Why Does Honeywell’s CEO Oppose Defense Spending Cuts? Follow the Money
By Nathan Tabak
May 14, 2010 - 3:02pm ET
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David M. Cote, CEO of the mega-corporation Honeywell, has been enjoying a high profile in Washington of late, as one of two Republicans appointed by President Obama to his bipartisan debt commission. But while the President may maintain that “everything is on the table” for spending cuts, Cote would presumably disagree – because cutting much of what’s under the knife would be bad for business.
There’s little question that defense spending is a huge contributor to our national debt; the White House’s 2011 budget estimates that it’ll reach $750 billion, or 19.6 percent of all government spending, next year (page 132). And Honeywell is getting a significant slice of that particular pie. Click over to Honeywell’s website, and you’ll see that a large portion is devoted to hyping the company’s defense contracts, including navigation and cockpit systems for military aircraft, missile guidance systems, and more.
Moreover, the “Risk Factors” section of the company’s 2009 letter to shareholders contains an even more direct acknowledgement of what Honeywell has to gain from higher defense spending, or lose through cuts to that area, in a section on “Risk Factors” (page 14):
Sales of our defense and space-related products and services are largely dependent upon government budgets, particularly the U.S. defense budget. Sales as a prime contractor and subcontractor to the U.S. Department of Defense comprised approximately 32 and 11 percent of Aerospace and total sales, respectively, for the year ended December 31, 2009. Although U.S. defense spending increased in 2009 and is expected to increase again in 2010, we cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the 2011 and subsequent budgets ultimately approved by Congress, or be included in the scope of separate supplemental appropriations… A shift in defense or space spending to programs in which we do not participate and/or reductions in funding for or termination of existing programs could adversely impact our results of operations.
The facts are stark: Over ten percent of Honeywell’s total sales come from the DoD. And Cote isn’t going to stand by and let the debt commission cut the cash flow from one of his company’s largest customers. That’s why, in the fourth quarter of 2009 alone, Honeywell spent $1.9 million lobbying the federal government on items including “appropriations for various defense aircraft and other technologies, missile defense, combat and weapons systems.”
There’s no question that Honeywell knows how to spread its largesse where it counts most. According to the government’s usaspending.gov site, one of Honeywell’s largest DoD contracts for fiscal 2010 was a $71 million manufacturing contract for the Air Force. That money went to Arizona’s 5th Congressional district, whose seat is currently held by Democrat Harry Mitchell, a Blue Dog Democrat. Not coincidentally, Honeywell turns out to be one of Mitchell’s top campaign donors; he received over $10,000 in donations from the company’s employees during the 2008 election cycle. (As for Mitchell, he recently received the “Spirit of Enterprise” award from the U.S. Chamber of Commerce, which also ranked him as the most pro-business member of Arizona’s Congressional delegation.)
There may not be anything terribly shocking about Cote doing everything he can to protect the bottom line of his company. However, Honeywell doesn’t exactly have the best record when it comes to responsibly spending government dollars. The Federal Contractor Misconduct Database has identified 28 instances of misconduct by Honeywell in recent years, totaling $639.3 million. These include repeated violations of environmental regulations, failing to properly test parts used by the DoD, and producing defective bulletproof vests for the military and law enforcement.
In lieu of putting more money in Honeywell’s coffers, a more responsible course of action was suggested by Defense Secretary Gates in a recent speech calling an end to decades of wasteful spending at the Pentagon:
Simply taking a few percent off the top of everything on a one-time basis will not do. These savings must stem from root-and-branch changes that can be sustained and added to over time.
What is required going forward is not more study. Nor do we need more legislation. It is not a great mystery what needs to change. What it takes is the political will and willingness, as Eisenhower possessed, to make hard choices – choices that will displease powerful people both inside the Pentagon and out.
Actual fiscal responsibility (as opposed to scaremongering about programs such as Social Security) will indeed involve hard choices – like putting an end to purchases of unneeded planes and earmarks that do far more for the reelection prospects of congressmen and senators than for national security. Such actions are bound to displease “powerful people” like Cote. Don’t expect him to echo Secretary Gates in calling for them anytime soon.
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