2008 Virginia Business Person of the Year
- December 1, 2008
by Robert Burke
Nicholas Chabraja used to be a Chicago lawyer, and he was good at it. Back in the spring of 1992, fresh from helping a major client, General Dynamics, fight allegations of fraud in a federal lawsuit tried in New York, he was heading home to Chicago, where he was a partner at one of the city’s premier litigation firms, Jenner & Block.
Others, though, were making different plans for him. Longtime client Harvey Kapnick, a veteran Chicago businessman and the new vice chairman at General Dynamics, told Chabraja they needed his help at the company’s Falls Church headquarters. The Cold War was over and defense contractors were staring at the abyss of billions less in federal spending. General Dynamics had to either buy itself to the top in every defense sector it was in, or sell out. But Chabraja wasn’t interested. “I tried to push it off on one of the corporate lawyers in my firm, and Harvey said, ‘No, you get your butt out here.’ So I did.”
It was a first step in a remarkable career change. Five years later, after brief stints as General Dynamics’ general counsel, executive vice president and vice chairman, he was named its CEO, and Chabraja’s Chicago days were over. He and his wife, Eleanor, packed up and moved to McLean. “The board said to me, ‘Okay, Nick, you’re next. If you want this job, you’re going to have to finally quit practicing law.’” This time he didn’t hesitate. “I was intrigued by the business problem,” he says.
Chabraja’s answer to that problem has been intriguing, too. Before he arrived General Dynamics had been selling off most of its operations, shrinking from $10.5 billion in revenues in 1990 to $3.5 billion in 1995. During his tenure, Chabraja has built the company through savvy purchases and tight management into a 91,200-employee global corporation with an expected $29.2 billion in revenues this year.
The company, divided into four major divisions, makes a lot of military hardware, such as M1 Abrams tanks and the eight-wheeled Stryker armored combat vehicle. It also has a stake outside the military market, with Georgia-based Gulfstream Aeronautics, maker of business jets. The company’s biggest division is in information systems and technology, employing 34,000 people.
In recognition of his accomplishments, Virginia Business has selected Chabraja as its first Virginia Business Person of the Year. The annual honor will spotlight business leaders in the commonwealth who have transformed their companies, their industries or the state’s economy.
People around Chabraja believe he deserves recognition. “Nick has become one of the finest CEOs that I have ever seen,” says Lester Crown, 82, who served on the Board of Directors for 32 years until retiring in 2006. The Crown family has holdings in a number of major U.S. corporations and it is one of General Dynamics’ largest single shareholders. “The company today is in the best shape financially that it has ever been, and that’s primarily due to Nick.” (The third quarter marked the company’s 19th consecutive quarter of double-digit growth in earnings per share, fully diluted, from continuing operations.)
Joseph Kampf, who sold his Fairfax-based business Anteon International in 2006 to General Dynamics for $2.2 billion, describes Chabraja as “smart as a whip. He knows what he wants strategically and he does his homework. He just has a style that makes it work well.” There are admirers too, among those who track General Dynamics. In September, before an audience of analysts, Heidi Wood of Morgan Stanley introduced Chabraja by noting that General Dynamics “has been one of my longest-standing recommendations … I always hesitate to bet against Nick, and it’s been frankly, over time, the right call.”
Courteous but precise
Crown says that both inside and outside the company Chabraja is courteous and unassuming, but also well-prepared and precise. He relishes a debate but doesn’t insist that subordinates yield to his side. He wastes little effort on the trappings of business power. “A lot of CEOs are dominant. ‘I’m the boss, you listen to me.’ That’s not Nick in any way. He is interested in doing what’s best for the company.”
Chabraja, 66, thinks sparking a give-and-take among his senior executives is the best way to find a good strategy. “We have a good time, dealing with our business problems,” he says, his voice tinged with the Chicago accent he grew up with. “I think our people think it’s fun. I’m not looking for yes men. I don’t want that.”
