tv The David Rubenstein Show Peer to Peer Conversations Bloomberg August 29, 2021 10:00am-10:31am EDT
♪ david: this is my kitchen table and also my filing system. over much of the past three decades, i have been an investor. the highest calling of mankind i have often thought was private equity. [laughter] and then i started interviewing. i had to watch your interview to learn how to do an interview. [laughter] i have learned from doing my interviews how leaders make it to the top. >> i asked him how much he wanted, he said 250, and i did not negotiate with him. i did no due diligence. david: i have something i would like to sell you. [laughter]
you do not feel inadequate not because you are only the second wealthiest man in the world, is that right? [laughter] in january of 2013, feeding of phebe novakovic became a ceo. since that time the stock has grown more than 80%. i had a chance to sit down with phebe novakovic and saw what was manufactured by the company. when you became the ceo of general dynamics, there were not many women who were aerospace executives. did you ever think when you were growing this company in 2001 that you could rise up to be a ceo? phebe: never thought i would be the ceo. i think that would be highly
inspirational. i have always been a big believer in do well in life by doing the job in front of you, being part of the team, but i never could have believed that this would happen. david: you get tired when people like me ask you what it is like being a woman and ceo of in an aerospace defense company, or do you get asked a lot? phebe: i think so. you and i have talked about this before. i approach this job primarily as a person, largely by being a woman but not exclusively. i think about myself as a person in this position, not so much as a woman. david: your stock is up 180 % since you became ceo. do you think under president biden's defense spending may level off? phebe: i think defense spending historically has been driven by the threat or perception of threat, and it is not a particularly safe world at the moment. that's number one. number two, president biden has been a lifelong supporter of national security. so this budget he submitted to capitol hill was a nominal increase.
importantly, all of our programs work fully supported because of their criticality to the war fight. david: most of the large aerospace defense companies that moved to washington, do you see the pentagon leaders from time to time? do you see the secretaries of army or air force or navy? what do you do in terms of interacting with them? phebe: i think it is important we know our customer, both from a military side, and we tend to try to know them as well, and then with each change in their administration we try to get to know the primary decision-maker and get inside the decision space, help them think about what we can provide. i spent time with all of our major customers, primarily the army and navy. david: the american people obviously have a high regard for our military, but they do not tend think of defense contractors as highly. do you think there is any reason for that? phebe: this is the way i think
about it. if the u.s. cannot avoid war through diplomacy or deterrent, then it goes to war and to goes to war with the u.s. defense base. we cannot go to war as a nation without us. we make all the products and services that provide our service people with the weapons systems and protective devices they need to survive and when win. david: because of consolidation in recent years, we now have essentially five major defense companies. do you think that is enough? should we have more competition, or do you think that is ok? phebe: competition is driven by two things. one, the number of new systems coming out and their position compared to the 1980's when you had a lot more defense companies, and two, the complexity of each of the weapons systems. so the capitalization requirements for defense companies, the large defense
funds, and we are one of them, which are significant. given those capitalization requirements and given that the intimacy we need to have with our customers, i think is pretty well-balanced at the moment. by the way, when you think about competition, you have a monopoly buyer with enormous purchasing power. so while we may be a duopoly or , for some people, a monopoly, we are up against a very powerful customer, so there's a lot of shaving that happens in our contractual discussions with customers. david: sometimes people say the defense budget is so high. is that a fair criticism, that cost overruns are high? phebe: if you think about the complexity of modern weapons systems, it is not unusual for some to have early on some cost overruns, but it is incumbent upon us as a defense industry that once we understand the technology and how to build it and build it effectively, continue to take costs out as we
