Planning for Transition

An Interview with Robert J. Stevens, Chairman and Chief Executive Officer, the Lockheed Martin Corporation

You could say the hundred-year history of Lockheed Martin is the history of aviation, defense, aerospace, information technology and modern business. But Robert J. Stevens, Lockheed Martin’s chairman and chief executive, is not so much concerned with the past as he is with the future. Since his first days as CEO in 2004, Stevens and his board of directors have been planning his succession. Why spend so much time on an event so far away? Because that’s the way Lockheed Martin, the world’s largest defense contractor, rolls.

To Stevens, succession is not just about finding the right candidate for the right spot. It is about building a group of leaders strong enough and experienced enough so more than one manager can do each of the company’s top jobs. And, given that some of Lockheed Martin’s programs go on for decades, it is also about building a team that can work together for the long haul. To do that takes training and education. But it also requires experience in different businesses, geographies and roles. It requires employees to move out of their comfort zone.

The importance of building a top team with that much experience became evident when Stevens’ designated successor, who was due to take over in a matter of months, abruptly left the company under a cloud in November 2012. Without a delay, Stevens and the board promoted Marillyn Hewson, a 30-year veteran of the company, to president and chief operating officer, and elected her to the board of directors. Hewson, executive vice president of Lockheed Martin’s biggest business area, Electronic Systems, will become the company’s chief executive Jan. 1, 2013. Stevens will become executive chairman the same day.

With about 82 percent of its roughly $46.5 billion in revenue coming from U. S. government work, and with many of the corporation’s government customers around the world facing some type of austerity, Lockheed Martin’s new leader, Hewson, will inherit a business environment far different from the one Stevens did.

Different times require different types of leaders. Recognizing this, Stevens did not just build a succession process — he created a leadership-development protocol specially tuned to Lockheed Martin’s culture and future. An integrated leadership-development program and center did not exist before Stevens assumed the corner office.

Robert J. Stevens recently spoke about the succession process he put in place with Clarke Havener, Korn/Ferry’s Global Sector Leader for Aviation, Aerospace and Defense, and Joel Kurtzman, Editor-in-Chief of the Korn/Ferry Briefings on Talent & Leadership. What follows is an edited version of that conversation.

Marillyn Hewson, Lockheed Martin’s executive vice president of Electronic Systems, will become president and chief executive officer in January 2013. When did you begin putting your succession plan in place?
STEVENS: It was a topic at the very first meeting I had with the board as a new CEO in 2004. It was also a topic at Marillyn’s first meeting when she was elected to the board. In my first meeting, talking about succession planning gave me a little moment of pause, because it was my first day in office. But our board was very — and I think appropriately — insistent on recognizing that succession planning isn’t optional. It’s essential.

Why is it so important?
STEVENS: We recently experienced an unexpected change in our succession plan. But because we developed a deep reservoir of talent, the change was seamless — even though the candidate was different. We were ready because we didn’t look at succession as a static process. We’ve always seen it as dynamic, requiring more than one person capable of doing each job. There are many examples where a leader or members of the leadership team make a huge, leveraged difference in how the organization performs. So, when we developed the plan, it was enterprise value that we talked about. And of course it was much more than just the phasing of succession that we discussed. It included a very significant discussion about what kind of talent we will need, what kind of company we are today, what kind of company we will need to be in the future, and how that translates into the dimensions of leadership and professionalism. We also discussed how we go and acquire the right inventory of talent, and how we exercise the major muscle groups of that talent to assure that they’re not just good people but that they’re the right executives for the demands of the business today, and for where the business will be going in the future.

Did you raise these issues with your board right away?
STEVENS: Yes. But it was of mutual interest. As the CEO, I described the strategy, but there was a great appetite on the part of our board members because they’re experienced, many of them having served long and distinguished careers in executive management, all of whom have seen good and really awful examples of transitions and succession. We concluded early on that there were probably two or three attributes that ought to be design features of our succession planning that we would steer for.

What were some of those design features?
STEVENS: We talked about how to grow our talent from within. I didn’t want to be one of those people that runs up against our mandatory retirement age — and I’m not there yet! — and says, “Well, thanks very much. This has been swell,” and then leaves the board and the company and our customers to figure everything out. So we developed a premeditated “grow talent from the inside” approach. That was one feature of our succession architecture. I think recent events show that the approach worked. Another was to make the transition when the company was strong.

