The Colonel's Second Battle

Few episodes in his half-century as an industrialist and financier have made Chicago's Henry Crown prouder than the work he did a decade ago at General Dynamics Corp. As executive committee chairman he helped manage the company's recovery from a $435 million loss on its Convair jetliners; it was the largest financial setback on a single product line ever sustained by a U.S. corporation. Crown felt deeply wounded when the company's directors in 1965 and 1966 called in General Dynamics' preference stock, forcing him and his family to sell a $100 million holding. It seemed like an obvious attempt by the directors to get rid of Crown; he was so hurt that he severed all connection with the company.

Crown thereby lost his first battle for General Dynamics. But early this year, the 74-year-old colonel, who served as an Army procurement officer during World War II, took the offensive in a second fight to control the huge, troubled defense contractor. Ironically, his chief obstacle was none other than the man he had brought in as General Dynamics' president in 1962: Roger Lewis, 58, who subsequently sided with the faction that forced Crown to sell out.

Last week Crown not only won his fight but did so with a remarkable absence of boardroom bloodshed. G.D.'s directors deposed Lewis as chairman and chief executive; he remains president and a director. To run the company, the board picked David S. Lewis, 53 (no kin), president of thriving McDonnell Douglas Corp. He had apparently tired of waiting for that company's strong-minded chief executive, James McDonnell, 71, to step down and let him take full charge, and he could not resist Crown's challenge to turn General Dynamics around.

A Matter of Loyalty. Why did Crown, whose personal wealth is estimated at more than $400 million, want to re-enter the scene at General Dynamics? Last year profits tumbled from a 1966 peak of $54 million to $2,530,000, only one-tenth of 1% of the company's $2.5 billion sales. G.D. has been plagued by losses in its shipyard division, a microfilm products subsidiary, and the controversial F-111 fighter-bomber.

Crown wanted General Dynamics partly out of pride and tenacity and partly as a matter of long loyalty to associates. The son of a Lithuanian immigrant, he started Chicago's Material Service Corp. in 1919 on a borrowed $10,000. By the time he sold the firm to General Dynamics in 1959--and became a key figure on the board--he had built M.S.C. into one of the world's largest sand and gravel companies. After Crown quit General Dynamics in 1966, many of Material Service's top executives departed in frustration at the way the company was being run. Upset, Crown quietly began buying blocks of General Dynamics common stock. By last May, he and friends had accumulated 18% of the shares for about $57 million.

Uneasy Rests the Head. Wall Street sensed a proxy fight, but Roger Lewis kept the peace by inviting Crown and five allies to join his twelve-man board. Crown became chairman of a newly created executive policy committee. Lewis soon named Crown's son Lester as head of the cherished Material Service. Still, the uneasy alliance was strained when Crown began studying the company's books and found, he claims, that the 1969 profit was partly the result of accounting changes. Though Roger Lewis held a mandate to run the company through 1970, Crown let it be known that he was shopping for a new president. He approached Semon ("Bunkie") Knudsen, the former Ford Motors president, but Knudsen held out for the chairmanship. Six weeks ago, Crown met David Lewis, started dickering and liked him enough to offer him all that Knudsen had wanted.

General Dynamics can use Dave Lewis' talents. An aeronautical engineer (Georgia Tech, '39), he worked up from the drafting board to the presidency of St. Louis' McDonnell Co. before its merger with Douglas Aircraft in 1967. Taking charge of the demoralized, loss-ridden Santa Monica airframe maker, he turned it into a profitable operation within two years. To lure him away, General Dynamics reportedly offered him more than $200,000 a year in salary, plus stock options. It is too late for Dave Lewis to revamp the tragic F-111, but aerospace men figure that under him General Dynamics is not likely to stumble into a similar mess again.

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