Phebe Novakovic

When you became the CEO of General Dynamics in two thousand and thirteen, there weren't that many women who were aerospace defense executives. Did you ever think when you were joining this company in two thousand one that you could rise up to be the CEO? I never thought I'd be the CEO. I think that would be highly aspirational um and I I've always been a big believer in you do well in life by doing the job in front of you very very well, being part of a

team and servey that team. But I never could have believed that this would happen. So you get tired when people like me ask you what it's like to be a woman and being CEO of an aerospace defense company or you get asked that a lot. Um, I think some, I think UM, I and you and I've talked about this before. I approached this job primarily as a person, largely one form by being a woman, um, but not exclusively. So I think about myself as a person, and in

this position, not so much a woman. Your stock is up a eight percent since you became a CEO. Do you think under President Biden defense spending may level off and therefore may be harder for aerospace defense companies to do as well? So I think defense spending historically has been driven by the threat or the perception of threat um, 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 that he submitted to Capitol Hill was a nominal increase um. Importantly, all of our programs were fully supported because of their criticality to the war flight. Most of the large aerospace defense companies have moved to Washington. Do you see the Pentagon leaders from time to time? Do you go see the secretaries of Army or air Force, or Defense or Navy or what do you do in terms of interacting

with them. So I think it's important that we know our customer UM, both on the uniform military side, and we tend to try to know them as well. UM. And then with each change of administration, we try to get to know the primary decision makers so we can get inside their decision space help them think about again what we can provide. So I spent some time with all of them. In our major customers, so that would

be primarily the Army and the Navy. The American people obviously have a high regard for our military, but they don't tend to think of the defense contractors as highly as they do with the military. So do you think there's any reason for that? So I don't know that they're particularly not the love but this is the way I think about it. UM. If the US cannot avoid war through diplomacy or deterrence, UM, it goes to war,

and it goes to war. With the US defense industrial 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 win. Because of consolidation in recent years, we now have essentially five major defense companies, and you think that's enough. Should we have more competition, or you think that's okay. So competition is driven in the defense

industry by two things. One the number of new weapons systems coming out, and they're relatively constrained, to say it, compared to um the eighties when you had a lot more defense companies, and to the complexity of each of the weapon systems. So the capitalization requirements for defense companies, the large defense primes, and we are one of them, are significant. So given those capitalization requirements and given that the intimacy that we need to have with our customer,

I think we're pretty well balanced at the moment. And by the way, when you think about competition, we have a monopsity buyer with enormous purchasing power. So while we may be in duopolies or some people in monopolies, we are up against a very powerful customer. So there's a lot of shaping that happens um in our contractual discussions with our customer. Sometimes people say that the defense budget is very high because the cost overruns of new weapons

systems or so forth. Is that a fair criticism that sometimes they are cost overruns that are very very high. So if you think about the complexity of modern weapons systems, it is not unusual for some of them to have early on in the production of the development some cost overruns.

But it's incoming upon us as a defense industry is that once we understand the technology and then how to build it and how to build it effectively, continued to take costs out as we go down our learning curves and that's an important part of the value equation we have with our customer's taking driving costs out of systems. So today one of the biggest challenges for General Dynamics

and one of the biggest opportunities. So I think in in any business, UM, the challenges are solving complex problems that come to you. You know, the problems that come to me and my senior leadership team for for resolving tend to be highly complex and middlesome. UM. So your ability to solve those complex problems are an important element. I think of the value that we add UM to

the company, and then I think opportunities. You always want to make sure that you've got 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, some hidden things. But thinking creatively

about opportunities and problems, it's really important. And what about the industry generally think they have big challenges now as the defense budget probably comes down a bit, So I think that, um, we are all responsible and and we have an obligation UH to find the latest and best technologies that we can for our customers and deliver them in the most cost effective manner we can. And I think that that's a challenge in an opportunity for all

of the big defense companies. Let's go through the major divisions. You have a General Dynamics, So UM one is the Marine Systems. Now you before you became CEO, you were the head of Marine Systems? Is not correct? I think I've got it right. There were sixty eight submarines now in the entire U. S. Navy fleet. Do we really need a lot more submarines or we just kind of replacing the ones we have? Or do we need more than sixty eight, which I think the number we have.

