COLUMN ONE : Flying Through Turbulence : Bold and savvy, C. Michael Armstrong is steering Hughes Aircraft through a stormy economy. With his triumphs have come a few big bumps--especially for workers.
On a summer Saturday in 1993, a fiftysomething white guy wearing jeans and cowboy boots joined a street party in South-Central Los Angeles to celebrate the reopening of a small grocery store destroyed by the riots.
Donning a Harley-Davidson baseball cap, he strolled through the neighborhood, mingling with a crowd that included rapper Snoop Doggy Dogg and members of the Crips and Bloods. That he was a big shot at Hughes Aircraft Co.--California’s largest industrial employer--was “the last thing you would have thought,” said community organizer Danny Bakewell.
In fact, he was the top Hughes big shot--C. Michael Armstrong, chief executive of the concern founded by pioneer aviator Howard Hughes. He was there without his usual corporate entourage to learn firsthand what was happening in the riots’ aftermath.
“I had a personal interest in supporting the community,” he said later in an interview, sounding puzzled that his visit required an explanation. His involvement “is not done for visibility,” he said. “It’s done for citizenship.”
Bakewell had invited Armstrong on a lark--and was stunned when he showed up. But, in fact, Armstrong’s trip to South-Central was emblematic of a man who has splintered the mold for how Southern California’s aerospace executive elite behaves.
Whether it’s exploring social problems on his own time or twisting lawmakers’ arms to aid Hughes’ business, Armstrong is among those rare corporate birds who seize opportunities to stand out and speak up.
A familiar figure among the opaque fraternity of defense chiefs, he is generally unknown beyond his own business boundaries. Yet his clout is immense and his decisions have an enormous impact on California’s economy--an impact frequently unkind to workers in the cause of ensuring Hughes’ future.
Engaging, politically savvy and an expert at selling his point of view, Armstrong is both tireless and shameless in his efforts to influence public policy for favorite causes, including the role of small business in the inner city and improving the state’s business climate.
He has clearly made his most indelible mark at Hughes, arguably the most successful and experimental of the nation’s defense firms in adapting to a true peacetime economy.
But as Southern California in particular has learned, Armstrong’s 2 1/2-year stewardship at Hughes has helped cause immense hardship on the factory floor. To keep the company in the black, he has cut 13,000 jobs in the last two years, helping create huge craters in the local economy. He has even admitted resorting to duplicity with the public to emphasize political reforms he embraces.
As a result, Armstrong’s efforts to help create employment in South-Central Los Angeles or his finding fault with state government red tape ring hollow next to the damage that his actions have caused, his critics say.
“Hughes has done more negative to Southern California, simply in the transfer of jobs out (of state), that dwarf whatever crumbs they’ve thrown to South-Central,” said Joel Kotkin, a fellow at Pepperdine University’s business school. “His credibility is not that great.”
Armstrong makes no apologies, saying his actions are necessary for Hughes to survive. He’s certainly not alone. More than 300,000 aerospace and defense jobs in California have vanished since the mid-1980s.
Indeed, as Hughes Aircraft goes, so goes the California economy in many ways. Each has endured wrenching job losses, and each is betting on an expansive future in which defense work plays a shrinking role.
Hughes is redefining itself as part of the most abrupt transformation in its 50-year history. Like the state, it now has to hustle hard to drum up business--something it did not used to do.
What Armstrong will acknowledge, though, is that his actions can leave thousands of his remaining workers unsettled. “I don’t think I underestimate the anxiety that this pace of change produces,” he said. “Change and competition are really great theories, until they start happening to you.”
Nonetheless, Armstrong--a six-foot southpaw with a ruddy complexion and blue eyes--so far has steered Hughes impressively through the changes. Despite shrinking Pentagon budgets, Hughes earns a handsome profit.
One-third of its $8.8 billion in sales last year had nothing to do with military equipment and hardware, but rather stemmed from the sale of commercial satellites and electronic components tied to information technology and telecommunications.
But Armstrong is not done cutting jobs to get Hughes’ costs down further. Despite having shed 32,000 jobs since the mid-1980s, Hughes, a division of General Motors Corp., said in June that it expects to drop about 3,400 jobs in Fullerton, El Segundo and Tucson, Ariz.
Tucson is the home of Hughes’ missile operation, which itself was consolidated in Arizona last year after being moved from Canoga Park, Pomona and other sites. That move eliminated 5,000 jobs. Hughes still has 34,000 workers in the state among its 50,000 worldwide. So it is no wonder that its chairman is among California’s most vocal corporate citizens.
