More Dynamics

By John S. DeMott

In his 15 years as chairman and chief executive of General Dynamics, David S. Lewis, 67, helped turn the company into one of America's most important defense contractors. The firm builds the Trident nuclear submarine and the sophisticated F-16 fighter aircraft. In recent months, though, General Dynamics has been awash in charges of millions of dollars in overbilling on Government contracts and allegations of fraud. Congress and the Department of the Navy have both launched investigations of company practices. During all the troubles, Lewis firmly maintained that he would not resign under fire, but last week he announced his retirement.

Only the day before Lewis said he would step down, Navy Secretary John F. Lehman levied a fine and penalties against General Dynamics for "a pervasive corporate attitude . . . inappropriate to the public trust." The fine was $676,283.30, ten times the amount of gratuities that the company gave Admiral Hyman Rickover, 85. For three decades, Rickover was the boss of the Navy's nuclear submarine-building program, a large part of which was carried out at General Dynamics' Electric Boat Division in Groton, Conn. Lehman also took two Navy contracts worth $22.5 million away from the company, and will reopen them to competitive bidding. Finally, the Navy announced that it would hold up several General Dynamics contracts, including one for construction of the next Trident submarine, until it is satisfied that the company has established a code of ethics for its employees and taken action toward settling $75 million in overhead payments disputed by the Navy.

As Pentagon punishments go, the penalties were rather mild. Tiny Alamo Aircraft Supply of San Antonio handed out hams and bottles of whisky to Government employees at Christmas, but the Pentagon last year ruled that those gifts were improper and barred the company from all Defense Department work for three years. Lehman's sanctions were not as strong as those recommended in April by Joseph H. Sherick, the Pentagon's inspector general. He had proposed suspending General Dynamics' top three officers from doing business with the Pentagon.

Congressional critics chastised the Navy after the decision, calling it business as usual in dealing with large defense contractors. Wisconsin Democrat William Proxmire told the Senate, "Small contractors who are caught committing questionable or wrongful acts are pinned to the wall. Larger companies typically are slapped on the wrist at most." Michigan Democrat John Dingell, who chaired the House subcommittee that unearthed the gifts to Rickover, said the General Dynamics decision reflected the differences between large and small contractors. The little ones, he said, do not have the U.S. "as hostages."

Lewis will stay on as General Dynamics chairman until perhaps the end of the year to ensure a smooth management transition. His successor will not come from within the company, but is an outsider, Stanley C. Pace, 63, a West Pointer and currently vice chairman of TRW, a high-tech conglomerate based in Cleveland. Pace had been thinking of retirement, but decided instead to take on the tough General Dynamics assignment. Why stay in the fray? "That's a good question," Pace said at a news conference. "My wife asked me that." Lewis approached Pace to be his successor -- the two men have known each other for some time -- luring him with the prospect of being the chief executive of a major corporation for the first time in his life.

A World War II B-24 pilot, Pace flew 39 missions. After his plane was hit on a sortie, he bailed out and then spent nine months as a prisoner of the Germans. Following the war, he rose to colonel in the Air Force Materiel Command. He retired in 1954 to join TRW, where he has been ever since, working in the company's aerospace and automotive operations.

Pace will join General Dynamics in June and move into Lewis' post in January. The immediate job facing Pace, said Lewis, will be to review accounting and contract charging practices, "which have been the subject of so much adverse publicity." Over the long run, though, he believes that "diversification of General Dynamics is one of the issues that needs to be addressed." Known to colleagues as a man of integrity and an efficient administrator, Pace will need those talents to rebuild General Dynamics' battered reputation.

With reporting by Bob Koenig/St. Louis and Christopher Redman/Washington