War Profiteer of the Month: General Dynamics
General Dynamics has long been one of the largest military contractors for the Pentagon and many foreign governments. The company’s roots go back to the pioneering work on military submarines by the Electric Boat Company, but it later expanded into surface ships, aircraft, tanks and, most recently, military information technology. It became best known for deadly products such as the Trident nuclear submarine, the F-16 fighter jet, the M-1 tank and the Tomahawk cruise missile.
Given its overwhelming dependence on military contracts, the company was hard hit by the decline in U.S. military spending after the end of the Cold War. It sold off many of its operations and considered disposing of the rest and shutting itself down. But the comeback of military spending via the Gulf War encouraged General Dynamics to hang on. Before long, it was buying new assets, focusing its military operations on shipbuilding (in part through the purchase of the historic Bath Iron Works) and armored vehicles such as the Strykers widely used in the war in Iraq. It also increased its commercial work through the purchase of corporate jet maker Gulfstream Aerospace.
General Dynamics has been embroiled in numerous controversies involving the quality of its work and cost overruns, though in recent years it has tried to improve its reputation while restructuring its activities.
General Dynamics has been embroiled in controversies since the early days of its Electric Board operation, which shocked many observers by selling submarines to both sides in a war between Japan and Russia. In the early 1940s the company was the target of a Congressional investigation of profiteering and unethical business practices, but the probe was cut short as the country started to ramp up military output. Later, an investigation concerning the suspicious success of General Dynamics and Grumman in a competition with Boeing on a plane to replace the B-52 was suspended after the assassination of President Kennedy.
In the 1970s the Electric Boat operation was severely criticized by Admiral Hyman Rickover for the poor quality of its work and the magnitude of its cost overruns. General Dynamics was also criticized for its work on the M-1 tank and Tomahawk cruise missile. A $57 billion deal to build the A-12 Navy attack plane along with McDonnell Douglas was scrapped by the Pentagon in 1991 over delays and cost overruns said to be caused by the companies.
Tensions between General Dynamics and the Navy reached a point in 1985 that the company was twice suspended for a period of time from obtaining new contracts. The first suspension was a response to overbilling disputes, while the second came after the company and four former or current executives were indicted on fraud charges relating to a contract with the Army to produce the Sergeant York antiaircraft gun. Among the revelations were that the company was billing the Pentagon for dog-kennel fees incurred by one executive and country-club dues paid by another (the case was later dismissed). A 1986 article in Fortune magazine noted that General Dynamics was “to many American newspaper readers the symbol of waste and corruption in military spending.”
In 1990 the U.S. Justice Department sued General Dynamics, charging that the company defrauded the Army on contracts for M-1 tanks. The company paid $8 million to settle the case.
In the mid-1990s there were numerous press reports suggesting that General Dynamics had bribed South Korean President Roh Tae Woo to bring about a deal in which his country agreed to spend $5 billion on the company’s F-16 fighter jets.
As part of its downsizing and refocusing, the company has also sought to clean up its act. General Dynamics has been involved in fewer scandals in recent years, though in 2004 it and General Motors signed a consent agreement to settle charges that they violated the Arms Export Control Act through the unauthorized export of technical data and defense services.
Environment and product safety:
In January 2008 Electric Boat signed a consent order with the state of Connecticut and paid $75,000 to settle violations relating to the discharge of pollutants into the Thames River. The action came after the Connecticut Fund for the Environment, responding to a report in the Hartford Courant about lax enforcement of water pollution regulations by Connecticut officials, said it would sue various companies for violations.
Earlier environment controversies involving General Dynamics include a $13,600 fine imposed by the U.S. Environmental Protection Agency in 1998 for the improper disposal of PCB-contaminated clothing; a penalty of $105,000 paid in 1992 to settle hazardous waste violations at a company facility in Arizona; and a $50,000 fine paid to California in connection with a spill of hazardous waste at a company plant in San Diego.
The workers at Electric Boat have long been unionized. They are represented by United Auto Workers (UAW) Local 571 and other unions which bargain together through the Connecticut Metal Trades Council. Labor relations at the company were contentious during the 1980s. In 1983-84 more than 1,000 draftsmen at Electric Boat stayed on strike for 14 months, during which the company brought in replacement workers and the UAW launched a pressure effort it called the Campaign to Clean Up General Dynamics. When the demoralized workers finally ended the walkout, only 160 of the strikers were immediately rehired.
In 1988 some 10,000 workers at Electric Boat stayed on strike for more than 100 days in a dispute over wages. Again the company took a hard line, and the workers ended up accepting a contract very similar to management’s last offer before the walkout.
There have been no major labor disputes in the recent past, though the workforce has endured large layoffs. In 1994 the company agreed to pay $5.3 million in back wages to more than 1,000 Electric Boat employees who were improperly denied overtime pay.
When General Dynamics purchased Bath Iron Works in the mid-1990s, it inherited a contract with the International Association of Machinists covering about 5,000 workers, plus an independent union of designers that later affiliated with the UAW. In 2000 the Machinists at Bath struck the company for eight weeks over wages, benefits and job security issues.
Workers at General Dynamics Land Systems operations in Michigan, Ohio and Pennsylvania are also represented by the UAW. In 2001 they struck the company for two weeks before ratifying a new four-year contract that increased pay levels by about 12 percent over its duration, provided health insurance for retired workers and created new job security protections. In 2005 a similar settlement was reached on a five-year contract without a strike.
General Dynamics has had significant workplace health and safety problems at its facilities, especially Bath Iron Works, where the problems began before General Dynamics took over the business and continued after. Most recently, in December 2007, the U.S. Occupational Safety and Health Administration proposed fines of $441,500 for nearly five dozen “repeat, willful and serious violations” of health and safety regulations. In 2005 OSHA had proposed $124,000 in fines and in 1999 it sought $190,400, the latter covering repeat violations for unsafe scaffolds. In 1987 OSHA sought $615,000 in fines against General Dynamics for willfully underreporting injuries and illnesses at its submarine yard in Quonset Point, Rhode Island.
General Dynamics is associated with a major Supreme Court case involving reverse age discrimination. The company was sued for age discrimination when its Land Systems business negotiated a contract with the UAW that provided retiree health benefits only to workers who were above the age of 50 as of a certain date. In 2004 the high court ruled that age discrimination laws did not bar employers from favoring older workers over younger ones, even when those younger ones are 40 or older.
In a separate 1996 case, General Dynamics agreed to pay $2.5 million to settle an age discrimination class action brought by employees involved in the transfer of the company’s headquarters from St. Louis to Falls Church, Virginia. In 1990 the company had paid about $268,000 to settle a race discrimination case brought by African-American and female employees at an operation in San Diego. In 2002 the company's recently acquired subsidiary Gulfstream Aerospace agreed to pay $2.1 million to settle an age bias case brought by the Equal Employment Opportunity Commission on behalf of older workers who lost their jobs during layoffs at a facility in Savannah, Georgia.
In 2005 the company agreed to adopt a policy prohibiting discrimination based on sexual orientation after the two New York public pension funds filed a shareholder resolution on the issue.
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