go down our learning curve, and that is an important part of the value equation we have with our customers, driving costs out. david: today, what are the biggest challenges for general dynamics and what are the biggest opportunities? phebe: i think in any business, the challenges are solving complex problems that come to you. you know, the problems that come to me and my senior leadership team for resolving tend to be highly complex and meddlesome. your ability to solve those complex problems is an important element. i think it is a value that we add to a company, and i think opportunity, you always want to make sure you have a creative enough mind and open enough mind to be able to see around square corners. what am i missing? you know, the why questions are really powerful. why are we not doing this, or why are we doing this? i ask those questions a lot and in the answers, you can
sometimes tease out some real opportunities. it is really important. david: what about the industry generally? do you think they have big challenges now as the defense budget comes down at it? phebe: i think we are all responsible and have an obligation to find the latest and best technologies we can for our customers and deliver them in the most cost-effective manner we can. and i think that is a challenge and opportunity for all of the big tech companies. ♪
[engine revving] david: for more than 40 years now, the m1 abrams has been the u.s. military's main battle tank. it is a 68-ton monster that can knock out enemy tanks more than three miles away. [explosion] the abrams tank was designed at a time when america was prepared to fight soviet forces in europe, but it passed its toughest test in iraq in 1991 when it destroyed a huge iraqi armored force. the u.s. army has 2000 abrams tanks in service, and they are all built by general dynamics. i got to see the abrams up close. sounds pretty solid to me. and watched it muscle through a course at speeds aboove 43 miles an hour. to operate, soldiers 18 and older complete a six-week training course. i meet the age requirement, but i think i will stick to the family car.
let's go through the major divisions you have at general dynamics. so, one is the marine systems. now, before you became ceo, you were the head of marine systems, is that correct? phebe: mmm hmm. david: there were 68 submarines now in the entire u.s. navy fleet. do we really need a lot more submarines or are we just kind of replacing the ones we have? phebe: i personally believe that the more submarines, the better. while people may be jaundiced or skeptical of my view given where i sit, i think from a national security perspective u.s. underwater supremacy is critical to our national security, and the more submarines we can put in the water, the better we are to protect our shores and our assets overseas. david: it takes a long time to build a submarine. three years, four years, five years? phebe: the attack boat, a
virginia class submarine, takes about 70 months to build. we are building the ballistic missile submarine replacement in the columbia class, which is replacing the ohio class, part of the nuclear determined and that will take 84 months. these are long, complicated build cycles. david: what are the costs to build a submarine? i assume it is not, you know, cheap. phebe: the virginia class is about $2 billion a submarine, but they are highly survivable. and by the way, as we have come down our learning curve, we have driven cost out of those submarines. so again, that is part of the value proposition with our customer. david: let's talk about another division, the land division, which is i assume the division that makes this tank. phebe: yes. david: why are tanks so important today? with cyber and missiles being
launched off of submarines, do we really need tanks to help the military that much? phebe: since the dawn of human time, wars are ultimately won -- if they cannot be avoided, they are won with boots on the ground by taking territory. i don't see that paradigm changing any time soon. if we get into a really hot war, you need your tanks and you need your army to take land. david: you have an aerospace division. phebe: we do. david: there the principal product is gulfstream jets. phebe: yes. david: is there a reason why you are not in the military jet business, unlike some of your competitors? phebe: general dynamics, before the big selloff, you recall in the reagan buildup, general dynamics was the largest in the industry. the ceo at the time, and i think appropriately so to some extent, that it was important to liquidate at the end of the cold war. so he systematically went
through and sold off units of defense, including what was at the time general dynamics' fighter jets business. so we are out of that business. david: so you're in the gulfstream. gulfstream is mostly a business jet, i think. phebe: almost exclusively. david: with covid, i assume people were not flying around as much. were they buying as many jets? phebe: gulfstream is a pretty cyclical business. so goes the world economy. this was the third economic perturbation that i have seen since i have been at general dynamics, so what we have learned is to be a good cyclical and drive out costs after the new revenue declines. last year, we were the only successful aerospace oem to make a profit, a significant profit at $1 billion, and we did that by reacting to particular changes in the market. demand was down as a result of the market perturbation caused