At its low point around 1995, General Dynamics had only a few companies, among them Connecticut-based Electric Boat, maker of nuclear submarines, and Land Systems in Detroit, which built tanks. It was clear the company needed to get bigger or die. “For both of these products, whenever I picked up the newspaper, you would see … ‘Cold War relic.’ So you couldn’t very well stand pat on that hand,” he says.
In 1995, before becoming CEO, he engineered the $300 million purchase of naval shipbuilder Bath Iron Works in Maine, which fit well with the company’s marine division. And after taking over the reins of the company, he kept hunting for others, telling his management team to look for defense-related acquisitions that fit with the companies they already owned.
Blessed with cash
To his good fortune, Chabraja’s two predecessors had left him with plenty of cash. Bill Anders, CEO from 1991 to 1993, led the charge in selling off weaker parts of the business. James Mellor took over in 1993 and sharpened its day-to-day operations, generating even more capital for acquisitions.
Mellor also revamped the company’s culture. Like many defense contractors, General Dynamics was focused on technology, he says. “We decided to really start running the business like a business. We had to make a lot of changes. We really turned the place upside down, but we got the right people in the right jobs, and that’s what set the stage.”
Chabraja credits the two men with showing him how to run the company; they credit him with making the strategy work. “I thought early on it was a good approach, and it turned out to be that and more so,” Anders says.
One new venture that grew solely under Chabraja’s watch is General Dynamics’ Information Systems and Technology group, which has a big presence in Northern Virginia, employing 6,300 people. Chabraja says he didn’t start out with any great insight into where the defense industry was going; he was just looking for tech firms that could outfit the ships and tanks he was already building. The new business unit started taking shape after a couple of major purchases — GTE Government Systems in 1999 and Motorola’s Integrated Information Systems Group two years later. “When we put what GTE had together with what Motorola had, we had a very powerful networking business,” he says.
About half the 50 companies General Dynamics has bought under Chabraja were absorbed by the IS&T group. Among them was Anteon. Kampf says that when he sold the company, it was clear that General Dynamics had the buying process down pat.
In October 2005 Chabraja invited him to lunch at the restaurant on the ground floor of General Dynamics’ headquarters, where he made his case for why the deal was a good one for both sides. Being approached by a buyer “can be an unpleasant process” for the smaller company, but Kampf felt pretty good about the offer. For the next few weeks General Dynamics people came to work through details and that went smoothly. “They’re very pleasant, direct, focused, and they know what they want,” he says.
By mid-December, the deal was signed. Kampf’s former COO, Dan Johnson, is president of General Dynamics’ Information Technology unit, still headquartered in Fairfax. “I think the fact that an Anteon guy is now running GD-IT is a testament that it worked,” he says.
Three runs at the shipyard
Not all the deals work out, though. Three times Chabraja tried to buy Newport News Shipbuilding, one of Virginia’s largest private employers. The first time was in the mid-1990s, when he approached the CEO of Tenneco, which then owned the shipbuilding business. But they couldn’t agree on a price. In hindsight Chabraja thinks he blew the deal. “I blame myself for that one,” he says, laughing. “I was young and cautious. In retrospect it was a hell of a price. I just wasn’t wise enough to have figured that out.”
He tried again in 1999 with a $1.4 billion offer, but the Pentagon rejected the deal because it would leave the Navy with just one supplier of aircraft carriers and nuclear submarines. In 2001 General Dynamics lost a third bid to buy the business when Northrop Grumman Corp. acquired it in a deal valued at about $2.6 billion.
Chabraja dismisses critics who felt the deal would create a monopoly, arguing the merger would have cut operating costs at least $200 million a year. The two companies already were partners in building nuclear subs, he says, and there was little chance the market for nuclear subs would ever grow enough to allow two companies to really compete. “I thought it was nonsense,” he says.
