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(Pre-) CEO Gaffe of the Week: Lockheed Martin

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This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, in a true first, I'm going to highlight the actions of the previously announced incoming CEO of Lockheed Martin (NYSE: LMT  ) , Christopher Kubasik, and the current CEO, Bob Stevens.

The dunce cap
Never before have I highlighted an incoming CEO for this weekly "honor," but exceptions must be made and the circus will go on, right?

Chris Kubasik, previously Lockheed's president and vice chairman, had been announced as the successor to the CEO role this summer, as current Chairman Bob Stevens had decided to step down. But Kubasik won't be getting that job, after details emerged within the past two weeks that he'd been having a close personal relationship with a subordinate. Under most circumstances that's a no-no, but it's an even bigger no-no when you're married! What's more, Kubasik will still be paid $3.5 million in separation fees after an internal investigation concluded that his improper conduct violated Lockheed's code of ethics. If that's the case, imagine how much they'd pay you if you followed the rules! 

This news literally could not have surfaced at a worse possible time for Lockheed Martin. Fiscal-cliff debates are ongoing in Congress that hold the fate of the defense industry in the balance. Just one day after President Obama's re-election, Boeing (NYSE: BA  ) announced a restructuring of its defense division that will ultimately result in the loss of 30% of defense management jobs based on 2010 job levels. Similarly, Northrop Grumman (NYSE: NOC  ) has already begun laying off employees based on expected budgetary reductions. With investors already skittish about defense companies, an extramarital affair is not what they had in mind.

To top this off, companies that have uncovered similar affairs with top executives have fared miserably thereafter. Former Hewlett-Packard (NYSE: HPQ  ) head Mark Hurd, and former Best Buy (NYSE: BBY  ) CEO and Worst CEO of the Year nominee Brian Dunn, both resigned following investigations surrounding improper conduct with an employee. To be fair, many of Hurd's allegations were discovered to be untrue, according to a report in the Huffington Post, although some reports were falsified to cover up meals and travel spent with the woman in question. Since these allegation came to light, both stocks have been steadily moving lower.

To the corner, Kubasik and Stevens
Perhaps the more egregious error here isn't the ultimate scandal itself, but how long it's taken Lockheed to come to the realization that its newly appointed CEO designate, Marilyn Hewson, should probably have been the choice in the first place.

At no point in the history of large defense contractors has a woman been CEO, and that seems like a darn shame, given that Hewson is bringing 30 years of experience and tenure with Lockheed to the table. According to a recent report from Forbes on Hewson, she's noted as one of the primary reasons Lockheed's electronics division became its most profitable segment. Furthermore, this same article notes three particular traits that Hewson exhibits -- her hard work ethic, her exemplary performance, and her humility -- that make her a perfect fit for the CEO role.

Yet in spite of these qualifications, according to The Wall Street Journal, Lockheed's board had considered looking outside the company to fill the CEO role before eventually deciding on Hewson in a unanimous vote. I'm glad the board came to its senses, but way to get from Point A to Point B by going through the alphabet in reverse!

Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.

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10/21/2016 4:02 PM
LMT $230.52 Down -1.31 -0.57%
Lockheed Martin CAPS Rating: ****
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NOC $215.86 Down -1.50 -0.69%
Northrop Grumman CAPS Rating: ****