by covid, but demand has nicely begun to recover and we are in a very strong position in that recovery. david: let's talk about your last division, which is your information division, which i assume is mostly cyber related things and things you probably cannot talk much about. but is that where the greatest growth will be for aerospace defense companies, in cyber and other information technology? phebe: cyber is embedded in almost every single one of our programs, including marine battle tank. the upgrades we made in the continued improvement we make to upgrade technology all includes cyber protection on multiple layers, so cyber is a growth area and has been for quite some time in the defense industrial base. we are very active and have been for 20 years in cyberspace and will continue to see growth. but i do not see it as exclusive growth. in our business, what is driving real growth on the defense side
is submarines. david: one area we did not talk about, that is an area some people think is important is in aerospace defense, is space. some companies, some of your competitors, are building things for the space world. are you inking about getting into space? phebe: we have some components, some lines of business that serve, largely as a merchant supplier, some of the space companies and that is a good place for us. we have made our large capital bets. david: what do you advise young women who want to be a ceo about the best way to prepare to be a ceo? phebe: be part of a team, serve your team well and do the job in front of you as best as you possibly can. ♪
david: there has been roundtable discussion that ceos and major companies should not only worry about themselves but other stakeholders, say, communities or customers. the obligation is not just to get the share price up. do you agree with that view or do you think that is shortsighted? phebe: i think successful companies have long had different constituencies and to be successful we have to serve those constituencies. but fundamentally we are owned by our shareholders. we have an obligation to them. david: some ceos lately have been asked to take positions on public policy questions, voting rights or other things. do you have a view on whether ceos should be addressing public policy issues or should they stick to managing the company? phebe: i will comment on my own company. it is my view that we engage on
matters of principle, not policy or politics. i think principal is a good way to think about problems that this nation faces, and through that prism, and it is where i believe my customers and my people are best served. david: today many ceos are speaking out more than they did before. i understand what you said, but you generally would take the view you shouldn't be speaking out that much on public policy positions? phebe: on public policy yes because there's a fine line between public policy and politics. i think is a ceo you represent people of various different political views and frankly, no one elected me to be ceo for my political views. ♪
david: let's talk about your own background for a moment and how you came to be the ceo. where did you grow up? phebe: i grew up pretty much all over. my dad was in the air force and we spent a lot of time in europe in the cold war. i got a real sense of being an american. germany was still relatively poor in the 1960's coming out of world war ii and not the major industrial power that it is today, and we had a sense of what the united states had done to save europe. david: your father was a serbian immigrant to the united states is that right? phebe: yes. my father's family suffered from totalitarian regimes both on the fascist side and communist side and they were fortunate enough to escape with their lives during world war ii. it was their dream to come the united states. because when you have suffered both types of totalitarianism,
you treasure democracies, and in particular market-based democracies, and he is an avid patriot, as is my mother. and they imbued me with that same patriotism. david: you grew up in various places in europe, the united states. then you went to the college of smith. phebe: yeah. david: did you study aerospace defense? phebe: [laughs] no. i was a government major and philosophy minor. i got a superb liberal arts background and education. so i learned to write and think in college, two critical values. david: most people that graduate from smith probably do not wind up in the cia, would be my guess. phebe: most yeah. david: when you were interviewing for jobs at the end of your college career, did you tell people, i want to be in the cia? how did you happen to get in the
cia? phebe: i had a sense of service to my nation, and it seemed a good place for me. much of life, as you and i have talked about before, is finding place. and the agency was opening its doors to women, so it was a good opportunity for me. and i really enjoyed the service i was able to provide. david: how long were you in the cia? phebe: about four or five years. david: were you a cia agent, a spy, undercover, or you cannot say even today? phebe: so, we were what were called case officers. you might in the common parlance think about us as spies. david: when you were doing that could you tell anybody what you were doing? what did you tell people you were doing as a career? phebe: we had various stories that we told, approved stories and i will leave it at that. david: your parents, did they even know? phebe: my parents knew.
