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Raytheon Board Hits CEO On Book Controversy

By | May 8, 2006

      The board of Raytheon Co., one of the top missile makers on the planet and the fifth-largest defense contractor, criticized its chairman and CEO, William Swanson, over his role in publishing a book he said he wrote, announcing that it would limit his compensation package as a result.
      A Raytheon statement was issued after Swanson admitted his book, "The Unwritten Rules of Management," contained a clear "similarity" to work authored by a professor.
      "In response to this matter, the Board has decided not to raise Mr. Swanson’s salary above its 2005 level, and will reduce the amount of restricted stock for which he is eligible in the coming year by 20 percent," Raytheon announced.
      At the same time, the board expressed confidence in Swanson’s ability to remain in his post leading the company.
      "While the Board obviously takes this matter very seriously, it feels strongly it should not overshadow Mr. Swanson’s extraordinary vision and performance in leading this company during the past three years," Raytheon stated. "We continue to have full confidence in Mr. Swanson’s leadership, which we reaffirmed to him today."
      The board announced that after the annual meeting of Raytheon stockholders, the statement about Swanson was released by Michael C. Ruettgers, incoming lead director, and Sen. Warren B. Rudman, outgoing lead director.
      Raytheon’s missile products range from the Standard Missile-3 that is a key component of the Navy theater-wide ballistic missile defense system, down to the AIM AMRAAM, or Advanced Medium-Range Air-to-Air Missile now used on the Navy LF/A-18E/F Super Hornet fighter aircraft.
      Swanson had discussed the controversy in an earlier statement he released, after news reports about the book.
      "The lessons that lie at the heart of the ‘Unwritten Rules’ were gathered over a lifetime of experience, reading and listening," Swanson explained. "The result is an unpublished work that is available free of charge to any interested reader. I sought to provide credit at the front of the ‘Unwritten Rules’ to all those unnamed sources who had, over the course of my life, contributed a thought or an idea relevant to the compiled work."
      But it still is clear that there were close similarities to a work written by a professor.
      "While many of those sources remain anonymous, clearly, the similarity of the language between Professor King’s 1944 book and some of the rules within the ‘Unwritten Rules’ is beyond dispute," Swanson acknowledged.
      He said he never meant to convey in the rules book that he created the rules.
      "For me, the originality of the material was never the rules themselves, but my expression of them in terms of my experience over the years," Swanson stated. "I hope, in this regard, they continue to be helpful. I regret that over the course of the years and in the process of compiling the ‘Unwritten Rules,’ any reference to Professor [W.J.] King’s work was not properly credited." Therefore, Swanson stated, "This experience has taught me a valuable lesson–new Rule #34: ‘Regarding the truisms of human behavior, there are no original rules.’"
      The board action comes less than a week after Raytheon reported stellar financial results during January through March, disclosing that earnings jumped 49 percent to 64 cents per diluted share, from the 36 cents a share showing in the first quarter last year.

