expect the board to have in terms of generating new ideas? What would the management team be looking for the board to do in that regard?
I will task our management team with due diligence: a director thought these three things were worthy in the committee discussion that didn’t get extinguished. I will say the yield may not be 50 percent or 80 percent, but a 10 percent yield on a good idea —where somebody saw something that we didn’t see, and we pursued that, and nine of them didn’t pan out, but one did—that’s worth doing.
This is why minutes are important—they reflect the interaction of the board. It helps the management team, but it helps you as a director. You will be sued—don’t take that personally, we get sued a lot. It’s the nature of a litigious environment. The quality of those minutes, the diligence demonstrated by directors, the quality of your discussion, that intellectual cognitive. Were you involved? Were you seeking to understand the risk? And always, did you put the interests of the investors first? You took care of the people who elected you to the office? If you get it right, this should be a closed loop, a pretty clear process. We follow up on comments because that’s why we have an independent board.
How do you ensure the minutes are recorded to show we were representing our stakeholders?
That’s what you pay your general counsel for. General counsel have to know the state of play of everything outside with respect to what the quality, content [and] substance of minutes should be.
Do you look to the board to be part of the communications conduit with shareholders or a primary part of that?
Never. Management is responsible for describing the entire breadth, depth and performance of the company, and the directors are responsible for putting the right management team in place. An abundance of caution on your part is wise.