Lockheed Martin Corporation (LMT) Earnings Call Transcript & Summary

Hello, and welcome to the 2021 Annual Meeting of Stockholders of Lockheed Martin Corporation. Please note that today's meeting is being recorded. [Operator Instructions]. It is now my pleasure to turn the meeting over to today's speaker Jim Taiclet, Chairman, President and Chief Executive Officer of Lockheed Martin. Mr. Taiclet, the floor is yours.

Thank you, and good morning, everyone. I'm Jim Taiclet, Chairman, President and CEO of Lockheed Martin. Welcome to Lockheed Martin's 2021 Annual Meeting of Stockholders. As described in our proxy materials, this annual meeting is being conducted exclusively online. We have adopted this virtual format to assist in protecting the health and safety of our stockholders and employees in light of the ongoing COVID-19 pandemic and to enable stockholders to participate fully and equally regardless of physical location. Before I turn to the official business of this meeting, I want to take a moment to personally thank our employees, many of whom are stockholders for remaining dedicated in these challenging times to performing and delivering on our mission-critical commitments to our customers that are vital to national security. Despite the challenges of 2020, we were able to accomplish strong financial and operational performance in 2020 and bring forward a strategic vision of how we will support our nation and allies to meet the heightened threats of the 21st century. We appreciate those stockholders who have taken the time to join our meeting today, and we appreciate your continued investment in Lockheed Mark. We hope that you and your families are all safe and well. Now turning to the meeting to be deemed present and to have the ability to vote during the meeting, you must have accessed the meeting by entering the control number previously provided to you in your proxy materials. Holders of our common stock as of the close of business on February 26, 2021, the annual meeting record date, will be able to vote and submit questions during the meeting. [Operator Instructions] We have 2 stockholder proponents who will present proposals 4 and 5. This meeting is now called to order. Let me first advise everyone that some of our remarks today may be considered forward-looking statements, which cover future events. Please be aware that the corporation's actual results may vary from what we believe or anticipate. Please refer to our SEC filings, including our 2020 Form 10-K and first quarter 2021 Form 10-Q for information on factors that could cause our actual results to differ materially from our forward-looking statements. These filings are available on Lockheed Martin's website and on the SEC's website. Joining us for this meeting are Maryanne Lavan, our Senior Vice President, General Counsel and Corporate Secretary, who will act as Secretary of the meeting and representatives of Computershare Trust company who've been appointed to serve as the inspectors of election at the meeting. Members of our management team, including Ken Possenriede, our Chief Financial Officer; Frank St. John, our Chief Operating Officer; Greg Carrell, our Chief Human Resources Officer; Leo Mckay, our Senior Vice President of Ethics and Enterprise Assurance; Greg Gardner, our Vice President of Investor Relations and all of our directors, including Dan Akerson, our independent lead Director. I want to thank each of our Board members for joining the meeting and for their dedication and willingness to serve on the Board. Lastly, representatives from Ernst & Young LLP, our independent auditors, are also present at the meeting. During the discussion period that follows the meeting, they'll be able to answer appropriate questions. Before proceeding to the official business of the meeting, I'd like to advise you that the agenda and the meeting rules and procedures that we will be following today are posted on the virtual meeting site for your review. [Operator Instructions]. Maryanne Lavan has advised me that the notice of this meeting, the proxy statement and the annual report were duly and properly distributed to all stockholders of record as of February 26, 2021, and that the affidavits to that effect will be filed with the records of this meeting. The inspector's preliminary report shows that more than 246 million shares or more than 88% of the shares outstanding and entitled to vote are represented here today. This meets the quorum requirement of our bylaws, and we may proceed with today's meeting. Today's meeting will focus on 5 proposals described in the proxy statement. The proposals are the election of 11 directors. The ratification of the appointment of Ernst & Young LLP as the corporation's independent auditors. An advisory vote to approve the compensation of our named executive officers in the proxy statement and 2 stockholder proposals. 3 members of our management team, Maryanne Lavan, Ken Possenriede and myself have been appointed proxies by holders of at least 246 million shares, and we have voted these shares in accordance with the instructions of those stockholders. Stockholders who wish to vote during the meeting may do so throughout the meeting until I announce that the polls have been closed. If you have already voted by proxy, there is no need to vote during the meeting unless you wish to change your vote. We'll turn now to the official business of the meeting. Proposal One, the nomination of 11 directors to serve on the Board of Directors. The detailed biographies of all of our director nominees are presented on Pages 13 through 16 of the proxy statement. Proposal 2 is a ratification of the appointment of Ernst & Young LLP as our independent auditors for 2021. Proposal 3 is the advisory vote to approve the compensation of our named executive officers. Proposal 4 is a stockholder proposal offered by John Chevedden. The proposal requests that the corporation adopts stockholder action by written consent. Stockholder Proposal 4 and the Board's opposition statement are presented on Pages 81 and 82 of the proxy statement. Proposal 5 is a stockholder proposal offered by the sisters of charity of St. Elizabeth. The sisters of St. Francis of Philadelphia and the school sisters of Notre Dame Cooperative Investment Fund. Proposal 5 requests that the corporation issue a report on our human rights due diligence. Stockholder proposal 5 and the Board's opposition statement are presented on Pages 83 and 84 of the proxy statement. Mr. Chevedden and Sister Nora Nash, a sister of St. Francis of Philadelphia, are on the phone today to present their respective proposals. Operator, we are ready for Mr. Chevedden.