That is what some financial analysts thought as well of his 1999 decision to purchase Gulfstream Aerospace for $4.8 billion. Critics pointed out that General Dynamics had sold off Cessna Aircraft Co. in 1992, and they wondered why it wanted back in that market. Chabraja says he opposed the Cessna sale, because he thought the business aviation market was going to grow. “We took a fair amount of abuse from the investment community over why we’d done that,” he says, but critics were silenced when the company did well for a few years.
Then in 2002 the market slumped, in the wake of the 9/11 attacks and a weakened economy. Companies just stopped buying jets. Chabraja admits they didn’t handle the downturn very well “and naysayers were coming back out of the bushes. But subsequent events proved this was a powerful business.”
Why? Chabraja says more businesses had global operations they needed to reach and the airline industry wasn’t serving them well, so owning a jet seemed less like a lavish waste than “an efficient business tool.” He also predicted that CEOs would start pushing the use of corporate jets farther down in their companies. “I certainly saw that happen on my watch. Companies that bought one aircraft for the CEO and CFO now have five. They’re moving folks all over the place in efficient ways. So I think we were completely right about that market.”
As a defense contractor, General Dynamics produces instruments of war. Yet its tools save lives as well, and word of that sometimes reaches Chabraja’s Falls Church office. In October, a father of a U.S. soldier wrote him a letter “to thank me for the Stryker vehicle that saved his son’s life in Afghanistan. He said they went over an IED (improvised explosive device) and [there was] a lot of shake rattle and roll, some bumps and bruises, but the kids all walked away. So when you get those letters, there’s a lot of personal satisfaction, not only for me but for the guys who build these things.”
Chabraja, in fact, doesn’t get a lot of attention from the public or the media outside the industry press and financial community, mostly because he doesn’t seek it. “It’s just a little difficult for me to understand what our interest is in publicity,” he says.
Defense contractors for the most part are trying to please just one customer — the U.S. government. In 2007, for example, federal spending accounted for $18.8 billion of General Dynamics’ $27.2 billion in total revenue. “My ego doesn’t desire seeing my name in print, in fact I’m kind of shy about it. And it’s been my experience that if one seeks publicity, you may get some pleasant articles about you, but the same guy will be back to work you over. I’d rather be under the radar.”
New CEO this summer
Chabraja’s time as CEO at General Dynamics is short. At the end of June he’ll step down as CEO and turn the job over to Jay Johnson, a retired Navy admiral and former chief of naval operations. Johnson, who joined the General Dynamics board in 2003, retired in June as CEO of Dominion Virginia Power after accepting the offer from General Dynamics.
Chabraja will stay on as chairman of the board until the annual shareholders meeting in May 2010. He says there were about five candidates inside the company and all were qualified for the job. But Johnson’s experience in the military and his eight years running some of Dominion’s operations won him over. Plus, Chabraja says, Johnson impressed him with his interest in the internal workings of General Dynamics. “So I went to the board and said, ‘I’m going to throw you a curve. I want you to think about Jay Johnson.’”
As Chabraja leaves, a political change is coming to Washington. Republicans are generally considered bigger supporters of defense spending and thus better for contractors like General Dynamics, but Chabraja doesn’t think it will matter too much. “I think shipbuilding is on a course that’s not to be changed,” he told analysts in an October conference call. “Congress is dead set on improving the numbers of ships in the fleet, and I think our submarine program is pretty much locked and loaded … So I feel pretty good across the board here, and I think it’s not going to matter to me too much which party is in the White House.”
He and his wife are planning to leave Virginia this summer after his time as CEO ends, and move back to Lake Forest, north of Chicago, to be closer to their three children and seven grandchildren. His work as chairman will bring him to the Falls Church offices maybe a week out of every month. He envisions a retirement of playing golf — he’s about an eight handicap — and going to the opera, a taste he picked up as a young lawyer in Chicago. As methodical as Chabraja is, it’s hard to imagine him doing anything other than what he’s planned out. “Somewhere along the line,” he says, “you have to claim victory and hand the baton to the next guy.”