So I personally believe that the more submarines the better. And while people maybe jaundice that in um skeptical of my view given where I sit, I think from a national security perspective, US underwater supremacy is critical to our national security and the more submarines that we can put in the water, the better off we are to protect our shores as well as to protect our assets overseas. So it takes a long time to build a submarine,

is it like three years, four years, five years? So they attack boats when we're on about our twenties something attack boat which is the Virginia class submarine takes about um seventeen months to build. Um we are building the ballistic missile submarine replacement in the Columbia class, which is replacing the Ohio class. It's part of the nuclear deterrent. That will take us eighty four months. So these are long, complicated build cycles. And what does it cost to build

a submarine? I assume it's uh not uh, you know, cheap. So the Virginia classes about two billion dollars a submarine. But there are highly survivable weapons systems and by the way, as we've come down our learning curves, Um, we have driven costs out of out of those submarinings. So again that's part of the value proposition with our customer. Let's talk about another division, the land division, which is I assume that division that makes this tank. All right, So

why are tanks so important today? Because with cyber and and kind of missiles being launched off of submarines and so forth, do we really need tanks to kind of help the military that much? So? Since the dawn of human time, wars are ultimately one if they can't be avoided, their one with boots on the ground or taking territory. I don't see that paradigm changing anytime soon. If we get into a really hot war, you need your tanks,

you need your army to take land. You have an aerospace division and they are the principal product is Gulf

Street jets. Is that right? Yes? Um, as a reason why you're not in the military jet business unlike some of your competitors, Well, UM, General Dynamics before the big sell off, you would call General Dynamics and the height of the Reagan build up as the largest defense industry that comes at the CEO at the time, UM believed, and I think appropriately so to some extent, UM that it was important to UM sort of liquidate at the end of the Cold War, and so he systematically went

through and sold off units and defense, including UM what was at the time, UM General Dynamics, UM fighter jet business. So we're out of that business, all right. So you're in gulf Stream now. Glof Stream is mostly a business jet business, I thinks, okay, And so with COVID, I assume business people weren't flying around as much, were they

buying as many jets. So golf Stream is a pretty cyclical business where economy facing and as is as goes the world economies, that tends to draw I have our demand, and this was the third economic perturbation that I have seen since I've been a General Dynamics. So what we have learned is to be a good cyclical and that's

drive out costs faster than your revenue declines. So last year we were the only successful aerospace O e M to make a profit, a significant profit at a billion dollars, and we did that by reacting very very quickly to the change in the marketplace. So demand was down as a result of the economic perturbations caused by COVID, but demand is nicely begun to recover and we are in

a very strong position in that recovery. So let's talk about your last division, which is your information division, which I assume is mostly cyber related things and things you can't probably talk too much about. But is that where the greatest growth is going to be for aerospace defense

companies in cyber and other kinds of information technology. So cyber is embedded in almost every single one of our programs, including the main battle tank, the upgrades that we make and the continual improvements that we make to upgrade the technology, and for example, that platform all include cyber protection of multiple UM 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 twenty years in the cyberspace and will continue to see growth, But I don't see it as the exclusive growth in our in our business. What's driving real growth on the defense side of submarines. So one area we didn't talk about that is an area that some people think is important in aerospace defense is space. So UM some companies, some of your competitors are building things for the space world.

Are you thinking about getting into space? So we have some components, some lines of business that serve UM largely as a merchant supplier some of the space companies, and that's a good place for us. We've made our large capital bets elsewhere. Let's talk about your own background for a moment and how you came to be the CEO. So where did you grow up? I grew up pretty much all over what day was in the Air Force, and we spent a lot of time in Europe during the Cold War, and I got a real sense of

being an American. UM. Germany was still relatively poor UM in the sixties coming out of World War two, UM, and not the major industrial power that it is today. And we had a real sense of what the United States had done to save Europe. Your father wasn't Serbian

immigrants the United States? Is that right? So my father's family suffered from totalitarian regimes, both on the fascist side and the communist side, and they were fortunate enough to escape with their lives and during World War two, and it was their dream to come to the United States. Because when you have suffered from both types of totalitarian ism. You you treasure democracy, in particular market based democracy. And Uh.

He is an avid patriot, as is my mother. UM, and they they imbued me with that same sense of patriotism. So you grew up in various places in Europe and United States, and then you went to college at Smith. So did you study aerospace defense at Smith? Or what did you study? I was a government major and the philosophy minor um and uh, and I got a superb labor arts background and education. So I learned to write and I learned to think in college. Those are two

critical values. So most people that graduate from Smith probably don't wind up in the CIA, be my guess. Most Yes. So when you were interviewing for jobs at the end of your college career, UM, did you tell people I want to be in the CIA or how did you happen to get into the CIA? Well, I had a sense of service to my nation, um, and it seemed a good place for me. Um so much in life, as you and I've talked about before, his finding place and Uh, it was the agency was opening its stores

to women, um. And so it was a good opportunity for me and I really enjoyed the service that I was able to provide. How long were you in the CIA? About four or five years? And were you a c I, a agent or your spy or undercover? You can't say even today. So we were what we're called case officers. So you might, in the common parlance, think about those

spies when you were doing that. Could you tell anybody what you were doing or what did you tell people you were doing as a career, Well, we had various um uh stories that we told approved stories, and I think we'll leave it at that. Okay, but your parents that they even know my parents. So after you did that for a while, you decided to go to where to school? Yes? So the Cold War was winding down and um yes, and decided to go to business school?

