In Defense of Raytheon

''Reality bites at Raytheon'' (The Corporation, Nov. 15) attempts to provide a simplistic explanation for a complex phenomenon. To attribute Raytheon Co.'s recent lowering of earnings expectations to ''the aggressive culture that former chairman and CEO Dennis J. Picard left behind'' is wrong.

Dennis Picard managed Raytheon through a period of unprecedented challenge characterized by a steep decline in defense-related procurement and a massive industrywide consolidation. Every manager has a unique style, and Dennis was tough, tenacious, and focused. BUSINESS WEEK regularly sings the praises of ''aggressive'' management cultures, and to attempt to make Dennis' management style the scapegoat for Raytheon's recent earnings announcements is neither correct nor fair.

Every management transition leads to change. Dennis Picard and the board of directors went outside the company to select me in part for the external perspective I bring. All organizations can be improved, and it was expected that I would make changes at Raytheon that would necessarily involve doing things differently. That's my job, and commitments made to the prior senior management team must be reassessed in light of the priorities set by the new management team. It is wrong, however, to suggest that my forthright charge to business unit managers not to ''hide behind'' commitments made to the prior management team implies criticism of Dennis Picard or his team. To the contrary, it speaks instead to the need for frank and open communication among members of the new management team.

Indeed, the consolidations industrywide have been more complex than anyone inside or outside the industry contemplated. The mere fact that the surviving competitors all face similar post-consolidation issues would seem flatly to contradict author Geoffrey Smith's hypothesis that the issues facing Raytheon are somehow attributable to an ''aggressive culture'' under Dennis Picard.

Daniel P. Burnham
Chairman and CEO
Raytheon Co.
Lexington, Mass.


I do not agree with the premise that there was a culture of cover-up at Raytheon, and I did not ''concede that Raytheon's decades-old planning process may have contributed to the current earnings problems.''

I stated clearly to author Geoffrey Smith that budgets in the defense sector of the company could be adversely impacted by funding delays or cancellations, both on the domestic and international fronts. Raytheon managers were experienced in finding alternative funding sources or in accelerating existing programs so as to continue to meet sales and profit targets. Such actions are common in the defense industry and are hardly unique to Raytheon. If and when it became clear that meeting these targets was not achievable, managers were expected to stand up and say so.

I further pointed out that Mr. Burnham had taken on responsibility for Raytheon's plan process shortly after joining the company in July, 1998, and that the current plan was therefore his rather than Dennis Picard's.

The idea attributed to me that managers were not encouraged to quickly report bad news is inaccurate and is improperly linked with comments regarding the five-year planning process. During a separate part of our discussion, I clearly stated to Smith that Raytheon managers were expected and encouraged to bring forward bad news or program problems sooner rather than later so that Mr. Picard and his senior executives would have time to work on the matter.

There was a clear understanding that he and they stood ready to assist, but managers were expected to have worked out a problem at their level with their opposite numbers in the Defense Dept. and the respective armed services, rather than simply dropping it in the lap of members of corporate management for resolution.

I worked with Mr. Picard for more than 15 years. During that time, he was demanding but fair; tenacious but principled; an outstanding manager totally committed to the delivery of quality products and services. During his tenure, timely communication, accuracy, and truth were values, not casualties. To say otherwise does great disservice to him and to the thousands of the company's employees, past and present, who served with him.

Robert A. Skelly
Dover, Mass.


Editor's note: CEO Burnham declined BUSINESS WEEK's repeated requests for interviews for the story. Regarding Skelly's objections, we believe his comments were accurately characterized.

Newt Gingrich Is Right on the Money

''Keeping Newt flush and center'' (Government, Oct. 18) calls into question the integrity of the newly formed Friends of Newt Gingrich political action committee (PAC) by stating that it ''may eventually'' support candidates for office. Might I remind you that 1999 is not an election year? The Speaker's previous PAC, the Monday Morning PAC, contributed nearly $2 million to candidates during the past two election cycles, far more than any other Republican PAC in the country.

In addition, you incorrectly reported that Gingrich is paid for his work at the American Enterprise Institute. He receives no compensation for his work there. You also reported that paid consultant Rachel Pearson is a ''former staffer.'' She has never worked for Newt in any capacity.

Perhaps the worst falsehood in the article is the insinuation that the PAC ''funneled'' money from a fund-raiser into its nonfederal account. The fact is that we asked the Federal Election Commission (FEC) itself how to execute the fund-raiser and simply followed its guidelines. Regarding your idea that ''the line between the two PACs is blurry at best,'' the fact is there is only one PAC, which has two bank accounts. According to the FEC, the line between those accounts is clear.

Mike Shields
Executive Director
SocialSecurityPlus.org
Washington


Editor's note: The American Enterprise Institute provided inaccurate information about Gingrich's compensation.

