UPDATE 2-General Dynamics names Phebe Novakovic president

Thu Mar 8, 2012 2:38pm EST

* Changes take effect May 2

* Board made decision at meeting on Wednesday evening

* Fortune named Novakovic one of "most powerful women in business"

By Andrea Shalal-Esa

WASHINGTON, March 8 (Reuters) - General Dynamics Corp on Thursday said its board split leadership at the defense contractor by electing the head of its marine systems unit, Phebe Novakovic, president and chief operating officer.

The move will make Novakovic one of the highest-ranking women at the helm of a major U.S. defense company.

Novakovic will report to Jay Johnson, who will remain chairman and chief executive, the company said in a statement. The management changes take effect May 2.

Sources familiar with the decision said Johnson, 65, would likely leave his position within a year, making room for Novakovic, 54, to become chief executive. Fortune magazine last year named Novakovic, a one-time CIA officer, one of the "50 most powerful women in business."

"This is the beginning of a succession process," said defense analyst Loren Thompson. "Jay Johnson is 65 and the board has now put in place a process for installing his successor."

The sources said Novakovic was strongly backed for the position by Nick Chabraja, the former chief executive of General Dynamics who has a seat on the company's board.

Board members discussed the management change during a leadership retreat in January, but picked Novakovic for the newly created position of president and chief operating officer at a board meeting at the company's headquarters in Falls Church, Virginia, late on Wednesday.

Johnson said Novakovic "is more than ready to assume a larger role in the corporation," noting that she has performed well in her role as executive vice president of Marine Systems and previously as senior vice president of planning and development.

He said Novakovic will assist him with "the oversight and management of the company's business groups as well as its headquarters operations."

Rob Stallard, analyst with RBC Capital Markets, said General Dynamics is following a model used by Lockheed Martin Corp and Northrop Grumman Corp in developing a succession plan, and he expects Novakovic to become CEO, should everything go smoothly.

"This will be an opportunity for Phebe to broaden her operational experience across the company, which should be good preparation for the next step up," Stallard said in an analyst note after the company announcement.

He said the changes are not expected to affect the company's strategy. "We see this as a positive step, as we think Novakovic has a good reputation with investors, and this clarifies GD's management succession plans," he said.

General Dynamics shares were trading 63 cents or 0.9 percent higher at $71.88 in afternoon trading on the New York Stock Exchange.

Novakovic became an executive vice president of General Dynamics in May 2010, and is responsible for the company's Marine Systems group, which includes three companies: Bath Iron Works, Electric Boat and NASSCO.

Novakovic previously served as a senior vice president in charge of planning and development, and as vice president for strategic planning.

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