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Happy Fallout Down At The Nuke Lab


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HAPPY FALLOUT DOWN AT THE NUKE LAB

Bob Beyster's wealth-sharing plan at SAIC gains critical mass

When physicist J. Robert Beyster set up his consulting firm 27 years ago, he thought it only fair that his fellow scientists should be rewarded with equity in the company. So the nuclear physicist CEO gave employees stock each time they landed a new contract to evaluate the effect of nuclear weapons or study a nuclear power plant.

That's still the way it works today, but on a far grander scale: Beyster's Science Applications International Corp. (SAIC) has blossomed into a $2.1 billion high-tech research and engineering concern with 22,000 employees, a giant among employee-owned companies. And it's about to get even bigger, fast. On Aug. 27, SAIC announced that it would acquire Aerospace Corp., a $300 million, almost totally federally funded think tank, to prepare for a push into the commercial space business. It's also angling to take over Bell Communications Research, or Bellcore, the 5,800-employee research arm of Bell Laboratories that the regional Bells inherited in the 1984 breakup of AT&T. If the deals go through, all employees at both companies will receive SAIC stock options pro-rated on the basis of their salaries.

RUSSIAN FRONT. The shy, 72-year-old Beyster, who built up the secretive SAIC almost from scratch, is not your typical CEO. A devout jogger--he still runs four miles a day--he worked for Los Alamos National Laboratory and headed up the accelerator physics department at defense contractor General Atomics before starting SAIC. "I started it because I wanted a good place to work, a place where research was the business," he says. Today, government contracts make up 83% of the business, and nearly half of them involve national security. As might be expected, his board is sprinkled with Defense Dept. heavies, and former SAIC directors now head both the Defense Dept. and the CIA.

Beyster attributes much of the company's growth not to management skills or an overarching strategy but to his ownership philosophy. "I'm reluctant to take the credit," he says. "Employee ownership really did it. Who has a better right to own the company than the people who make it worth something?" A decade ago, to proselytize for equity compensation programs at other companies, he launched the nonprofit Foundation for Enterprise Development. Lately, the foundation has been promoting employee ownership in Russia through the privatization of state-owned companies.

SAIC's compensation scheme has created a culture very different from that of its competitors in the systems integration business, companies such as Electronic Data Systems Corp. and Andersen Consulting that have hierarchical structures. Instead, SAIC is made up of more than 400 independent operations, each with its own business plan. "Bob's strategy has worked remarkably well," says a former executive. "He hires talented people, gives them a little seed money and their own [profit and loss center], and lets them focus on building their own small business." For instance, a health-care automation business, started in the mid-1980s by two managers, now has sales of over $200 million. Once a business takes off, its founders are rewarded with stock in SAIC.

COASTAL DEFENSE. If there is another cause Beyster is as enthusiastic about, it's sailing. He pilots the 54-foot Blue Moon, designed with the help of SAIC's computer-simulation and fluid-dynamics software. That interest got the company involved as a sponsor and technology provider for every America's Cup campaign since 1983, when the U.S. for the first time lost the prestigious yacht race. "Some of us thought we lost because America had lost its technological edge, so we volunteered to help," he says. SAIC is now working on AmericaOne, a U.S. challenger for the next race, in Auckland, New Zealand, in 2000.

Such projects have led to ever more contracts, including ones to develop flat panel displays and other gear for Ford Motor Co. To further reduce dependence on the military, SAIC last year took a 45% interest in telecommunications ventures with France Telecom and Deutsche Telekom and bought Network Solutions, the company that administers site names on the Internet for the National Science Foundation. "We're trying to get into new and important areas that provide opportunities for our people," Beyster says. So far, that has proved a winning formula.By Larry Armstrong in Los AngelesReturn to top


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