Were there other features to the plan?
STEVENS: Another feature was to work to construct a business model that’s going to be durable with respect to strategy, operations and financial performance. We didn’t want to create a dilemma in which a new team not only has to make the transition work, but has to do it against an external environment that’s sort of falling away from them. We talked about the features of the transition we needed to put in place and not about a specific time. So, I had a pretty long horizon to work with because of these early conversations in 2004. But I set up a template early because that’s the kind of people we are at this company. Everything has a model. Everything has a structure to it.

Did being so structured help or hinder the efforts?
STEVENS: It’s a funny thing. It’s an incredible strength. And it can be an odd constraint. We are systems engineers and so we think that way. We’re not particularly good at short-term business models because we have 40-year product cycles. I mean, we think in long arcs, which suits some market environments and circumstances and is very ill-fitted to others. But that’s the model we use. So, I presented the succession model to the board a couple of times. We refined it together a couple of times. And then we started to populate the model. “Do we have talent internally? Should we go get talent from outside,” which we’ve done in many cases at varying levels

How did you measure progress in the succession planning process so you knew you were on the right path?
STEVENS: The honest answer is you don’t really know if the specific details are working in advance. But we had enough maturity in the board, and enough individual and collective executive experience to know notionally we were right. And we also made some huge investments in talent along the way. Those investments paid off, and will continue to pay off.

Such as?
STEVENS: Our Center for Leadership Excellence, for example. We did not have leadership development programs in 2004 like we do now. The center is a gathering place for our executive talent from across the corporation. Think of a pool of 17,000 people in a 120,000-person company — supervisors and above. We bring them here for both professional skills training and leadership-development experiences. I learn from them. They learn from us. And we get to see one another. We see the talent in the pool. We say, “Well, that person has demonstrated some real expertise in an area.” So one of our early convictions — “Grow from within; do it when you’re strong” — was a recognition that you need to rotate people through the organization so they can have broad experiences in leadership. But you can’t grow up in one organization, in one function, or one program, and aspire to be CEO. The business is too complicated for that. I’ll pick on my successor as an example. In her 30-year career, Marillyn had 19 different assignments, made eight moves, and worked in three of our four businesses. She’s had corporate assignments. Those rotations have given her a broad set of leadership experiences she’ll need as CEO. It also gave us insight. We saw Marillyn was able to add creative ideas to every business she led, and people liked that. They also saw she made each business perform better with regard to the P&L.

So the Center for Leadership Excellence was set up to develop talent as part of your succession plan?
STEVENS: I would say it was more tied to what you can call a “foundational element of transition,” which is leadership development. The same is true for a program called Full Spectrum Leadership, which is a curriculum or an architecture for leadership development. We are a very analytical community. You can’t just go out and tell people to be good leaders. They’ll ask, “What does that mean?”

What does it mean?
STEVENS: There are five dimensions in our Full Spectrum Leadership program. These allow us to understand the constructs of leadership down to the kinds of skills you need to develop and the kind of thinking you need to be developing. It’s been an incredibly useful vocabulary and has provided structure. And the great thing about it is we made it up. So it’s not so rigid that you can’t move it. But again, notionally we know it’s right.

What are those five dimensions?
STEVENS: The first one is called “Shape the future.” I’d call that the strategic element. The second is “Build effective relationships.” This is a team sport: You are on a team, you lead a team, you’re part of a team. Third is to energize the team. The business needs leaders who create a positive environment. The fourth dimension is, “Deliver results.” We’re a business, so you need to get results. And the fifth is so critical to our culture and the nature of the business we’re in. It’s “Model personal excellence and integrity and accountability.” That’s the ethical commitment. Why is that so critical? Because, as a global security company, we are the largest provider of systems and services to our government and friendly and allied governments. The work that we do has big consequences. It’s mission oriented. If we don’t believe in our mission, then we can’t serve our customers’ interests. The military has a great and deserved reputation for high integrity. If we don’t play the same way, we can’t possibly serve that customer community. So we orient around those five dimensions. We measure people on them. We give feedback on them. And your ability to progress through this leadership development experience, to higher levels and different jobs, is a function of how well you are doing in these dimensions. It’s how I evaluate you, your peers evaluate you, your subordinates evaluate you. Everybody in this company is evaluated the same way, including me. We do 360-degree reviews. Everyone is evaluated the same way because the goal here isn’t to use evaluations as a hammer to punish you; it’s an instrument to inform and enlighten you. But there’s an added dimension as well. We take customer surveys to ask them what they think of us — and they can be brutally honest. But you’d rather hear it than have a massive blind spot that is disabling.

