Board Job Likely Bars Biden Pentagon Chief From Some Arms Deals
A model of an F-35 Lightning II joint strike fighter jet. (Photographer: Chris Ratcliffe/Bloomberg)

Board Job Likely Bars Biden Pentagon Chief From Some Arms Deals

Lloyd Austin, President-elect Joe Biden’s choice for defense secretary, may have to stay out of decisions on the Pentagon’s costliest weapons system, the F-35 Joint Strike Fighter, because of his ties to its engine-maker, Raytheon Technologies Corp.

Supporters of Austin have focused on the historic role he would occupy as the first Black defense secretary, leading a force that Biden notes is 40% people of color. Critics have questioned whether Congress should grant the retired Army general a waiver from a law barring officers from leading the Pentagon within seven years of leaving the military.

Board Job Likely Bars Biden Pentagon Chief From Some Arms Deals

But debate during Austin’s Senate confirmation process will also touch on the revolving door between the Pentagon and its multibillion-dollar contractors, a lucrative tradition that also benefited his most recent predecessors in the name of sharing their wisdom about the needs of the Pentagon and its warfighters.

Austin, who has served on Raytheon’s board since 2016, also may have to recuse himself from decisions on the company’s missile defense and shipbuilding contracts aimed at countering China and Russia. Other questions will be raised about his role in a private equity group.

Under President Donald Trump, recently ousted Defense Secretary Mark Esper was a former top lobbyist for Raytheon and retired general-turned-defense chief Jim Mattis had been on the board of contractor General Dynamics Corp. Both were questioned about conflicts during their Senate hearings -- and then allowed to serve after agreeing to recuse themselves from certain Pentagon decisions.

House Majority Whip James Clyburn, the South Carolina Democrat who played a pivotal role in Biden’s election, suggested it would be a double standard to call out Austin’s participation on defense contractor boards amid demands that companies increase their racial diversity.

“When we ask people to help diversify all the systems and processes, why would we hold it against them when they do?” Clyburn said. “I want people like him at that table so that he can bring those issues to the table that we want brought to the table.”

Full Production

The first major acquisition decision faced by the incoming Biden administration may be when and whether to approve the roughly $400 billion F-35 program for full production, the most lucrative phase of a weapons program for contractors. Raytheon’s Pratt & Whitney engine unit, acquired in a merger with United Technologies Corp., has an estimated value of $66.4 billion, according to the Pentagon’s latest annual cost report.

Board Job Likely Bars Biden Pentagon Chief From Some Arms Deals

Raytheon is also the maker of Tomahawk missiles and the Standard Missile-3 missile defense interceptor, and it’s a major contractor on Navy programs, providing radar and electronic warfare systems to warships and aircraft carriers.

Austin’s total compensation as a member of Raytheon’s board of directors amounts to $1.4 million since 2016, according to company records. His compensation is a mix of cash and stock awards.

By the time of his confirmation hearing before the Senate Armed Services Committee, Austin will have had his finances scrutinized by the panel’s staff. He will have already filed a financial disclosure statement for public review with the Office of Government Ethics detailing his cash and stock compensation and holdings and disclosing their value within broad ranges.

And he will have filed an ethics agreement on steps he would take to resolve potential conflicts of interest, including which assets he would divest.

In 2019, Esper, who already had sold his Raytheon stock when he became secretary of the army, pledged to recuse himself as defense secretary from “participating personally and substantially” in decisions that would have a “direct and predictable effect” on Raytheon. He’s still slated to receive $1 million to $5 million after 2022 in deferred compensation from the contractor.

‘Ethically Rigorous’

“Secretary-designate Austin will recuse himself consistent with ethics requirements,” Sean Savett, a spokesman for Biden’s transition office, said in an email. “Joe Biden has pledged the most ethically rigorous administration in American history, and every cabinet member will abide by all disclosure requirements and strict ethics.”

He’ll also have to provide details on his other business ventures since retiring. This year, Austin became a partner in Pine Island Capital Partners, a private equity partnership between a group of New York-based investors and Washington-based former government officials. Biden’s choice for secretary of state, Antony Blinken, is also involved with the private equity firm.

Savett said Austin will divest from his interests in Pine Island and Raytheon if confirmed.

The firm’s stated goal is to invest in mid-sized companies with values from $50 million to $500 million, specifically targeting aerospace and defense, retail, financial services, health care, manufacturing and technology. In September, Pine Island Acquisition, a blank-check company formed by Pine Island Capital Partners to target the defense industry, filed with the Securities and Exchange Commission to raise as much as $300 million in an initial public offering.

Austin’s role at Pine Island Capital might raise bigger questions than his connection to Raytheon, according to Mandy Smithberger, director of defense information at the Project on Government Oversight. “They’re pretty open about the fact that they’re selling access,” she said.

Pine Island Capital, which advertises on its website the prominent government jobs its Washington team used to hold, is “literally the business of the revolving door,” Smithberger said.

In the end, though, the interplay within what President Dwight Eisenhower called the “military-industrial complex” has become an accepted part of life in Washington.

Austin “needs to be treated like everyone else,” said Representative Marc Veasey, a Texas Democrat and member of the Congressional Black Caucus. “He should be judged on the job he did while he was general and questioned about his expertise on matters surrounding defense and security of this country.”

©2020 Bloomberg L.P.

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