A bounty of leadership expertise

It has never been more apparent that leadership matters when it comes to running a successful business. A lack of leadership has caused many of America’s most storied businesses to fail. However, even the most disenchanted observer can look to the defense and government services sector for shining examples of leaders who have guided their companies through both good times and bad.

A “commitment to mission” is at the heart and soul of the best government contractors. Regardless of whether they provide direct operational support to the American warfighter, or back office support to the IRS, their employees perform work that is vital to the health, safety and welfare of America. Their executives are acutely aware of the gravity of the work and the stewardship accompanying U.S. taxpayer dollars. This is only heightened by the fact that many are veterans of military or civil service. This commitment to mission puts the customer first, resulting in an overall winning scenario for the government, contractors and shareholders.

Transparency is another leadership trait that defines the defense and government services industry. No industry operates under greater scrutiny. In addition to the financial audits that virtually all businesses are subject to, contractors operate under the watchful eye of multiple government entities, such as Congress, Government Accountability Office, Defense Contract Audit Agency, Small Business Administration and many disparate procurement offices. Similarly, many find their activities monitored by media outlets and watchdog organizations. Succeeding under the microscope requires a vigilant commitment to ethics and an ingrained culture of openness.

Humility is a leadership virtue prevalent among defense and government services professionals. There is no shortage of entrepreneurial success involving defense and government services companies. Yet these stories are rarely chronicled on magazine covers. Instead, entrepreneurs and executives tend to assume a lower profile relative to their counterparts in other industries.

Of course, the true test of leadership is measured through performance. Outstanding leaders rise in challenging economic conditions. Perhaps this is the reason the Treasury Department has entrusted Kent Kresa, who served as chairman and chief executive of Northrop Grumman Corp. from 1990 to 2003, to serve as interim nonexecutive chairman of General Motors. Indeed, executives across all categories of the defense and government services market are performing well during the recent downturn.

Large prime contractors, like Northrop Grumman, Lockheed Martin Corp., and Raytheon Co., have built a strong capital base over the last several years. The average debt-to-market capitalization ratio for the industry’s largest companies is less than 30 percent. At the same time, the average debt-to-market capitalization ratio for companies that make up the Dow exceeds 300 percent. Despite the easy-credit environment that existed before the current economic downturn, the industry’s leaders resisted the temptation to amass large amounts of leverage. By saving for a rainy day, these leaders positioned their businesses to thrive during challenging economic conditions.

Midtier industry participants like Argon ST Inc., CACI International Inc., ICF International Inc., ManTech International Corp., NCI Information Systems Inc., and Stanley Inc. have seen their leadership rewarded. The stocks of these companies have outperformed broader indices by an average of nearly 40 percent. At a time, when markets are down by more than 36 percent, many midtier defense and government services companies have experienced positive stock price performance — in some cases greater that 15 percent over the past 12 months.

There is no doubt that leadership matters when it comes to running a successful company. Fortunately, the defense and government services industry is blessed with an abundance of leadership that can serve as an example for many other industries.

About the Author

John Allen is founder and CEO of Bluestone Capital Partners. He previously served as co-head of the defense and government services group at BB&T Capital Markets|Windsor Group.

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