(Bloomberg) -- Retired General Lloyd Austin, President-elect Joe Biden’s pick for defense secretary, may get as much as $1.7 million in payments tied to the board seat he’d be giving up at defense contractor Raytheon Technologies Co.
“As soon as practicable but not later than 90 days after my confirmation, I will divest my financial interest in Raytheon,” Austin wrote in his ethics agreement with the Pentagon and his financial disclosure report, which are being released Sunday by the Office of Government Ethics. He also pledged to recuse himself for one year from decisions involving Raytheon, the nation’s No. 3 defense contractor.
That may include some decisions on the F-35, the costliest U.S. weapons system, because Raytheon’s Pratt & Whitney unit makes the fighter jet’s engines.
The documents, which give the value of holdings in broad ranges, show that Austin may receive $750,000 to $1.7 million when he divests his shares in Raytheon and associated entities.
Austin joined the board of United Technologies Corp., which owned Pratt & Whitney, when he retired from the Army in 2016. He became a director of Raytheon after it acquired United Technologies in April 2020.
Austin’s ethics agreement outlining the Raytheon recusal indicates it isn’t absolute: It cites an exemption in a Standards of Conduct law that would allow his involvement in a Raytheon issue if a designated Pentagon ethics officer determined that the government’s interest in Austin’s participation outweighed a perception he may not be impartial.
Austin, who led forces in the Mideast as head of U.S. Central Command, would make history as the first Black U.S. defense secretary. His confirmation process will begin with a hearing before the Senate Armed Services Committee scheduled for Jan. 19. He also would have to receive a congressional waiver from a law preventing retired military officers from serving as defense secretary until they’ve been out of office for seven years.
Austin’s ethics agreement is a standard part of a post-Watergate process intended to give lawmakers and taxpayers assurances that public officials follow conflict of interest standards. It draws extra attention at the Defense Department because of concerns about the influence of the military-industrial complex and the revolving door between the Pentagon and its multibillion-dollar contractors.
Unlike President Donald Trump’s former defense secretary, Mark Esper, who drew criticism from Democratic Senator Elizabeth Warren for having worked as Raytheon’s chief lobbyist, Austin had a much less extensive relationship with the company. His situation may be closer to that of another of Trump’s defense chiefs, James Mattis, who recused himself for a year from decisions involving General Dynamics Corp. because he had served on its board from 2013 to 2017 and severed all financial ties.
In Austin’s ethics agreement, he said he would resign from Raytheon’s board upon confirmation as well as from positions with consulting firm Booz Allen Hamilton Holding Corp. and Pine Island Capital Partners. Austin last year became a partner in Pine Island, a private equity partnership between a group of New York-based investors, and made a loan of as much as $15,000 to the group. He said he plans to liquidate “any rights I may have to any future interest in the company.”
The firm’s stated goal is to invest in mid-sized companies with values from $50 million to $500 million, specifically targeting aerospace and defense, retail, financial services, health care, manufacturing and technology. In September, Pine Island Acquisition, a blank-check company formed by Pine Island Capital Partners to target the defense industry, filed with the Securities and Exchange Commission to raise as much as $300 million in an initial public offering.
The exact value of Austin’s payout from his Raytheon ties will be based on the closing price of the Waltham, Massachusetts-based company and two offshoots from its merger -- Otis Worldwide Corp. and Carrier Global Corp. -- when executed.
The largest potential amount is $500,000 to $1 million in a category of “vested, deferred” Raytheon stock units. The second-largest, valued at as much as $500,000 -- $250,000 each -- are “vested deferred stock units” granted Austin from the Otis and Carrier spinoffs.
“In accordance with the terms of the merger agreement and my board benefits agreement, when I resign” from Raytheon it will “liquidate” those stocks and “give me a cash payout on or before the first business day that is” 30 days after he resigns. The payments will be based on the closing share prices of the respective stocks that day, Austin wrote.
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