You have a number of programs at Lockheed Martin that run longer than a CEO’s tenure.
STEVENS: We’ve been building C-130 aircraft for 56 years. That’s more than the terms of three CEOs.

Which raises an interesting question: With so many long-duration programs, what is the ideal balance between CEO as steward and CEO as innovator?
STEVENS: We do both here. But I’d say we weight pretty heavily the stewardship responsibility. There will be, certainly, views to the contrary. But my personal sense is that Lockheed Martin, and companies like us, are part of a national trust. There are not many companies and not many groups of people on the planet who can do what we do here. We helped get the Mars Rover down onto Mars because we built the aeroshell that shields it during its descent. That’s pretty cool. And we’ve been doing things like that for generations. These are big, national imperative missions with high consequences. So, we need the notion of stewardship.

Was there an overall philosophy behind your succession efforts?
STEVENS: We regard executive leadership as a privilege; part of the discharging of the responsibilities associated with that privilege is you’ve got to hand it off. It’s not about me. It’s not about the board. It’s about the health of this enterprise because we make so many commitments of a mission-critical nature to so many customers, many of whom quite literally put their lives on the line. So we’re not going to fail in our duty to make sure that these enterprise goals and commitments are transitioned generation to generation. I think if you’re a shorter-cycle business, maybe it doesn’t weigh on you as much. But we’re a very long-cycle business. So, each of us feels a stewardship responsibility as part of our talent development efforts to make sure that the executive team understands the essence of this business and who we are.

Does that mean you favor stewardship over innovation?
STEVENS: We have a certain cyclicality to this business. And you can’t always predict when the cycle comes. But when we look out today for the next 20 years, it is my sense, and I think our collective judgment, that we’re probably not going to see any massive new, far-reaching technology development programs. A next generation of satellites that uses laser-linking communications rather than radio, for example. Why is that? Well, when you look at the fiscal condition in the United States, and you can expand that globally, all the governments that we interact with, and there are many, are all facing fiscal challenges. The global security demands really haven’t fallen. In fact, there’s a very complicated global security environment out there today. But the resources available to meet those demands are clearly constrained. Which means governments are not going to have the multibillion-dollar packages of resources to say, “Let’s go invent a high-risk, high-payoff solution.” If you were in the high-risk, high-payoff environment, you might want somebody who was exquisitely good at some engineering domain. But that’s probably not a demand the next chief executive officer will be compelled to address.

You were chief financial officer at one time. Was that something you sought out?
STEVENS: I was asked to become the CFO. And when I was first asked I conveyed to my boss at the time that I didn’t think it was a great idea. I thought I had an idea of what a big league CFO should look like, and I didn’t think I looked like that kind of person. And so the first conversation was a conversation. The next one sounded a lot less like a conversation and more like, “You’re our next CFO. Now go figure it out.” So I worked with a team here that was really good at that.

Did you enjoy being CFO, by the way?
STEVENS: I did, and I learned a lot. I would tell you, on the scale of innovation and creativity, you won’t find me in the record books as a great chief financial officer. We had a lot of debt, so we worked to sell some assets, strengthen the balance sheet and reposition the company. Again, I did this with members of our team. It was pretty basic blocking and tackling in the CFO’s world.

Did you benchmark yourselves against other organizations to develop your succession process?
STEVENS: Absolutely. But our model was self-generated. We looked across the aerospace and defense industries for what we would regard as peers. We looked at the transition dynamics, the age of the CEOs when they announced their retirement. We looked at how long between the announcement and the actual retirement. We tried to look at how much transition time there was with a new CEO. Did the retiring CEO stay on the board? Did he stay as chairman? Executive or non-executive chairman? We looked at all the dimensions you might think about that might be relevant to a thoughtful discussion about what would be the best architecture for us. We did that within our industry, and we looked beyond our industry.

