WASHINGTON -- David Lewis, embattled chairman of the General Dynamics Corp., will retire by Jan. 1, his office announced Wednesday - a day after the Navy secretary refused to personally punish him for alleged corporate misconduct.
Navy Secretary John Lehman said the surprise announcement was 'absolutely not' part of a deal under which he rejected an inspector general's recommendation that Lewis and two other General Dynamics officials be barred from doing further business with the Pentagon.
General Dynamics announced that Lewis, chairman since 1970, would be replaced by Stanley Pace, 63, a former World War II bomber pilot who is a vice president of TRW Inc., another major defense contractor.
Pace will take the helm at a firm facing at least eight federal investigations into alleged mischarges, securities violations and illegal gift-giving.
In St. Louis, General Dynamics said in a news release that Pace would join the company 'as vice chairman on June 1, 1985, and become chairman and chief executive officer when Mr. Lewis retires, but not later than Jan. 1, 1986.'
Lewis said in the statement that Pace will 'spend a great deal of time reviewing and improving our overhead accounting and 'contract charging' practices which have been the subject of so much adverse publicity over the past several weeks.'
At a brief news conference in Washington, Pace declined to discuss how long he had been talking with General Dynamics about the job, but said he expected to stay no longer than five years and would probably limit his tenure to four.
He defended Lewis, who contacted him about the job, saying Lewis had done 'an outstanding job.' He added, 'It's entirely probable he will stay on the board.'
Pace declined to reveal what his future plans were for the company.
Lehman announced Tuesday he was freezing up to $1 billion in new contracts with General Dynamics until the firm adopts a 'rigorous code of ethics' for the way it does business with the government.
Although Pentagon Inspector General Joseph Sherick had recommended that Lewis and two other officers be barred from doing further business with the Pentagon because of unethical behavior, Lehman called such action 'unwarranted.'
The action, which will not interfere with any current contracts, caused congressional investigators to complain the Navy had given the firm less than even a wrist slapping.
Learning of Lewis' resignation announcement, Sen. William Proxmire, D-Wis., said on the Senate floor Wednesday, 'Mr. Lewis is being allowed a leisurely and graceful exit from a gigantic and scandalous mess.
'If Mr. Lewis' stepping down was part of a deal between General Dynamics and the Navy to get anyone off the hook of ultimate responsibility, it won't work. The company has not yet rendered a full accounting for its questionable and wrongful activities. No individual has been made responsible. The Navy is still not protecting the taxpayer.'
Lehman said his action Tuesday freezes all new contracts for the firm's Electric Boat and Pomona divisions until the company meets four conditions, including the establishment and enforcement of 'a rigorous code of ethics for all General Dynamics officers and employees with mandatory sanctions for violations.'
But a General Dynamics spokesman said the company will continue with all current contracts, making unclear exactly what effect Lehman's action means.
The Pentagon previouSly withheld $308 million for what it called 'outrageous' expenses tied to weapons contracts and has told the firm it found $204 million in unsubstantiated billings by the company for non-direct weapons systems contracts.
During heated congressional hearings in recent weeks, several House members called for Lewis to resign. But the man who led the firm's rise to become the nation's No. 1 defense contractor -- General Dynamics fell to No. 3 this year -- had steadfastly refused to leave under a cloud.
In recent months, Lewis and other company officials have faced allegations they:
-Filed hundreds of millions of dollars in fraudulent claims with the Navy on nuclear submarine contracts.
-Failed to disclose to stockholders the cost overruns the submarine contracts and delays on construction on the Trident submarine.
-Passed illegal gifts to Navy Adm. Hyman Rickover and other Pentagon officials.
-Improperly charged taxpayers for personal use of corporate aircraft, and entertainment expenses.
-Violated Pentagon security restrictions in the release of classified information and by failing to advise the Defense Department that one of its directors was an alleged felon.