He has pushed Gov. Pete Wilson and Assembly Speaker Willie Brown to improve the state’s business climate, and jawboned President Clinton to relax U.S. sanctions against China that hurt Hughes’ satellite division.
Armstrong responded to the China sanctions by sending a stern letter to Clinton last year, complaining that the ban could cost Hughes $1 billion of business and up to 5,000 jobs. Armstrong took his gripe public and, six months later, the Administration again cleared Hughes’ satellites for export to China.
As the defense industry’s leading apostle of converting defense know-how to commercial uses, Armstrong has appeared before congressional panels to promote Hughes’ conversion efforts--and used the occasions to pitch the company’s satellite-to-home television service, DirecTv, that debuts this fall.
He also was a vocal director and occasional critic of RLA, the fractious entity trying to help repair the city’s riot-torn economy, until he joined 14 other directors recently in resigning from the group’s board.
Still, Armstrong knows that he risks being perceived by some as a political dilettante if his calls for public reform become too repetitive or too shrill. “I worry about that,” he said. “My visibility has been about as much as I would like to see it.”
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There’s good reason why Armstrong embraces the limelight more than most of his colleagues: He did not come from the defense industry, which tends to promote reserved engineers and technocrats to its executive suites.
Before Hughes tapped him, Armstrong, 55, spent more than three decades climbing the ladder at IBM, a company built on marketing and service acumen as much as technology. Before he left, he headed IBM’s giant foreign division.
Armstrong’s marketing skills are helped by an ease in front of crowds that goes back to his days as senior class president at Redford High School in Detroit.
Whether a member of sports teams or school groups, Armstrong assumed leadership effortlessly, according to his brother, Dr. Jack Armstrong. “You could see him almost palpably lifting the spirit of the house” when Armstrong visited home on college breaks, his brother recalled.
But Armstrong’s ability to command has been tested at Hughes, which for most of its history was the antithesis of IBM.
Clubby and insulated, Hughes was known for its premier technological expertise, not marketing, and its management was bred from within its ranks of engineers and scientists. Hughes also had just one customer to satisfy: the Pentagon.
That began changing dramatically in the mid-’80s when defense spending started to fall and Hughes was bought by General Motors for $5.2 billion in 1985. The events forced Hughes to emphasize growth, profits and marketing as much as any corporation whose stock is publicly traded.
“The world shifted from one where competitions were won by technical excellence to one where they were won by cost,” said John Harbison, aerospace director for the consulting firm Booz, Allen & Hamilton. “That shift in the market caused a lot of problems for Hughes.”
Nonetheless, Hughes decided that its future hinged on weaning itself from the Pentagon by selling more goods to the commercial and foreign markets.
So Hughes not only peddles Tomahawk missiles, radar for F-15 fighters and display screens for Navy ships, but also DirecTv, communications satellites for U.S. cable companies and air-defense radar systems for foreign nations.
This fall, Hughes will ask households nationwide to plunk down $700 for an 18-inch dish--and a cable-like monthly service fee of about $25--so they can receive DirecTv’s 150 channels of programs beamed from two satellites.
Many of Hughes’ commercial forays stem from its military technology. One reason it is considered perhaps the best practitioner of defense conversion is that it is one of the few firms that see such technology transfers “as a serious and worthwhile pursuit,” said Jon Kutler, president of Quarterdeck Investment Partners, which focuses on conversion efforts.
To be sure, many of Hughes’ conversion programs were spawned by Armstrong’s predecessor, Malcolm R. Currie. It was also under Currie that Hughes joined other defense firms in launching massive layoffs in response to Pentagon spending cuts.
Armstrong took Currie’s lead and ran with it, accelerating the layoffs, streamlining and diversification. And it is Armstrong alone who is struggling to persuade workers to embrace tenets that--for Hughes--are radical, such as: The company must aggressively market its products and listen to each customer’s needs.
All of which makes Hughes’ managers as anxious about their futures as its line workers. “I don’t think there’s a senior vice president who isn’t afraid of him,” a Hughes insider said. “It used to be that if they were given profit goals and came up short, nothing happened. Armstrong wants performance.”
He seems to be getting it. Hughes is part of GM Hughes Electronics Corp., a division of General Motors also headed by Armstrong that includes the Delco Electronics group. In 1993, GM Hughes’ operating profit jumped 32% from the year before, to $922 million, as sales rose 10% to $13.5 billion.
Also, the stock market values GM Hughes at about $15 billion--nearly triple what GM paid a decade ago.