All right? She went to Wharton. And then after you have a Wharton n b A. I assume it's easy to get a job. Was it easy for you get a job? It was extremely difficult. I had a rather a kind of classic background, and I was seven months pregnant, so it was very hard to get a job. You have a c I A background, your seven months pregnant, and you find that employers aren't interested in hiring women. Like that. I had a number of interviews. I remember one in particular. I wanted to work for a steel

company because I like making things. Um, the tangible value of seeing, you know, the fruits of your labor. And I walked in and now here they are at a hiring fair or and I walk in and they say, we're not hiring and so what I understand, You're not hiring me? Um, as I wattle out of there. So you finally got a job at the Office of Management and Budget, which runs the budget of the United States government.

So what did you do there? So? I started out as a budget examiner and was fortunate enough to work my way up and ended up running the National Security Division, which was responsible for all defense and intelligence spending. UM. Submissions to the to the Congress. Okay, so after a while you decided I had enough of this. The government salary is good, but not that good. You decide you want to go in the business. Um. And you you

got a position in two thousand one with General Dynamics. Yes, I had to stop over for four years at the Pentagon and then to General Dynamics. And I went there because I remember thinking very distinctly in these seminal times in your life when you have perhaps a bit of epiphanies. I sat at my desk one afternoon, thinking I can't

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 I said, I'm going to be leading year soon if you ever would be interested, and called a couple of the other CEOs, and and I was fortunate enough to go with General Dynamics. Okay, So she went to General Dynamics in two thousand one, And what was your initial job there? So I was in strategic planning, but think about that, more special projects

for the CEO. And I ultimately kept a series of jobs um as I moved up the chain at General Dynamics. But I was also the chief of staff to the then CEO, and I learned a lot about how a very very effective, powerful CEO manages a company. I learned a lot watching a superb CEO operate. And you said, hey, I can do this job as well as this guy. At some point, No, that would be the height of Hebrews. And I've never suffered from that. I think I was the beneficiary of a lot of learning. So I was

blessed with that. Today, as you look at the opportunities that women have to be chief executives, you think they're much better than when you were coming along. And what do you advise young women who want to be a CEO about the best way to prepare to be a CEO? So I think there are more opportunities for women that there certainly were in the late seventies when I entered

the workplace, and that is throughout the food chain. I tell, whether it's young women or young men, if you want to do well in this world, be a part of a team, serve your team well, and do the job in front of you as best as you possibly can. And in functional organizations, the rest takes care of itself, and a dysfunctional organizational bets are off get out of it. What would be the skill set that a CEO really

needs to be success on today's environment? So I think a good leader needs fundamentally good character, good characters required. I think a a smattering and a and a wholesome um capability set in whether it's intellect or finance, or ability to think strategically or solve complex problems. All those things are really important, and frankly, perseverance. I mean, sometimes you just have to never, never stop, never to quit,

never give up. So you have three daughters and so, um, you've obviously got a private sector jobs you can help support them and get them through college. And you have now getting four grandchildren grandchildren. Okay, so what do you do for rest and relaxation to spend time with your children grandchildren? Well, that's joyful, but I wouldn't call it RESTful relaxing. Um. Three toddlers and one newborn is haurly relaxing. Um. But my husband and I walk a lot, hike a lot,

and uh, and we talk a lot. He's finishing his doctorate at Princeton Theological Seminary and ethics, and so I find those kinds of conversations really stimulating and interesting. They're a respite for me. But there are also a lot of mental gymnastics to kind of keep up. Other people said, it seems in Congress to have a spouse who is getting a degree from Princeton Theological Seminarians. Very spiritual presumably, and you're in the aerospace defense business. Is anybody mentioned

that seems unusual or not well. I think it probably is a bit unusual, but I think when you're in leadership positions, it's important to look at all of your decisions through immortal prism, irrespective of the industry that you're in, and to make sure that you're doing the right thing um and to constantly question I am I doing the

right thing? Is this the right thing? And if you don't ask yourself those questions routinely, then I think you can you run the risk of failing to see potential error. So what's the greatest pleasure of being the CEO of Jenathan Amis and what's the biggest downside? Well, I think these jobs are sub great privilege. I don't think I see a particular downside. The pleasures the people and the team.

We have a highly functional, um, very transparent, very cohesive team and frankly, you know, he was an interesting outcome from COVID. UM crises bring out the worst and the best in people, and while we entered the COVID crisis as a very coherent, powerful team, we emerged even stronger forged and that brings me a lot of satisfaction. Thanks for listening to hear more of my interviews. You can subscribe and download my podcast on Spotify, Apple, or wherever you listen