Herbalife Sets Things Straight

Your portrayal of Mark Hughes and Herbalife International contains a number of errors (''It's a wonderful Herbalife,'' The Corporation, Nov. 1). These include:

1. The characterization of the 1998 transaction of Mr. Hughes having ''sold nearly 5 million shares at around $24.'' This was a Debt Exchangeable for Common Stock (DECS) transaction, in which Mr. Hughes placed 5 million shares in trust to serve as collateral on a forward securities transaction. The shares, which ultimately netted Mr. Hughes approximately $18 apiece, were not sold.

2. Omission of the fact that the tender offer provides an 86% premium over the preceding day's closing price for outside holders of Class B stock. This is significant because, although shareholders from both classes are permitted to vote, our outside shareholders own almost twice as many shares of Class B stocks as Class A.

3. Omission of the fact that the repricing of stock options was designed to maintain compensation levels for executives who make significant contributions to the company--not an uncommon practice.

4. The omission of comments from institutions, analysts, and shareholders who are pleased with the transaction. The article includes comments from only one institutional investor who is ''unhappy'' with the tender offer and quotes an analyst who no longer trades in the company's shares.

5. Exclusion of Mr. and Mrs. Hughes's charitable activities. Foremost among these is the Herbalife Family Foundation, which Mark Hughes founded in 1994 with $8 million of his personal stock holdings to aid children at risk around the world.

Michael E. Rosen
Executive Vice-President
Herbalife International
of America Inc.
Century City, Calif.

Editor's note: BUSINESS WEEK should not have used the word ''sold'' in reference to the 5 million shares Hughes placed in a trust as collateral for bonds in the DECS transaction. However, Hughes's trust received $115 million from bondholders as a result of the deal--at a price of $23 a share. This number was used in the company's own press release and confirmed by company sources at the time of the story.

When a company has two classes of shares trading, one of which is nonvoting and has been created to allow a founder to retain voting control, it is BUSINESS WEEK's practice to cite the stock price only of the voting shares. In the case of Herbalife, its B shares were created to facilitate the DECS transaction, with the aim of allowing Hughes to retain voting control even as he cashed out a portion of his stake. When the B shares began trading in December, 1997, the B and A shares both traded at $23 a share. By the time Hughes made his $17-a-share buyout offer, the value of the nonvoting B shares had fallen below that of the A shares. The premium offered by Hughes simply reflected the greater decline in the B shares.

Rubin's Record of Selfless Service

The implication in ''A requiem for Glass-Steagall'' (Economic Viewpoint, Nov. 15) is that former Treasury Secretary Robert Rubin, who, since leaving the Cabinet, has taken a senior management position at Citigroup, encouraged the repeal of Glass-Steagall so he could enhance his career after leaving government service. Anyone who has followed Rubin's career knows that he left a highly lucrative general partnership position at Goldman, Sachs & Co. to work with the Clinton Administration. With the valuation placed on Goldman Sachs shares following its initial public offering earlier this year, I suspect that Rubin left hundreds of millions of dollars on the table by going to work in Washington.

As a conservative Republican, I am no fan of the Clinton Administration, and I have disagreed with a number of the policies put forth by Rubin as Treasury Secretary. Nonetheless, given Rubin's record of selfless service to the government, for Robert Kuttner to imply that Rubin was in any way motivated by the potential for personal gain regarding the repeal of Glass-Steagall is out of line.

Francis X. Gallagher
Darien, Conn.

''E-Xmas'' Is Commerce Dehumanized

I've always had a queasy feeling about the impersonal, cash-obsessed world of Internet commerce, but seeing the term ''e-Xmas'' nearly turned that feeling to a full-blown case of nausea (''An E-Christmas to remember,'' e.biz, Nov. 1). This isn't merely about the trivialization of a religious holiday; it's about the total dehumanization of commerce, which once upon a time not so long ago involved an exchange between buyers and sellers. E-Xmas is about something else altogether--it's about the number of eyeballs and hits as well as abandoned shopping carts and managing inventory.

I think you would be doing your readers (and, dare I say it, your e-readers) a valuable favor if you came up with a less crass vocabulary to deal with the win-at-all-costs world of e-commerce.

Rob Cooper
Waterloo, Ont.

''Don't need faster chips? You will'' (Technology & You, Nov. 15, 1999)

In ''Don't need faster chips? You will'' (Technology & You, Nov. 15), the specifications for the Intel Pentium processors were incorrect. The correct data are 3.1 million transistors with a speed of 60 megahertz.

''Early steps to ease the taxman's bite'' (Business Week Investor, Nov. 29, 1999)

The wrong headline appeared in the table of contents for the Business Week Investor story on page 228 in the Nov. 29 issue. It should have read ''Early steps to ease the taxman's bite.''