The Pentagon’s ‘One Percent’: When Generals become Corporate Lobbyists

November 25th, 2012 - by admin

Citizens for Responsibility and Ethics in Washington – 2012-11-25 00:41:31

War Costs: When Generals become Corporate Lobbyists
Jim Miller and John Amick / War Costs & Citizens for Responsibility and Ethics in Washington

WASHINGTON (November 20, 2012) — War Costs is pleased to present a short video to accompany a new report by Citizens for Responsibility and Ethics in Washington (CREW) called Strategic Maneuvers on the revolving door between the government and war profiteering defense contractors.

(Join the dialogue on these war profiteers via the hashtag #4stars4profit on Twitter. Find us on Twitter at @warcosts.)
The revolving door phenomenon is not new, yet it continues to play an integral part in the insane money flow from the taxpayer to the Pentagon and into defense contractors’ pockets.

Strategic Maneuvers (read the report here) finds that from 2009 to 2011, 70 percent of retiring three- and four-star generals and admirals left the Pentagon to cash in off jobs with contractors and consulting firms, using their knowledge of the Pentagon and Capitol Hill to reap their own immense profits from public coffers.

The report includes much more on this age-old process that ultimately perverts public trust in officials holding important positions in the government.

This report and short video, released in partnership with Brave New Foundation, reveal the extent of the Pentagon’s revolving door phenomenon, in which retired high-ranking generals and admirals cash in on their years of military experience by taking lucrative jobs with the defense industry.

CREW found 70 percent of the 108 three-and-four star generals and admirals who retired between 2009 and 2011 took jobs with defense contractors or consultants. In at least a few cases, these retirees have continued to advise the Department of Defense — all while on the payroll of the defense industry.

Key Findings:
* Retired generals can make more than their yearly military pay by serving on corporate boards
* Contractors have increased spending on lobbying for 40 percent in the last five years
* The US government paid the top five defense contractors $113 billion in 2011
* As of early 2012, 68 percent of lobbyists for the top five defense contractors had prior public sector experience
* Pentagon rules prohibiting the revolving door are riddled with loopholes

The revolving door is a racket, and it’s a crime that laws erected in a supposed effort to avoid these conflicts of interest are littered with loopholes. How can the American public be expected to trust any official who is likely looking to use his knowledge of our government — and how it uses our money — for their own financial windfall? This process needs more scrutiny, and that pressure must start with us. Demand loopholes in revolving door laws end immediately.

Together, we can make a difference.
Thank you for your support.

Strategic Maneuvers:
The Revolving Door from the Pentagon to the Private Sector

Citizens for Responsibility and Ethics in Washington

High-ranking generals and admirals earn their stars. They earn their stripes. Then, they earn their cash. New research by Citizens for Responsibility and Ethics in Washington (CREW) found 70 percent (or 76) of the 108 three-and-four star generals and admirals who retired between 2009 and 2011 took jobs with defense contractors or consultants.

In at least a few cases, the retirees have continued to advise the Department of Defense while on the payroll of defense contractors, suggesting the Pentagon may not always be receiving unbiased counsel.

The retired generals and admirals moving into the private sector in general do not appear to be breaking any rules. Nonetheless, their heavily traveled path through the military-industrial complex continues to raise important questions about the intersection of national security and the interests of private companies that stand to make billions of dollars.

A 2010 Boston Globe investigation revealed the number of retired three-and-four star generals and admirals moving into lucrative defense industry jobs rose from less than 50 percent between 1994 and 1998 to a stratospheric 80 percent between 2004 and 2008, findings that brought new scrutiny to the revolving door.1

CREW’s research shows the number of high-level retirees taking those jobs has since ticked down, though the vast majority of retiring generals and admirals continue to sign on with defense contractors vying for their services.