      Senate Panel Backs $9.3 Billion For MDA, Bolsters Ground-Based Defense

      The Senate Armed Services Committee (SASC) wrote a defense authorization bill providing the total $9.3 billion for the Missile Defense Agency that President Bush seeks, but the panel cut some missile programs while providing more money for others than Bush requested.
      Basically, the SASC wanted to find more money for some programs it saw as promising, and the committee did so by cutting funds from missile programs likely to deliver less near-term results, an approach similar to that taken by the House Armed Services Committee (HASC). (Please see separate story on the HASC authorization bill elsewhere in this issue.)
      SASC action came as the committee wrote, or marked up, its version of the defense authorization bill for the fiscal year ending Sept. 30, 2007, a massive $517.7 billion measure that enables provision of money for every weapons procurement program, and $50 billion as a down payment on war costs. The bill would permit raising non-war military spending an inflation-adjusted 4.1 percent from fiscal 2006.
      Actual funding of programs in fiscal 2007 will be provided in separate appropriations legislation handled by other congressional committees.
      In deciding how much to spend on missile programs, the SASC added $200 million for the Ground-based Midcourse Defense (GMD) anti-ballistic missile shield system to pay for added flight testing, test missiles, and for concurrent test and operations, an increase 10 times what the House panel envisions.
      The GMD program includes a roster of the largest defense contractors on the planet. The Boeing Co. is the prime contractor, Raytheon Co. makes the interceptor missiles (kill vehicles) and radars, Northrop Grumman Corp. makes the Battle Management Command and Control, or BMC2, and Lockheed Martin Corp. and Orbital Sciences Corp. contribute booster vehicles. Others involved are Bechtel and Teledyne Brown Engineering.
      As well, the SASC added $100 million to the Bush request for the Standard Missile-3, or SM-3, interceptor missiles, far more than the increase proposed by the House panel. The SM-3 is made by Raytheon. Those extra funds will permit MDA to increase the number of SM-3 deliveries and to accelerate improvements to the Aegis combat system.
      The SASC also added another $100 million for the Army to buy more Patriot PAC-3 missiles and upgrades to the Patriot missile air defense system. The Patriot is made by Lockheed Martin and Raytheon.
      That was the upside.
      However, the SASC also cut roughly half of the money from the Kinetic Energy Interceptor (KEI), a missile that destroys an incoming enemy missile by slamming into it. The program involves Northrop Grumman Corp., Raytheon and others. The SASC didn’t fault the KEI as such, but finds other programs more promising. The SASC slashed the KEI program to $206 million from $406 million, to free up funds for "more urgent missile defense requirements."
      And the senators whacked $70 million, or 7 percent, out of the Transformational Satellite, or TSAT, program because of "unexecutable program growth." This is but one example of where the SASC is putting the brakes on programs, such as the F-35 Joint Strike Fighter development, because technologies and systems haven’t been fully formed, raising a danger of snafus and cost overruns. Northrop Grumman and Lockheed are working on the joint military communications program.
      Another program taking a hit was the Space Radar, which was slashed by $66.4 million because of insufficient program and cost definition, the lawmakers decided. As well, they professed "concerns about the inability of the Department of Defense to reach a cost-share agreement with the intelligence community."
      The SASC also mandated that reports be prepared yearly on Department of Defense (DOD) moves to shift missile defense programs from MDA to the armed services.
      As well, SASC and its strategic forces subcommittee "supported improved national security space capabilities for satellite communications, space launch, space surveillance and reduced space vulnerability," the panels decided.
      To that end, the SASC ordered formation of an office in DOD to centralize efforts "to develop, acquire, and field an operationally responsive space (ORS) capability to support the warfighter in a timely manner."
      As well, the lawmakers added $25 million for development and demonstration of small satellites in support of ORS.
      Like their House counterparts, the senators also expressed concerns about a years-old Navy program to convert submarines carrying nuclear-tipped long-range missiles suitable for the Cold War, into subs wielding missiles with conventional warheads suited for the war on terrorism.
      On the one hand, the senators provided the full $127 million that Bush seeks for the conversion of the Trident-5 submarines.
      On the other hand, however, the senators are forbidding the Navy to use any more than $32 million of that money until a report is prepared for Congress by Secretary of Defense Donald Rumsfeld and Secretary of State Condoleezza Rice probing a key problem: might other nations seeing a U.S. Navy submarine launch a conventional-warhead missile mistake that for the launch of a nuclear weapon?
      Asked about this by Space & Missile Defense Report, Vice-Adm. Vladimir Avdoshin, deputy chief of the naval headquarters of the Russian navy, said, "It is not possible to identify which component," or type of warhead, is mounted on a missile in flight.
      He spoke via a U.S. Navy videoconference link from Naples, Italy.
      The panel also included a $20 million authroization for further development and testing of a land-based advanced hypersonic weapon. Hypersonic craft can fly at extreme speeds of 4,000, 6,000 or more miles per hour.

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