Those figures no doubt mean Armstrong is being amply rewarded. Although GM Hughes doesn’t disclose his salary, his compensation probably tops $1 million a year--based on what other defense executives earn. He leases a house in Manhattan Beach, but his main home is in Darien, Conn. He owns property in Naples, Fla., and is building a house in Telluride, Colo., where he can satisfy passions for tennis and skiing.
At other times, Armstrong takes one of his two Harley-Davidson motorcycles for long drives in the country. “It’s the escape,” he said. “It’s wonderful.”
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When Armstrong arrived at Hughes, he knew little of missiles or satellites. But Hughes coveted his ability to lead.
Born in October, 1938, Armstrong is the oldest of three sons whose father sold electronics goods. He attended Miami University of Ohio on a football scholarship. After a shoulder injury, he lost his scholarship and took odd jobs to finish school. He earned a bachelor’s degree in business economics in 1961, and that year he married his high-school sweetheart and went to work as an IBM salesman in Indianapolis.
He eventually headed IBM’s personal computer group and, by 1989, its global operations. But by 1991, he could see he would not succeed John Akers as chairman, because they were close in age. Coincidentally, Hughes had hired a headhunter, E. Pendleton James, to find Currie’s replacement.
Hughes “needed somebody who could change it as the world and technology and markets were changing,” James said. “Hughes has never been known as a marketing company,” but Armstrong “had been marketing throughout the world,” he said.
Marketing is also the base under the public soapbox on which Armstrong stands so frequently. Reforming state government. Urging Clinton against sanctions. They all effectively are marketing tools he uses to bolster Hughes’ business.
Even Armstrong admits to one episode when he used Hughes’ influence to manipulate the media and, in turn, hold a spotlight on one of the company’s concerns.
Speculation was rampant last year that Hughes would leave its headquarters in the Westchester bluffs near Culver City, and move out of state. In truth, Hughes merely wanted to sell the building and move into one of its other Los Angeles-area facilities.
Ultimately, Hughes found it could not sell the building and, meanwhile, state leaders made progress reforming California’s workers’ compensation system, and delivered a budget on time.
So Armstrong had an idea: He would announce Hughes was staying in its headquarters as a way to publicly applaud the government’s reforms. And when he held the news conference last September, Gov. Wilson, Speaker Brown and several other state lawmakers stood next to Armstrong to drive home his message.
“In that case you can accuse us of staging something for press purposes,” Armstrong said, “because we wanted to reinforce the political system’s change . . . to give it support.”
The people who need Armstrong’s support today are his employees. He travels to Hughes plants at least twice a month to give his workers pep talks and remind them yet again of Hughes’ new customer-is-king approach.
“We have to stay in touch” with the workers, he said to a visitor joining him on a trip this spring to Hughes’ 7,000-worker missile factory in Tucson. Munching a tuna sandwich and crackers while flying to Arizona on one of Hughes’ private jets, Armstrong said his visits are meant to “let them put their fears and anxieties and their questions directly” to him.
Which they do. Asked whether he would buy a house in Tucson if he were a Hughes employee working there, Armstrong replied that the firm “just invested a whole ton of money to make Tucson a focal point of our company.”
The translation seemed to be, yes, he would buy the house. But a few weeks later, Hughes disclosed the potential for more layoffs in Tucson--underlining how workers can take nothing for granted.
In the end, that might be Armstrong’s desire. It is his goal for Hughes’ work force to finish one contract as efficiently as possible, then hustle for the next one as if Hughes’ survival depended on it.
For all of Armstrong’s success, the conventional wisdom is that he is not the prototype chief executive for the defense industry in the 21st Century--at least not yet.
One reason: Few defense firms are pursuing commercial ventures as aggressively as Hughes, so outsiders with a flair for marketing are not in great demand.
Defense is “a fairly insular industry,” said Quarterdeck’s Kutler. “In a lot of ways you can look at Hughes and Armstrong as a successful experiment. But it may well be the only one.”
Profile: C. Michael Armstrong
* Age: 55
* Birthplace: Detroit
* Residences: Manhattan Beach; Darien, Conn.; Naples, Fla.
* Education: Bachelor’s degree in business/economics from Miami University in Oxford, Ohio, in 1961
* Career: Joined IBM as systems engineer in Indianapolis in 1961; senior vice president for development and manufacture of IBM minicomputers, communications gear, personal computers and software from 1983 to 1986; became director general for IBM Europe/Middle East/Africa in 1987; elected chairman of IBM World Trade in 1989; chairman and chief executive of Hughes Aircraft, 1992; chairman and chief executive of Hughes’ parent, GM Hughes Electronics Corp., 1992.
* Family: Married, three daughters