Every year, the Pentagon awards hundreds of billions of dollars in contracts to the defense industry.2

Retired generals, with their strong relationships, robust contact lists, and insider knowledge, are valuable assets in the competition for contracts and can easily make more than their base pay — currently $164,221 per year for a three-star general and $179,700 for a four-star general — by serving on a single corporate board.3

A recent study found that when a defense company announced the hiring of a former defense department political appointee, on average, the company’s stock price increased.4 The relationship was statistically weak but positive, suggesting investors believe such hires bring benefits.5

In 2011 alone, the Department of Defense committed to spending nearly $100 billion with the five largest defense contractors — Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman.6

At least nine of the top-level generals and admirals who retired between 2009 and 2011 took positions with those five companies. In addition, 12 generals who retired during that period have gone on to work for Burdeshaw Associates, a “rent-a-general” consulting firm specializing in helping companies obtain defense contracts. 7 Burdeshaw’s clients have included Northrop Grumman.8

Further, CREW found some retired generals and admirals work for defense contractors while they continue to advise the Pentagon. Both Gen. James Cartwright, who retired from the US Marine Corps on September 1, 2011 after serving as vice chairman of the Joint Chiefs of Staff, and Adm. Gary Roughead, who retired from the Navy in 20119 after serving as the chief of naval operations, were appointed to the Defense Policy Board on October 4, 2011.10

The board’s charter mandates that it provide the secretary of defense “with independent, informed advice and opinion concerning major matters of defense policy.”11

Gen. Cartwright, shortly after his retirement, was elected to the Raytheon Co. board of directors.12 Raytheon, a public company that reports director compensation, disclosed paying each of its non-employee directors an $85,000 annual cash retainer in 2011, as well as a $1,500 meeting fee for each board or committee meeting attended in person or by teleconference.13

In addition, directors received $120,000 worth of restricted stock grants in 2011.14 Gen. Cartwright is also on the board of advisors of TASC, Inc.,15 a former subsidiary of Northrop Grumman that advises military agencies,16 and a member of the US federal advisory board of Accenture Federal Services.17

Less than four months after his retirement, Adm. Roughead joined Northrop Grumman’s board, for which he is paid $115,000 per year.18

Northrop Grumman, a public company that reports director compensation, will also pay him an additional $10,000 per year for serving on the board’s audit committee, and he receives an annual grant of $130,000 in deferred stock.19

Adm. Roughead also sits on the strategic advisory council of The SI Organization,20 a systems engineering and integration company previously owned by Lockheed Martin.21

Public Expertise to the Private Sector
In some cases the revolving door spun quickly, with senior military officers retiring and almost immediately taking industry jobs related to their military work.

For instance, Vice Adm. David Dorsett was the deputy chief of naval operations for information dominance and the director of naval intelligence, which included cybersecurity responsibilities.22

On August 1, 2011, apparently the same day Adm. Dorsett officially retired,23 Northrop Grumman announced his appointment as vice president of cybersecurity.24 Then, in March 2012, Northrop Grumman announced a $16.3 million contract to provide cybersecurity and information operations support to several Navy organizations, including Fleet Cyber Command and Navy Information Operations Command Norfolk. 25

Lt. Gen. David Deptula retired from the Air Force on October 1, 2010, after serving as the deputy chief of staff for intelligence, surveillance and reconnaissance.26

A few months later, Mav6 LLC, a defense contractor, announced Lt. Gen. Deptula would be its new chief executive officer and managing director.27

On March 14, 2011,28 Mav6 signed an $86.2 million contract29 with the Air Force to develop an unmanned airship designed for “persistent intelligence, surveillance and reconnaissance missions.”30 The Air Force cancelled the airship program earlier this year after it ran into delays and accumulated cost overruns.31

Lt. Gen. Deptula is also an associate at Burdeshaw & Associates,32 has consulted for Northrop Grumman,33 and is on the strategic advisory council of the SI Organization.34

Lt. Gen. Robert Dail retired from the Army on January 1, 2009, after serving as the director of the Defense Logistics Agency (DLA).35

In March 2009, Lt. Gen. Dail became president of Supreme Group USA, a then-new offshoot of the global logistics services company Supreme Group.36

Since 2005, Supreme Foodservice, another part of the Supreme Group, has been paid at least $6.8 billion under a contract with the DLA to supply food to US and coalition troops in Afghanistan.37

The Pentagon says the company overcharged it by hundreds of millions of dollars, and began pressing it for a $756.9 million refund in December 2011.38

Despite the dispute, the company’s contract was renewed during Lt. Gen. Dail’s time at Supreme Group, and in June 2012, the company was awarded an additional $1.5 billion contract to ease the transition to a new vendor.39