Hello, [indiscernible] can you hear me okay?

Yes, Mr. Chevedden would you please introduce proposal 4?

Yes. Just as a point of order, it's not possible to get into this meeting with a 16 digit control number, following instructions at the beginning of the meeting, and that is all the more recent to vote for proposal 4, shareholder right to act by written consent. Shareholders request that our Board of Directors take the necessary steps for written consent by shareholders entitled to cast a minimum number of votes that would be necessary to authorize an action at a meeting at which all shareholders entitled to vote thereon were present and voting. Taking action by written consent in place of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle like the election of a new director. This proposal will give shareholders the safeguard that management will elect the best directors because it gives shareholders an opportunity to elect a replacement Director for a bad Apple Director on our Board. It is also more important than ever to be able to replace a director through written consent because it is now almost impossible to remove a Lockheed Martin Director otherwise because a director could be removed only for cause. Removal only for cause is a euphemistic way to say that a director has near immunity to being removed. This proposal topic won outstanding 47% support at the 2020 Lockheed Martin annual meeting. This 47% support represented a majority vote of the shares that have access to objective proxy voting advice. The negative management reaction to this 47% support was to circle the wagons and impose it all the more. Management now has a campaign to get out the vote from the shareholders who do not have access to objective proxy voting advice because shareholders who lack good relevant information vote according to the management recommendation. The management reaction to a near majority shareholder vote is like the Amazon reaction to employees trying to form a union. This shoots a big hole in the management claim that the -- in the annual meeting materials, the management has genuine shareholder engagement. And Lockheed Martin shareholder engagement seems to be a sales program to get shareholders to agree with management and lockstep. Also, the so-called deliberations of the Lockheed Martin Board on this topic in 2020 with Mr. Daniel Akerson as the governance Committee Chairman, apparently completely overlooked to safeguard that can be built into granting shareholders a right to act by written consent. Plus, the 2020 shareholder proposal on this topic could not foresee that the pandemic would severely restrict a future special shareholder meeting, which could simply be a bare bones online meeting with restricted interaction as is the case today. And the governance committee under Mr. Akerson rested a lot of its arguments on the outdated notion of what could be accomplished at a special shareholder meeting. This is evidence that Mr. Akerson is not effective as lead director. Shareholders now need to have the option to vote more than ever to take action outside of a shareholder meeting since online shortly meetings are a shareholder engagement wasteland. If you voted against this proposal, please change your vote. Show the right deck by written consent Proposal 4.

Thank you, Mr. Chevedden. Operator, you may now put Mr. Chevedden's line back on mute.

Mr. Chevedden's line is muted.

Thank you, operator. We're ready now for sister Nash.

Yes. Good morning, Mr. Chairman. Can you hear me?

Yes. Good morning, Sister Nash. Would you please introduce proposal 5?

Yes. Thank you, and Happy Earth day to all. Again, I speak to the members of the Board, shareholders and guests. I am sister Nora Nash. I represent the sisters of St. Francis of Philadelphia. And I am here today to move the shareholder proposal #5, calling for human rights due diligence, which my congregation filed in collaboration with the sisters of sisters of charity of St. Elizabeth and the school sisters of Notre Dame Cooperative Investment Fund. We encourage all shareholders to support this proposal. Over the past 15 years, we have had numerous communications with Lockheed Martin on a variety of topics, and we are grateful for impactful engagements on EEO, diversity and inclusion and [indiscernible]. However, our engagement on impact related to human rights have fallen short of the norms for Global peace and justice. As Catholic religious institutions in a society struggling with excessive violence, we assert that there is a clear moral responsibility for Lockheed Martin and its investors to acknowledge the direct role that the defense industry plays in perpetuating human rights harms in war and conflict, and that all actors must contribute to appropriate remedies. The most severe human rights impacts of Lockheed's Martin's defense industry are irremediable and result in the loss of life. We, therefore, offer this proposal supported by strong legal and financial risk assessments to Lockheed Martin and its shareholders as an invitation to deeply examine the business model in the context of its human rights responsibilities. So that leadership and vision be advanced to reduce the company's business activities that cause death and destruction. And that Lockheed Martin may instead have a purpose to contribute to a more positive vision of society. The company's history and current practice of pursuing contracts with clear human rights risks, signals a disconnect between policy and practice and a failure to address the company's human rights responsibilities to its business practices. The company's weapons, defense technologies and surveillance systems are used by governments in time of war and conflict and also contribute to increased militarization of our nation's borders and surveillance that disproportionately harms, immigrants and people of color. Lockheed Martin has our responsibility to assess how its products may contribute to adverse human rights impacts and to take steps to prevent arm. If Lockheed Martin's products and services were used by a government customer to commit human rights violations, the company may face serious legal, reputational and financial risks. The company has come under scrutiny for pursuing contracts that put your business at risk of contributing to human rights abuses. On behalf of all the proponents, I again Urge all Lockheed Martin shareholders to support the proposal on human rights due diligence and encourage the company to implement the requests of the proposal. We remain ready to continue our engagement with you, and we'll continue to urge you to make progress on these very, very important issues.

