OKLAHOMA CITY --
CEO, already enriched by stock sales and a sweetheart insider deal, could be costing the company more than some people think.
Unlike other military vehicle makers, including chief rival
( NAVZ), Force Protection employs a leadership training guru --- rather than a proven manufacturing expert -- as its top executive. Gordon McGilton has pocketed millions of dollars from stock sales, on top of big payments to his consulting firm, during his two years at the helm.
On the surface at least, Force Protection looks like it might be getting its money's worth. Last year, thanks to huge contracts from the military, Force Protection evolved from a bleeding company -- slapped with a "going-concern" notice from its auditors -- into a profitable venture with phenomenal growth prospects.
But some feel that Force Protection has achieved that success despite, rather than because of, McGilton's leadership. If anything, some former insiders say, McGilton has actually held the company back.
McGilton's professional track record, including some troubling setbacks at Force Protection, lends support to those views. Notably, Force Protection has seen its market share for mine-resistant ambush-protected (MRAP) vehicles plunge with McGilton in charge.
"Force Protection had a terrific future as a business -- and this country had a terrific resource -- until McGilton came in and took over," says a former Force Protection executive. "He has been milking the company and using it as a huge experiment to test his business operating system ... It's just sheer madness."
Force Protection declined to answer questions for this story, saying they were "relevant to active litigation" involving the company.
On paper, McGilton boasts impressive credentials. In a bio supplied for a leadership training seminar he gave in late 2005 -- when he was doubling as Force Protection's new CEO -- McGilton claimed that he had "owned approximately 50 companies and assisted more than 200 other companies" with his expert guidance.
But former Force Protection executives question McGilton's track record and portray the vehicle maker as his only major client. Moreover, they doubt that McGilton's consulting firm should have landed even that business.
With losses skyrocketing at Force Protection -- and auditors raising questions about the company's ability to survive -- McGilton arranged for Force Protection to spend large sums on his firm's consulting services. All told, regulatory filings show, Force Protection paid McGilton's firm more than $1 million for leadership training and computer technology during the CEO's first two years in office.
Notably, the arrangement with McGilton's APT Leadership consulting firm seems to violate Force Protection's own code of ethics -- which cautions against any situation "that may involve, or even appear to involve," financial conflicts.
"McGilton, an interested party, actually signed the contract," the former Force Protection executives claim in their lawsuit against the company. "McGilton wanted Force Protection to be responsible for all of the living expenses of the APT employees (and when challenged) unilaterally altered the contracts of the APT workers to provide them a salary of $1,000 per day as opposed to the previous salary of $15,000 per month" -- essentially doubling their pay.
"Numerous investment specialists questioned why Force Protection hired APT at all," the lawsuit adds, "at least in part because ... APT Leadership in fact slowed down Force Protection production."
For its part, Force Protection claims that the lawsuit relies on "stale accusations that have already been addressed thoroughly and satisfactorily by Force Protection and outside agencies."
Force Protection's original founder and its former CFO filed the lawsuit after Force Protection sued them for allegedly stealing company secrets. Both lawsuits are currently working their way through the court system.
Charts and Diagrams
Meanwhile, an independent government review has exposed real shortcomings at the company.
In a detailed report published this summer, the Office of the Inspector General revealed that Force Protection regularly missed production deadlines -- often under McGilton's watch -- despite generous help from the military. Ultimately, the OIG seemed to question whether Force Protection should have secured some of those lucrative contracts at all.
The military "continued to award contracts for armored vehicles to FPI even though FPI did not perform as a responsible contractor and repeatedly failed to meet contractual delivery schedules for getting the vehicles to the theater," the OIG stated. "Had other contractors been provided with assistance, such as facilitization fees and relaxed delivery schedules, a number of other systems may have been available to help
the government in meeting the urgent requirements."
Since then, Force Protection
has revealed that recent government reports "have generally been highly critical" of the company's financial system. Force Protection further warned that future audits could threaten the company's entire operations.
Critics blame McGilton's leadership strategy for any underperformance. Under that strategy, they say, charts and diagrams -- rather than orders and deadlines -- guide the company.
"Every single action taken by the company must be controlled by a process flow diagram," says a former employee who is not involved in the lawsuit filed by former company executives. "We were told at one point that our job was not to ship vehicles but, rather, to design process flow diagrams and stick to them."
By embracing this philosophy, the former employee says, Force Protection requires regular training and complex software peddled by McGilton's own company.
In the past, Internet searches show, APT has priced its leadership training seminars at $1,500 per person. In addition, those searches indicate, the firm touts a software program that has attracted few takers beyond Force Protection itself.
In their lawsuit against Force Protection, former executives claim that APT's customized software proved less helpful than the standard
Excel system they had relied on in the past.
Nevertheless, "McGilton believes that everybody in the company should have a copy of that program," one former insider says. "For a company with 1,000 employees, the bill would come to half a million dollars" for the software alone.
Force Protection seems to be far stingier when paying its regular employees.
In early 2006, Force Protection showered McGilton with 1 million stock options that he went on to cash in as soon as they vested. Meanwhile, later that same year, Force Protection granted McGilton another 500,000 stock options and then -- just two days later -- formed a new compensation committee that promptly abolished such awards.
"The elimination of incentive compensation, merit compensation and annual reviews combined with the equal compensation for all team members in each class yields a compensation package that directs people to contribute to the success of the company instead of their own individual interests," Force Protection's latest proxy statement explains. Thus "for 2006, consistent with the company's compensation philosophy -- and except for stock options granted to the chief executive officer -- no stock option-based compensation was paid by the company."
Interestingly, Force Protection goes on to say that McGilton's option-enhanced pay was "in line" with the company's new compensation policy.
McGilton raked in those options -- netting almost $20 million in stock sales so far this year -- despite setbacks at the company he runs. Notably, analysts estimate Force Protection has seen its MRAP market share plummet from around 80% to 30% over the past six months alone. Now, breaking from the pack of bulls, a bearish analyst has emerged to predict that Force Protection could see its market share drop to 25% in the end.
If so, McGilton could add a new learning experience -- and even some fresh bragging rights -- to his long list of "accomplishments."
McGilton "has spent the last 30 years or so as an engineer, program manager, investor, sales professional, senior executive
board member, CEO, COO, vice president of sales, etc., entrepreneur, business owner, consultant, investment banker and executive coach," his bio for a leadership conference states. And "he regularly claims that he 'has made every mistake you can make in business -- about 25 times each -- with great enthusiasm each time.'"