david: after that, you decided to go, where, business school? phebe: the cold war was winding down, so i decided to go to business school. david: so you went to wharton. was it easy to get a job after that? phebe: no, it was truly difficult. i had rather iconoclastic class background and was seven months pregnant, so it was very hard to get a job. david: you were seven months pregnant and you find that employers are not interested in hiring women like that? phebe: i had a number of interviews. i remember one in particular, a steel company because i like making things, the tangible value of things in particular, and here we are at a hiring fair and they tell me, "we're not hiring." i understand you're not hiring g me as i waddle out of there.
david: you finally got a job at the government office of management and budget. what did you do? phebe: i started as a budget examiner and was fortunate enough to work my way up and ended up running the national security division, which is responsible for defense and intelligence spending missions to the congress. david: after a while, you decided you had enough of this, the government salary is good but not that good, you decided to go into business, and you got a position in 2001 with general dynamics. phebe: yes, i had a stopover at the pentagon for four years. and then to general dynamics, and i went there because i remember thinking very distinctly at the seminal times in your life when you have perhaps a bit of an epiphany, i sat at my desk in the afternoon thinking, i cannot afford to put my children through college. and i happened to know a number of ceos, including the ceo of general dynamics, and i called him and said, i am going to be leaving here soon if you would
be interested. and called a couple of the other ceos, and i was fortunate enough to go with general dynamics. david: you went to general dynamics in 2001. what was your initial job? phebe: i was in strategic planning. but think about that as special projects. i ultimately kept a series of jobs as i moved up the game chain at general dynamics. i was also the chief of staff to the then ceo, and i learned a lot about how a very effective, powerful ceo manages a company and learned a lot by watching a superb ceo operate. david: and you said, hey, i can do this job as well as the sky at some point? phebe: no, that would be hubris. i was the beneficiary of a lot of learning. i was blessed with that. david: today, as you look at the opportunities women have to be chief executives, do you think they are much better than when you are coming along? what do you advise young women who want to be a ceo about the best way to prepare to be a ceo? phebe: i think there are more
opportunities for women than there were in the late 1970's. and that is throughout the chain. i tell whether it is young women or young men i tell them, , if you want to do well in the world, be part of the team, serve your team well, and do your job as best as you possibly can, and in functional organizations, that takes care of itself. in a dysfunctional organization, all bets are off. get out of it. david: what would be the skill set that a ceo it needs to be successful in this environment? phebe: i think a good leader needs fundamentally good character. good character is required. i think a smattering and a wholesome capability set, if it is intellect in finance or ability to think strategically or solve complex problems, all of those things are really important. and, frankly, perseverance.
sometimes you just have to never stop, never quit, never give up. david: so you have three daughters. phebe: i do. david: you obviously got a private sector job to help support them and get them through college. and you have four grandchildren? phebe: four grandchildren. david: what do you do for rest and relaxation? spend time with your children and grandchildren? phebe: that is joyful, but i would not call it restful or relaxing. three toddlers and one newborn. [laughs] my husband and i walk a lot, hike a lot, and we talk a lot. he is finishing his doctorate in ethics, so i find those kinds of conversations really stimulating and interesting. they are a respite for me, but also mental gymnastics to help me keep up. david: other people have said it seems in congress would seem to have a spouse is very spiritual
and you are in the aerospace defense business. does anyone say that seems unusual? phebe: i think it is unusual, but when you are in leadership positions it is important to look at all of your decisions through a moral prism, irrespective of the industry you're in. make sure you are doing the right thing and constantly question, am i doing the right thing? is this the right thing? if you don't ask yourself those questions routinely, i think you can run the risk of failing to see the potential error. david: what is the greatest pleasure of being the ceo of general dynamics and the biggest downside? phebe: i think these jobs are such a great privilege i do not see a particular downside. the pleasures are the people and the team. we have a highly functional, very transparent, very cohesive team and frankly, it was an interesting outcome from covid. crises bring out the worst and
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