Thank you. Thank you, Sister Nash. Operator, you may now put sister Nash's line back on mute.

Sister Nash's line is muted.

Thank you. With all 5 proposals properly presented, I will pause now briefly before closing the polls to allow those online to complete their voting. [Voting]

I now declare the polls closed. At this time, I'd like to announce the preliminary voting results on the 5 proposals presented today. The official results will be announced by the filing of a Form 8-K within 4 business days. Proposal 1. Each of the 11 Director nominees has been elected to the Board of Directors. Proposal 2, the appointment of Ernst & Young LLP as our independent auditors for 2021 has been ratified. Proposal 3, the compensation of our named executive Officers has been approved on an advisory basis. Proposal 4, the stockholder proposal to adopt action by written consent has been rejected. Proposal 5, the stockholder proposal to issue a report on human rights due diligence has been rejected. This concludes the official business of our meeting today, and the meeting is now adjourned. We'll now open the meeting to questions or comments from our stockholders. We will answer as many questions as we can during the meeting. I'll now turn to Greg Gardner, our Vice President of Investor Relations, to moderate the Q&A. Greg?

[Operator Instructions]. The first question comes from Felicia Smith. Mr. Taiclet, in future virtual shareholder meetings, will you commit to provide a video feed of the Board and senior management.

As the COVID-19 crisis continues to evolve, our first priority is the safety of our directors, employees and management as well as our stockholders. So we will evolve our annual meeting program in accordance with government guidelines. And with the latest safety practices recommended by the CDC going forward. So it may or may not be feasible to have all of our directors in the same room for a video feed, but we'll consider that as we go forward.

Our next question comes from David Brett. Mr. Chairman, the topic of stakeholder capitalism as an alternative to shareholder capitalism has received considerable attention recently. As long-term pension fund investors, the Carpenter funds appreciates the sentiment embodied in the stakeholder capitalism perspective but feel that execution could be complicated. Could you discuss the Board's perspective on the concept of stakeholder capitalism and what principles the board would use to balance the interest of varied stakeholders as it develops and implements the company's long-term business strategy. Thank you, Mr. Karan?

Of course. Lockheed Martin's approach to governance and operation has long been a stakeholder capital perspective. We do care for shareholders, of course. We try to get the best return for them on their investment. We pay a robust and growing dividend. In addition to that, we have, again, the safety and well-being of our employees is a top priority of this company. We also have the development of our employees, training and a robust pension plan for their retirement in place for many of the employees of Lockheed Martin. And we also have a fair savings plan for those to augment their retirement savings. In addition to that, the company has always been involved in the community. It's been a charitable donor in places where we work and causes that we all believe in. And so I do believe that as far as stakeholder capitalism, including our approach to environmental stewardship has been in place at the company. We codified this by signing on to the business roundtable statement of a purpose of a corporation last year as well. And so we'll continue to address all of our stakeholders' needs and do the best we can for each and every group.

Our next question comes from Mr. Whitehead. Will management commit to not coercing our employees into getting the COVID vaccine?

Again, the safety of our employees is 1 of our -- is our highest priority actually in operations at the company. And we'll go with the guidance of the CDC and other authorities as we roll out our continued COVID-19 operational plan. And we will also respect our employees which is to the extent that is feasible and possible given those circumstances.

Our next question comes from Victoria Elson. In January of this year, the Nobel Peace prize winning treaty on the prohibition of nuclear weapons entered into force as international law in the first 50 ratifying countries. 85 more countries support the treaty and may ratify in the near future. Nuclear weapons are highly profitable but profoundly dangerous in immoral industry as this product is now illegal international law, will you adapt by converting nuclear weapon scientists to green technologies and other pressing human needs.

We will respond, as we always have, to our customers' needs and our primary customer is the citizens of the United States as represented by the Department of Defense. And of those of our allies. If our government decides to continue to maintain nuclear weapons capability as a deterrent to war, we'll continue to support them as we are able.

It appears there are no additional questions today. I will turn it back over to you, Jim.

Thank you, Greg, and thank you to everyone that's joined us on our call today. This concludes our meeting, and I do want to express my appreciation to everyone on the line. Thank you and have a great day.

This concludes the meeting. You may now disconnect.