Did you do it with a small group in the CEO’s office? Or did you put a larger team together to manage the transition?
STEVENS: It was a very small group, and I did a fair amount of it myself. There were also very private conversations with the board that unfolded in executive session. We discussed the analysis, the potential candidates and even combinations of executives, because this is a team sport and you have to plan for any eventuality. You want to make sure all the positions work well together. The model was very helpful, and when you put it up in front of a board in executive session — and we spent hours doing this — and the board would look at it and say, “Well, that sounds wrong.” Or, “How will you manage this interface over that period of time?” Or, “What would your role be versus their role?” And, “What’s the role of chairman or executive chairman versus CEO?” And, “How will you interact with the lead director?” That’s a hugely healthy discussion. And it unfolds from having our kind of model and a fully engaged board.

What was your relationship with the board like during the succession?
STEVENS: Very supportive. Very aligned. I am not uncomfortable in front of the board, and they are certainly not uncomfortable tasking or challenging me. We’ve known each other a long time. It’s very honest. It’s very open. It’s without pretense. When our board says, “I’m skeptical about your ability to do this,” it’s a fair comment. And I’m not offended by it. I say, “That’s a good point. Let me think more about how that might work.”

How long before the succession did you develop the actual model?
STEVENS: I’ve had the model for the last five years. Have I changed the model? Yes. It’s interactive. There’s feedback from the board. There’s timing. I thought of it as a Gantt chart almost, where there are activities we have to complete over time. And we shaped it over time — lengthened this cycle, shortened that cycle, made it more robust. We wanted to see more iterations of talent development; we moved people and put them in different roles. Some of it involved rotational assignments. If we’re going to think about someone for expanded responsibility, we have to take that person out of the job where he’s comfortable.

Did you stage-manage rotations for executives during the transition?
STEVENS: I would say it was choreographed, but in a general way. A lot of people were involved. If we have someone who’s good at certain things, she might be three moves away from what might be her final executive position here. For her to demonstrate qualifications, she’s going to have to do that for a period of time, then do something else for a period of time and then perhaps something else. You get a chance to ask, “What do you think she should do now? What do you think she needs in the future? How do you think you can cultivate that?” The choreography includes getting people coaching. Work assignments, mentoring and objectives. And, it’s voluntary. It’s elective. It’s highly energizing to the team.

Your succession plan sounds like a leadership program on steroids. Is that a fair assessment?
STEVENS: Yes. Talent and leadership development, in a systematic sense, have a component called succession. I would love to stay here forever. Who wouldn’t want to do this? I mean, it’s exciting. Every day is invigorating. But the logic lobe of your brain says you can’t. And so part of the responsibility of my having had the privilege of doing this job is succession. The board understands that. We understood that. So it was part of talent management. Talent management includes this progression to broader responsibilities, which is integrated into the succession plan.

You have a military background in the Marine Corps. How much did that inform your style of leadership?
STEVENS: It was foundational. Just huge for me. And I don’t think I’m unusual. I would tell you that I was not a disciplined kid growing up. I had poor grades in school. And my father died when I was in high school, which wasn’t helpful when you’re not disciplined. And even before I graduated from high school, I went to see the Marine recruiters. My Marine experience was foundational for me, because the discipline is exquisitely good. You really feel part of an organization that’s driven by values, and you recognize that you are part of something bigger. You see examples of leadership every day. It’s not an abstract concept in the Marine Corps. I grew up in a steelworker’s family in Pennsylvania. We had no financial resources, but nobody felt poor. We had a great appreciation for work ethic. As a founding member of Local 1000 United Steelworkers of America in 1936, my dad worked every day in the mill except for World War II, when he and his brothers went to war. When he got back, the next day, he went back to work. I’m not suggesting that’s a great model, but that’s what he did. My mother was a housewife, but during the war she went to work in a bomb factory. That was the only time she worked.

Your family sounds very dedicated.
STEVENS: We believed in service. We were expected to work. We were expected to participate and be involved in school and church and community. And we were. My older brother is a retired major general in the United States Army. And I’m very proud of him. Citizenship is a responsibility and a privilege. I really believe that.