| I examine the restructuring of the United States defense industry as a process that challenges many of the assumptions underlying our current understanding of how and in whose interests corporations should behave. Since the late 1980s, prime defense contractors have allowed financial markets to dictate their behavior; they have merged and spun-off divisions at a rapid pace, engaged in downsizing and wage discounting, and shifted their production sites interregionally and internationally. I argue that the primacy of shareholders in the investment decisions of contractor management is unjustified given the federal government's role in enabling defense contractors' activities and sheltering their shareholders from financial risks.; I follow the case of the Electric Boat shipyard in Groton, Connecticut, which is owned by General Dynamics Corporation. Since 1990, General Dynamics has been recognized as a trendsetter in the industry because of its explicit shareholder-oriented restructuring strategies, high returns, and mass lay-offs. My analysis is based on interviews conducted over a two year period (1994-1996), financial and census data, annual reports and proxy statements, newspaper accounts, legal cases and other empirical studies of the changing political economy of defense contracting.; Because defense contractors are publicly traded companies, current legal doctrine holds that managers have legal obligations to satisfy the short-term profit maximization demands of their shareholders. This holding is based on the assumption that shareholders alone bear the risks and contribute the equity necessary for production. However, in the defense industry, most of the risks and costs of production are assumed by the government through a complex system of contracting and pricing. Shareholder primacy undermines the hybrid public-private nature of defense contractors, because shareholders and the state are both residual risk-bearers of the firm and, therefore, deserve similarly responsive treatment from management. I suggest ways in which the legal structure of defense contractors could be transformed to reflect their reciprocal obligations to either create some public benefit or, at least, to refrain from behavior that negatively affects the public. |