The House Oversight and Government Reform Committee’s Subcommittee on National Security, Homeland Defense, and Foreign Operations is investigating the contract.40 A lawyer for Supreme Group said Lt. Gen. Dail was not involved with granting the contract while at DLA.41

Both Lt. Gen. Dail and the Supreme Group lawyer said Lt. Gen. Dail has not participated in negotiations with the agency over the food contracts since joining Supreme.42

Lt. Gen. Dail is also on the board of directors of ADS Tactical Inc., another DLA contractor.43 In public disclosures filed before a planned initial public offering (IPO), ADS said it intended to offer directors — including Lt. Gen. Dail — a $40,000 cash retainer and $100,000 in equity.44 Lt. Gen. Dail also served on the boards of three other companies: government consulting company LMI,45 consulting firm Nat’l Security Associates Worldwide,46 and communications technology vendor iDirect Government Technologies.47

Revolving Door Lobbyists
The revolving door is, of course, not limited to generals and admirals. CREW’s research shows defense companies also covet lobbyists with backgrounds in appropriations and strong connections on the Hill. CREW analyzed the employment history of in-house lobbyists registered on behalf of Lockheed Martin, Boeing, Northrop Grumman, Raytheon, and General Dynamics as of the first quarter of 2012 and found at least 68 percent had prior public sector experience.

Nearly half of the 84 lobbyists had worked for Congress. In addition, 21 percent, or 18 lobbyists, had worked for a federal agency.

Of those lobbyists with experience on the Hill, roughly a third — 14 lobbyists — had worked for either the House or Senate Appropriations Committees, the powerful panels responsible for directing billions of dollars in government spending. There were also other connections to the appropriations committees: of the 16 lobbyists who worked directly for members of Congress, seven had worked for members of the appropriations committees.

The five companies spend millions of dollars on federal lobbying every year, and receive billions of dollars in federal contracts. Lobbying records show their collective spending on lobbying increased by nearly 40 percent between 2007 and 2011, skyrocketing from $44.6 million to $62.3 million.

Over the same period, the total amount of dollars committed to them in federal contracts increased by roughly 13 percent, growing from $100.61 billion in fiscal year 2007 to $113.28 billion in fiscal year 2011.48

The five companies spent roughly $33 million lobbying during the first half of this year, indicating a likely overall increase for 2012 as well. As defense contractors step up the fight against planned budget cuts, well-connected lobbyists and senior military personnel are likely to become even more valuable.

Lots of Loopholes
The Pentagon has rules meant to address conflicts of interest by retirees, but independent studies have found they are riddled with loopholes.49 For example, retiring flag and general officers are subject to a one-year cooling-off period barring them from contacting anyone in the agencies they most recently worked at with the intent to influence.50 Nothing, however, prevents them from offering behind-the-scenes advice to business colleagues who can contact employees in their former agencies.51

Such influence is hard to track. In 2008, Congress required senior defense acquisition officials to seek guidance from ethics officials before accepting compensation from a defense contractor.52

The department was required to create a centralized database containing copies of the ethics opinions,53 but has refused to make it publicly available.54 A June 2010 report by the defense department’s inspector general found that 219 such opinions had been issued, the most recent number available.55

In 2009, Congress directed the Defense Department Panel on Contracting Integrity to assess the Pentagon’s post-retirement policies and determine whether they “adequately protect the public interest without unreasonably limiting the future employment options of former Department of Defense personnel.”56

The panel concluded existing conflict of interest laws were sufficient, but the National Academy of Public Administration (NAPA), which reviewed the panel’s findings, criticized the defense department’s methodology and analysis and concluded the panel’s study didn’t persuasively show the existing rules were adequate to protect the public interest. 57

For example, the NAPA review found the defense department failed to address how the existing restrictions adequately address the behind-the-scenes problem.58

As Congress stares down the possibility of massive cuts to the defense budget, contractors are scrambling to position themselves on the winning side, making high-ranking generals and admirals and experienced lobbyists even more of a valuable commodity. That means the revolving door is unlikely to stop spinning anytime soon.

Posted in accordance with Title 17, Section 107, US Code, for noncommercial, educational purposes.